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Kelo and MercExchange

In Kelo, a home-owner decided she didn't want to sell her home. In a 5-4 decision, the Supreme Court held that, so long as Kelo received compensation, the state could seize it for a private party who could put it to what the local government thought was a better use. Libertarians and other right-thinking people across the political spectrum were justifiably outraged at the imposition on property rights.

In MercExchange v. Ebay, a district court has held that Ebay willfully infringed one of MercExchange's patents. The question before the Supreme Court is whether a court can choose to refuse to grant an injunction on the grounds that MercExchange is "only" a licensor of the intellectual property, rather than one who has commercialized the IP: this sometimes gets the derogatory term "patent troll." In other words, if MercExchange hasn't used its property in a manner a court finds appropriate, it can be forced to license it to a private party at a price set by the court through litigation. This is now on the Supreme Court docket.

It would seem to me that the same people aggrieved by Kelo should be similarly up in arms over the property rights threatened by MercExchange. But the sympathies seem to generally run in favor of the willful infringer, Ebay—Mark Lemley and 34 other law professors (including bloggers Larry Lessig and Doug Lichtman) signed a brief in support of Ebay's appeal. Fortune's Roger Parloff, as Overlawyered documented Nov. 30, suggested giving courts discretion to decide who is a "patent troll" and who gets the right to an injunction. In other words, let the courts decide if someone is using their property in an acceptable manner, or if a third party can make better use of it, so long as they pay compensation.

The term "troll" is interesting; it presumably comes from the tale of the fairy-tale troll who refuses to let goats cross his bridge. The bridge may be the only way to cross the river, and the troll's actions are blocking that progress. But if the troll owns the bridge, how is the troll any different than the home-owner in Kelo? Parloff complains of the cases where several dozen patents are needed to create a particular technology, but the City of New London needed to acquire several dozen tracts of land to create the larger tract for their project, where a single hold-out can prevent the project from going forward. Noone suggests that Kelo is doing something wrong because she doesn't want to sell her home to New London, even though her local government thinks Pfizer can make better use of the land. Nor should they.

One big difference between a Kelo and a MercExchange is that Kelo has fairly clear title to her property, while a MercExchange's intellectual property rights are less well-defined and may eventually be invalidated by the Patent and Trademark Office. (Then again, Ebay had the opportunity to litigate these issues when MercExchange sued them; moreover, as a willful infringer, this isn't a question of a happenstance infringement of a submarine patent.) And I suspect a lot of the typical litigation reformer's hostility to freely-available injunctions is residual from the Lemelson outrage, where the holder of a series of exceptionally bogus patents was able to litigate his way to being a billionaire, and the patents weren't invalidated until well after his death.

But imagine a world where the land title system was as poorly kept as the patent system. The solution is clearly to fix the land title system, and perhaps to establish loser-pays rules to discourage speculative litigation and make whole the victims of such litigation; one wouldn't suggest giving courts discretion whether to evict trespassers. Here, too, the problem resides with the USPTO, which too easily grants thousands of patent claims through ex parte proceedings that overwhelm outmatched examiners. Litigation is a social cost, but the idea is to dial it back to make it more efficient, rather than to prevent property-owners from being able to vindicate rights entirely.

Now perhaps we, as a society, would prefer an intellectual property system where there is compulsory licensing, and the patent-holder does not have the right to exclude others from using her patent. I'm not inclined to believe that that is preferable to the status quo, but that's a debate that's beyond the scope of this post. Most importantly, it's a debate that should be conducted by our legislature, which can pass laws to that effect, rather than imposed by the Supreme Court de facto by abolishing the mandatory injunction. Certiorari should not have been granted, and the Federal Circuit opinion should be affirmed.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.