eBay Gets Its Day in Court

eBay (EBAY - Cramer's Take - Stockpickr) will square off against a coalition of huge pharmaceutical and industrial companies this week when its long-running patent dispute is heard at the Supreme Court.

The question to be decided is whether a court should immediately be required to issue an injunction once it finds infringement of a patent. Last year, a federal court denied MercExchange's request for a court order to prevent eBay from using its patent in the auction giant's Buy It Now service.

The injunction orders are routinely granted, though eBay and MercExchange disagree as to whether this should be done as a matter of course. The Supreme Court probably will split the difference, according to a patent expert.

"I believe that the Supreme Court will loosen the reins somewhat and give trial courts more discretion in whether to grant an injunction," says Dennis Crouch, a patent attorney who runs the blog Patently-O. "However, the Court is unlikely to change the strong presumption that a patent confers a right to exclude others from the market."

Investors will be watching closely the developments in the case, which began in 2001, though until now it hasn't had much impact on eBay's stock price. Buy It Now, in which users purchase goods directly instead of through auctions, accounted for about one-third of the value of the goods sold on eBay last year. The company has set aside sufficient reserves for the case and believes it can work around MercExchange's patents if it doesn't prevail in court.

"Nonetheless, if we are not successful in appealing or modifying the court's ruling, and if the modifications to the functionality of our Web sites and business practices are not sufficient to make them non-infringing, we would likely be forced to pay significant additional damages and licensing fees and/or modify our business practices in an adverse manner," eBay said last month in a 10-K filing with the Securities and Exchange Commission.