Mercexchange, L.L.C. v. Ebay, Inc.

• Decision Date: 27 July 2007
• Docket Number: Civil Action No. 2:01cv736.
• Citation: 500 F.Supp.2d 556
• Court: U.S. District Court — Eastern District of Virginia
• Parties: MERCEXCHANGE, L.L.C., Plaintiff, v. EBAY, INC. and Half.Com, Inc., Defendants.

500 F.Supp.2d 556

MERCEXCHANGE, L.L.C., Plaintiff, v. EBAY, INC. and Half.Com, Inc., Defendants.

Civil Action No. 2:01cv736.

United States District Court, E.D. Virginia, Norfolk Division.

July 27, 2007.

As Corrected August 1, 2007.

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Brian Mark Buroker, Emerson Vincent Briggs, III, Thomas Jefferson Scott, Jr., Hunton & Williams LLP, David Michael Young, Jennifer kin Albert, Scott L. Robertson, Goodwin Procter LLP, Seth Paul Waxman, Wilmer Cutler Pickering Hale & Don. LLP, Washington, DC, Gregory N. Stillman, Hunton & Williams, Norfolk, VA, Kenneth Reed Mayo, Reed Mayo Law Finn PC, Virginia Beach, VA, Thomas J. Cawley, Hunton & Williams, McLean, VA, for Plaintiff.

Jeffrey Graham Randall, Skadden Alps Slate Meagher & Flom LLP, Palo Alto, CA, Allan Madis Soobert, Skadden Arps Slate Meagher & Flom LLP, Washington, DC, Steven R. Zahn, Robert William McFarland, McGuirewoods LLP, Norfolk, VA, for Defendants.

ORDER AND OPINION

FRIEDMAN, District Judge.

Presently before the court are plaintiffs, MercExchange, L.L.C., renewed motion fog' entry of a permanent injunction and defendants', eBay, Inc. and Half.com, Inc., motion to stay the proceedings of both the '265 and '051 patent disputes; the court held oral argument on both motions. For the reasons set out herein, the court DENIES plaintiffs motion for a permanent injunction, and GRANTS in part, and DENIES in part, defendants' motion to stay the proceedings. With respect to the motion to stay, the court hereby ORDERS that the proceedings involving the '265 patent be SEVERED from those involving the '051 patent, and addressing such patent disputes separately, the court GRANTS defendants' motion to stay the '051 proceedings and DENIES defendants' motion to stay the '265 proceedings.

I. Procedural History

On August 6, 2003, subsequent to a jury verdict finding that eBay and Half.com (collectively "eBay") willfully infringed MercExchange's '265 and '176 patents, this court entered an order disposing of several post-trial motions, which included the denial of MercExchange's original motion for a permanent injunction. Mercexchange, L.L.C. v. eBay, Inc., 275 F.Supp.2d 695 (E.D.Va.2003). On appeal, the Federal Circuit affirmed the damages award for the '265 patent, reversed the '176 damages, finding such patent invalid based upon obviousness, and reversed the denial of MercExchange's injunction motion, indicating that injunctions should essentially issue as a matter of course in patent infringement actions upon a finding of validity and infringement; additionally, the Federal Circuit vacated this court's grant of summary judgment in favor of eBay on MereExchange's '051 patent. MereExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323 (Fed.Cir.2005). Subsequent to the Federal Circuit's opinion, the Supreme Court granted certiorari only with respect to the issue involving the applicable standard in patent infringement cases when a prevailing patent holder seeks entry of a permanent injunction. eBay Inc. v. MercExchange, L.L.C., ___ U.S. ___, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006). The Supreme Court thereafter vacated the Federal Circuit's injunction ruling, establishing the "traditional" four-factor equitable test as the proper standard for the injunction calculus in all cases, including patent disputes. Id. Accordingly, the Court ordered that the '265 injunction dispute be remanded to this court so that it may apply "the traditional four-factor framework that governs the award of injunctive relief ... in the first instance." Id. at 1841. During the time the appeal was pending before the Federal Circuit and the Supreme Court, the United States Patent and Trademark Office ("PTO") granted eBay's request to initiate reexamination proceedings on both the '265 and '051 patents; non-final PTO office actions in both reexaminations have since indicated that such patents are invalid as obvious, prompting eBay to file its motion to stay the proceedings.

