What's Yours is Mine

By DAVID MOON, Moon Capital Management
April 9, 2006

The outcome of a case pending before the U.S. Supreme Court will impact the sanctity of your assets, including possibly your thoughts.

The defendant is MercExchange, a patent holding company in Great Falls, Va. The popular Internet auction site eBay was found guilty of having violated a MercExchange patent with its 'Buy It Now' feature. Although a jury ordered eBay to pay MercExchange $35 million, a judge reduced the award and refused to issue an injunction against eBay to prevent further violation of the patent. The judge reasoned that since MercExchange only owned the patent and wasn't using it in an active commercial venture, it hadn't suffered any financial loss.

In effect, eBay successfully convinced a judge that MercExchange is holding a valuable patent hostage, when that asset ought to be used for a better and higher purpose.

Hmm. That sounds awfully familiar to another recent case heard by the U.S. Supreme Court, Kelo v. New London In that case, the court found that the city of New London, Conn., could condemn certain real estate for the purpose of allowing a different private individual to develop the property for a better and higher use. At the time, I suggested that the New London case was a threat to all property rights, not just real or other tangible property.

If the government has the right to take a piece of real estate from its owner in the pursuit of some greater good, why couldn't it do the same with an idea? Many readers disagreed, finding my comparison illogical and the idea farfetched.

The comparison is fully logical, and I hope those readers are right about the likelihood being farfetched. We'll get our next hint about the safety of your assets ' including your thoughts and ideas ' when the Supreme Court decides if eBay can use MercExchange's intellectual assets simply because MercExchange isn't using them.

If the lower court's opinion is upheld, then every private asset is subject to various sorts of condemnation, including assets that originate in your mind. If the court finds that MercExchange suffered no damages because it wasn't using its patent, then what's to stop someone from placing a billboard or go-cart track on your rural interstate-front property if you aren't using it? Why can't a publisher sell copies of your book and keep all the profits simply because you haven't sold any in a while?

And who determines the definition of 'using' an asset?

The New Haven case already suggests that any unused or underused asset is fair game for taking by local governments ' even if that government entity plans to transfer ownership of the property to another private entity. In eBay vs. MercExchange, we'll find out if the Supreme Court thinks intangible or intellectual property is as much at risk as is real estate.

We'll also find out if those who want the assets of others even need bother with having a governmental accomplice condemn the property, or if like eBay, they can just use the property at will and ask for forgiveness after the fact.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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