How the New Supreme Court is Likely to Bounce
from
July/August 2006
by Julie Connelly
After the death of William Rehnquist and the retirement of Sandra Day O’Connor, the composition of the Supreme Court changed for the first time in 11 years, marking the end of a record run. But will a new chief justice, John Roberts Jr., and a new associate, Samuel Alito Jr., really make much difference to how the Supremes will decide business cases? Two key decisions handed down by the Court in May provide a few clues:
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EBay Inc. et al. v. MercExchange LLC
raised the issue of whether patent holders should always be entitled to injunctive relief—even if they have not used their patents—when trial courts determine that the patents were infringed.
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DaimlerChrysler Corp. et al. v. Charlotte Cuno et al.
dealt with whether investment tax credits given to corporations by states and municipalities to encourage economic development violate the commerce clause of the Constitution.
The Court’s rulings in the two cases, which were argued before it in February and March, will have a substantial impact on corporations. The eBay case, moreover, is likely to register off the charts in emotional impact—much as the threatened death of the BlackBerry, every lawyer’s standby, did earlier this year. The story behind this case is that MercExchange was successful in proving to a federal district-court jury that eBay’s one-click “buy it now” option, which allows a bidder to halt an online auction and purchase the item for a fixed price, infringed MercExchange’s patent. MercExchange was not using the patent, however, and the judge, while deciding that eBay should pay MercExchange $29.5 million in damages (later reduced to $25 million), did not issue an injunction that would have stopped eBay from continuing to employ the disputed technology. The Court of Appeals for the Federal Circuit, the nation’s highest patent court, overruled the district court, saying that it should have issued an injunction. EBay appealed to the Supreme Court. It does not want to have to stop using the “buy it now” feature, which accounts for about 30% of the value of the goods sold on the site. EBay argues that the precedent set in a 1908 patent case—which the federal courts have been interpreting ever since to mean that injunctions must always be granted in cases of patent infringement—should not hold in situations where the patent owner is not “practicing” (using) the patent. In a unanimous opinion written by Justice Clarence Thomas, the Supremes decided that both lower courts were wrong and tossed the case back to them with instructions to reconsider barring eBay from continuing to use the “buy it now” feature. However, the opinion noted that “we take no position” on whether an injunction should ultimately be granted.
The views about the case had divided “along the two lines of the technology industry,” says intellectual-property lawyer Kenneth C. Bass III, of counsel to Sterne Kessler Goldstein & Fox in Washington, D.C. Biotech and pharmaceutical companies, along with the federal government, are in one line, supporting MercExchange, while information-technology companies back eBay. The infotech companies consider MercExchange a patent troll that never commercialized its patent and is trying to extort a settlement from eBay under threat of an injunction. Tech outfits have to move fast to keep up with the marketplace, and they use thousands of patents in creating their products. They are bedeviled by the trolls, which buy up patents only for the purpose of pouncing on unwary manufacturers and threatening an injunction unless they are given a big settlement. By contrast, the biotechs, with patents that they may not “practice” and products that are developed slowly over years of research and clinical trials, wanted the Court to affirm the use of the injunction.
Few experts believed the justices would overturn the 1908 precedent for an injunction, says Joel Lutzker, an intellectual-property lawyer at Schulte Roth & Zabel in New York City: “This is not a radical Court.” Adds intellectual-property attorney Robert J. Koch of Milbank Tweed Hadley & McCloy in Washington, D.C., “The Court was not likely to say, ‘If you’re not using the patent, you can’t demand an injunction.’” Concurring opinions in this case, however, suggest that the justices are not in complete agreement about when injunctive relief should be granted.
In the other significant case, DaimlerChrysler’s legal travails started in 1998, when the company agreed to spend $1.2 billion on a new Jeep assembly plant in Toledo, Ohio, in return for $280 million in investment tax credits from the city. Charlotte Cuno and other Ohio taxpayers sued in federal court, claiming that those credits violated the commerce clause of the Constitution, which forbids the states to interfere with interstate commerce. The plaintiffs argued that Ohio is using its taxing power to induce businesses to remain within the state and is thus interfering with interstate commerce by discouraging Ohio companies from setting up operations in other states. Given that at least 40 states and the District of Columbia offer investment tax credits to business, the impact of the DaimlerChrysler case was potentially huge, according to Robin Conrad, senior vice president of the National Chamber Litigation Center of the Chamber of Commerce. “A number of big projects were under a dark cloud, waiting to see if these investment tax credits were legal,” she says.
Kristin Hickman, a law professor at the University of Minnesota Law School, says that the case came from “a confluence of ideologies” uniting Ralph Nader-style groups that want to stop what they think is corporate welfare with libertarians who believe that tax subsidies for business are inconsistent with the goal of limited government. Says Kevin Thompson, legislative counsel at the Council on State Taxation in Washington, D.C.: “This is a policy case—a debate that taxpayers have sought to move from state legislatures, where they have not prevailed, to the federal courts.”
The justices dropped hints about their ultimate ruling when during the argument several of them questioned whether the taxpayers had the legal right to sue. Unless the plaintiffs could prove injury that was concrete and particularized, they would have no standing to bring the case. Sure enough, in another unanimous opinion, this one written by Chief Justice Roberts, the Court held that the taxpayers had no standing to sue. But that solution will only postpone the day of reckoning. Investment tax credits are being challenged on constitutional grounds in other states, and eventually a case in which the plaintiffs do have standing to bring an action in federal court will wind up before the Sublime Nine.
Overall, “you won’t see a major change in the Court’s decision-making” in business cases, predicts David Price of the Washington Legal Foundation, a center for public-interest law. Still, says Harold Ruvoldt, a corporate governance lawyer at Edwards Angell Palmer & Dodge in New York City, with Alito on board “you could infer a greater sensitivity to the needs of business as opposed to restricting business. And I tend to think that’s good.”