As part of the process of determining whether an injunction shall issue, or whether the proceedings, including the injunction determination, shall be stayed, this court reopened the record to permit both plaintiff and defendants the opportunity to update the court on factual developments occurring over the past three years. MercExchange, L.L.C. v. eBay, Inc., 467 F.Supp.2d 608 (E.D.Va.2006). Although permitting additional discovery delayed the resolution of both pending motions, the court found such exercise necessary as there appeared to be significant post-trial factual developments, and the stale record prevented the court from conducting the analysis necessary to resolve either party's motion seeking prospective equitable relief. See Lyons Partnership, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 799 (4th Cir.2001) ("A prospective injunction is entered only on the basis of current, ongoing conduct that threatens future harm.") (emphasis added); Direx Israel, Ltd. v. Breakthrough Medical Corp., 952 F.2d 802, 819 (4th Cir.1991) (reversing the grant of an injunction and remanding the case "without prejudice to the right of the plaintiff to premise its motion on new or changed circumstances"). Although this court found it necessary to reopen the record, the parties were repeatedly admonished that the court would not entertain attempts to re-litigate past issues nor recast previously established facts in a light more favorable to such party. Thus, in applying the four-factor equitable test, this court will ignore eBay's assertions that it never willfully infringed the '265 patent as the jury's verdict, affirmed by the Federal Circuit, establishes that at the time of trial eBay was a willful infringer of plaintiffs valid and enforceable '265 patent. Similarly, the court will ignore arguments advanced by MercExchange or its experts suggesting that MercExchange has always endeavored to develop the '265 patent and uphold its right to exclude as the court previously determined that MercExchange exhibited a "willingness to license its patents," a "lack of commercial activity in practicing the patents," and that MercExchange's "numerous comments to the media before, during, and after th[e] trial indicat[e] that it did not seek to enjoin eBay but rather sought appropriate damages for the infringement." MercExchange, 275 F.Supp.2d at 712.

II. Factual Developments Subsequent to Trial

The primary factual developments occurring subsequent to trial that are relevant to the instant opinion are: (1) eBay requested that the PTO reexamine the patentability of MercExchange's '265 and '051 patents and after granting such request, the PTO issued non-final actions indicating that both patents are invalid due to prior art;¹ and (2) in 2004, Mere-Exchange granted uBid, Inc. ("uBid"), an online auction and fixed price marketplace that competes with eBay for a portion of the relevant market, a non-exclusive license to its entire patent portfolio. Additionally, in 2006, on the heels of the Supreme Court's opinion remanding the injunction dispute, uBid considered selling a 25% interest in its company to MercExchange in return for an exclusive license to the '265 patent.² Set forth below is a more thorough discussion of the facts regarding MereExchange's post-trial relationship with uBid.

uBid.com is an auction website offering items for sale both through traditional auction bidding and through a "buy-it-now" option purportedly covered by the '265 patent. uBid launched its buy-it-now option in order to stay competitive with eBay; however, once uBid learned of the instant litigation, it voluntarily suspended use of such functionality (Mere. Suppl. Brief Ex.1, at 5). In May 2004, subsequent to the jury verdict and this court's denial of an injunction, but prior to the Federal Circuit's opinion on appeal, uBid and Mere-Exchange entered into an agreement granting uBid a non-exclusive license to MercExchange's patent portfolio of present and future patents (Mere. Suppl. Brief Ex.3). The May 2004 license agreement called for a $150,000 fixed payment and a structured royalty to begin when uBid reached $500 million in annual qualified gross market sales (Mere. Suppl. Brief Ex.3). uBid's CEO, Robert Tomlinson, indicated that uBid entered into such licensing agreement in part to avoid costly litigation (Mere. Suppl. Brief Ex.2, at 84-89).³ Furthermore, emails leading up to such agreement exchanged between Tomlinson and Tom Woolston of MercExchange, the inventor of the patents-in-suit, reveal that uBid chose to obtain the license in lieu of spending money "on a detailed legal opinion as to [the] patents and [their] impact on uBid" (eBay Suppl. Brief Ex.5). Tomlinson's emails indicate that $150,000 was "more than the legal review but better spent to secure our relationship"; furthermore, Tomlinson stated that "in return" for a license to MereExchange's patents he would "work directly with [Woolston] and [his] group to secure [their] eRay position" and any other challenges in front of them (eBay Suppl. Brief Ex.5) (emphasis added). An email sent by Tomlinson over two years later confirms that avoidance of litigation was the major factor in uBid's decision to obtain a non-exclusive license; the August 2006 email stated: "As you know, we chose to license the patents as a cost effective way to limit any litigation at a very critical time in uBid's relaunch" (eBay Suppl. Brief Ex.23).⁴ Such email again indicates that uBid had "not engaged our attorneys [sic] currently or in the past for a legal opinion as to the merits of the patents" (eBay Suppl. Brief Ex.23).

In addition to the non-exclusive license obtained by uBid in 2004, beginning in May of 2006, in the immediate wake of the Supreme Court's opinion remanding the injunction determination, uBid and Mere-Exchange conducted preliminary negotiations whereby uBid considered obtaining an exclusive license to MereExchange's '265 patent in exchange for a 25% equity stake in...