Trial Loss Won't Hobble eBay

Friday May 30th 2003 by Colin C. Haley
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While the auction giant would have preferred to win the first phase of its patent infringement trial, experts say its business is not in jeopardy and the case is far from over.

While eBay would have preferred to win the first phase of its recent patent infringement trial, the online auction giant's business is not in jeopardy and the case is far from over, experts said.

"The trial has a very minimal impact on the company's business prospects," analysts for Deutsche Bank Securities wrote in a research note.

eBay investors, who have given the company a $37 billion market value, also seem unriled. The company's stock has slipped only slightly since it was ordered to pay $35 million in damages in a patent infringement case brought by MercExchange.

Bruce D. Sunstein, who heads the patent practice at Bromberg & Sunstein in Boston, agrees with DB's assessment.

"It's certainly a blow to eBay, but taken in perspective, eBay was clearly aware of risks," Sunstein said.

What's more, though MercExchange has an edge, it's still early. Lawyers for San Jose, Calif.-based eBay are drafting motions to have the verdict set aside — either on a point of evidence, or under the broader argument that no resonable jury could have arrived at the verdict.

If unsuccessful, the case will go to an appeals court, where the trial court's patent claim interpretation is reversed in four out of 10 cases. The process can drag on for a year or more.

Meanwhile, MercExchange is reportedly entertaining offers for the patents from heavy hitters including Amazon and Yahoo!. Spokespeople for the online book seller and content and services giant did not respond to requests for comment.

Sunstein thinks the floating the names of potential buyers be a tactic to bring eBay to the table to license the patents.

There is precedent. Years ago, Microsoft lost a large patent infringement case to Stac over a file compression technology. Instead of continuing with the case, Microsoft settled by investing close to the damages amount (around $90 million) in Stac.

Sunstein expects eBay to let its motions play out, but said he wouldn't be surprised if a deal was struck with MercExchange in the next six months.

And given the reversal rate in the appeals court, which could nullify MercExchange's win this week, the Great Falls, Va., company may be inclined to take it.

The crux of the suit is eBay's "Buy It Now" feature, which lets users pay through PayPal with a credit card or with other PayPal funds (including a PayPal balance or a bank account), to bypass the usual auction process.

The patents also cover the procedure of using a credit card to lock in an offer to purchase items online. A third claim that involved online auction technology (which could have significantly raised the damages stakes) was dismissed early on.

Tom Woolston, a patent lawyer and founder of MercExchange, said he applied for the disputed patents in the spring of 1995 — about five months before eBay founder Pierre Omidyar took it live.

Adapted from internetnews.com.

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