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The advent of eBay altered the market for everything from trading cards to tracer guns. Its patent dispute, which landed at the U.S. Supreme Court last month, could affect the market for patent litigators. With the high court deciding whether to overturn an earlier ruling making permanent injunctions mandatory in patent infringement cases, some patent lawyers are bracing for a ruling that they say could ratchet up the competition among law firms in an otherwise flourishing industry. Currently, the threat of mandatory permanent injunctions encourages accused infringers to settle rather than risk a ruling that could take their products off the market. Critics say this has emboldened so-called “patent trolls” — companies that exist to buy up patents and then press infringement claims — to file meritless cases in hopes of forcing a quick settlement. EBay is asking the court to overturn a “sweeping” ruling, issued earlier this year by the U.S. Court of Appeals for the Federal Circuit, that makes injunctions mandatory after a finding of infringement, even when the patent holder isn’t using the patent. As early as spring, the Supreme Court could overturn the Federal Circuit and instead force some patent holders to grant licenses. By removing the threat of injunctions, some patent lawyers say, such a ruling would encourage alleged infringers to fight longer and harder. As a result, patent holders are likely to be more thoughtful and selective in the cases they choose to pursue. But where would that leave the lawyers who have busily represented both sides in patent infringement fights? “We will have to compete even more strongly on both the plaintiff and the defense side,” said James Gilliland, chairman of Townsend and Townsend and Crew. “It means that patent lawyers will have more work to do, but fewer lawsuits will be filed and competition for defense of these cases will increase.” At Townsend, litigation generates 40 percent of revenue, and three-quarters of that stream comes from patent suits. “It’s extremely important for the firm,” Gilliland said, adding that if the court ruled in favor of eBay, the impact on the firm’s business would be dramatic. Gilliland theorizes that both plaintiffs and defendants would want to hire lawyers with more experience arguing patents in front of a jury, since defendants would be less fearful of an injunction, less likely to settle and more likely to appeal a decision. Under current rules, the vast majority of patent cases settle before going to jury. Many of Townsend’s cases involve companies that hold patents but do not market products, including research institutions and small companies whose patents generate more cash than the products the patents protect. These types of companies make up a sizable portion of plaintiffs in infringement cases, and they are the ones that will feel the biggest fallout should the Supreme Court overturn mandatory injunctions. Because they don’t produce a product, they cannot win an injunction using a “market protection” argument. Howrey partner Henry Bunsow agrees that a Supreme Court ruling limiting the availability of injunctions would probably mean more cases would settle because it would make potential recoveries more predictable. “A company with an existing product and a good profit margin may be more than happy to pay a reasonable royalty to the patent holder,” he said. Bunsow agreed that such a ruling could mean less business for law firms. “Some cases that are not necessarily good damage cases were filed because of the value of the injunction threat [and those cases] would probably not be filed.” Patent litigation makes up nearly half of Howrey’s firmwide business, Bunsow said, and the firm’s 2005 revenue was up 30 percent over last year. “It’s very good business if you can win or if you can force a company to pay an exorbitant amount because of the threat of an injunction,” Bunsow said, adding that contingency fees in patent infringement suits can run up to as much as 40 percent of recovery. Whatever direction the court swings in eBay v. MercExchange, 05-130, Bunsow said that its ruling will affect the strategy lawyers employ, whether they are representing the patent holder or the accused infringer. Matthew Powers, who heads Weil, Gotshal & Manges’ global patent litigation practice, also said he expects fewer suits and to pay less for patents “that aren’t worth very much” in the event the Supreme Court redefines the rules of permanent injunction. “We represent plaintiffs who are real companies with real products,” he said. “It would affect them the right way” by protecting them from patent trolls by taking away “leverage they shouldn’t have.” But not everybody expects fewer court battles. Morrison & Foerster IP partner Harold McElhinny said it isn’t likely a “mandatory licensing” ruling would curb the number of suits. Such a ruling would redefine the power of the patent holder, he said, but would not let infringers off the hook. “If I either get an injunction or money, I will still sue you,” he said. “Patent owners will want a return on their investment.” Bunsow, whose patent litigation load has doubled in the last five years, said a ruling in favor of eBay may mean less litigation business for the firm, but he isn’t terribly worried about that. “Maybe I can get a vacation once in a while,” he said. “That’s been hard to squeak out in the last few years.”

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