eBay case sheds light on investor liability
The Federal Circuit Court of Appeals has shed some light on the doctrine of inducement of patent infringement in connection with venture investments. In MercExchange v. eBay, Download file, the Court overturned a lower court ruling that had held eBay liable for inducing infringement by ReturnBuy, a company in which eBay had invested and had a commercial relationship. This ruling is timely because of the concern about investor liability for intellectual property infringement and because of the debate over inducement liability in the copyright law.
MercExchange asserted that eBay should be liable as an inducer on the basis that it had made a $2 million investment in ReturnBuy, that eBay had observer rights in the company, that eBay granted the company the right to post goods in volume on eBay, that eBay was the “primary venue” for the company’s sales, and that eBay had provided engineering support to enable the postings on eBay. The Court held that these facts were not a sufficient basis for inducement liability.
The Court stated:
“testimony regarding eBay’s investment in ReturnBuy’s business and its presence on ReturnBuy’s board of directors does not demonstrate an intent to induce infringement. Rather, investment and board presence merely indicate that there was a business relationship between the two companies and that eBay had a financial interest in ReturnBuy’s business.”
Instead, the Court required that intent to induce the specific elements of the patent claims needed to be demonstrated (i.e., use of bar code scanners, printers and digital cameras).
Under 35 U.S.C. Section 271(b), “whoever actively induces infringement of a patent shall be liable as an infringer.” The Federal Circuit has construed the statute to require proof of intent, but it is unclear whether the requisite intent is to induce the infringing acts, or to induce an infringement. The Court acknowledged this in the ruling but noted that at minimum knowledge of the specific infringing acts must be shown.
A relevant fact is that ReturnBuy had settled with MercExchange prior to filing for bankruptcy, but the settlement did not extend to related parties, or at least to eBay. The case also includes an interesting discussion of some of the patent claims relating to the e-commerce patents in question.
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