America’s technology sector, led by eBay, the world's largest internet auction site, is set for a Supreme Court showdown today with the alleged "patent trolls" it says risk strangling innovation through their exploitation of intellectual property laws.

EBay and several other technology companies have said in court filings that they are already being exploited by "patent trolls" - small companies which sue larger firms over patents.

Today’s case, between eBay and a small American-based patent-holding company, MercExchange, will rule on whether companies whose patents are infringed may use court injunctions to stop others using protected technology, or whether they will be awarded only damages.

EBay has already been found to have infringed two patents held by MercExchange over the "buy it now" function on its site. This feature allows buyers to purchase items at a fixed price.

However, eBay has not so far been required to stop using the function after a US district court decided not to issue an injunction and to instead award MercExchange damages.

A US district court jury awarded MercExchange $35 million (£20m). But the initial award was reduced to $5.5 million by a judge who refused to grant a permanent injunction, ruling that MercExchange would not suffer because it had not used its inventions commercially and had expressed an interest in licensing its patents to eBay.

The case has again catapulted America's intellectual property laws into the limelight. Technology companies are claiming they are being exploited by patent-owning companies that do not develop products but wield injunctions in the hope of winning large settlements from infringers.

"Under such circumstances, injunctions do not serve the goal of the patent system to promote innovation but turn that system on its head," lawyers for Time Warner, Amazon.com, Xerox and others wrote in a friend-of-the-court filing, in support of eBay.

However, pharmaceutical companies have argued they need the power of injunctions to protect their investments in new drugs.

If judges are not required to impose permanent injunctions it would "significantly undermine the confidence of innovators," lawyers for the Pharmaceutical Research and Manufacturers of America wrote.

The case is one of several several high-profile disputes involving America's patent laws. Earlier this month, a $612 million out of court settlement by Research in Motion, the maker of the BlackBerry mobile e-mail service, occurred under threat of an injunction that could have barred use of the technology which is essential to the operation of the device.

MercExchange, which was founded by Thomas Woolston, a patent lawyer, sued eBay and its subsidiary Half.com Inc. in 2001, alleging infringement of patents dating to 1995, shortly before eBay’s launch on the Web.

Mr Woolston’s patented idea involved using an electronic network of consignment stores that would ensure legitimacy of sales by taking possession of goods being offered. EBay’s system was based on the belief that buyers and sellers could trust each other and deal directly.

The internet auction site is now understood to have developed a solution which will keep its site running without the disputed technology.

Who should the law favour: the patent holders or the companies making products that bring patents to the market? Have your say here.

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