May 27, 2003 8:10 PM PDT

Jury: eBay guilty of patent infringement

A federal jury on Tuesday found eBay guilty of patent infringement and ordered the online auction giant to pay $35 million in damages.

A U.S. district Court jury sided with MercExchange of Great Falls, Va., which accused eBay in 2001 of infringing on three patents held by MercExchange founder Tom Woolston. The verdict determined that eBay and its Half.com subsidiary willfully infringed on two of those patents with their "Buy It Now" feature for fixed-price sales.

The willful infringement ruling opens the door for the judge to hold eBay liable for triple damages, or $105 million, said Neil Smith, an attorney specializing in intellectual property law at Howard Rice, a San Francisco firm. The judge may also issue an injunction against eBay to prevent the company from continuing to use the patented invention, a method for using a credit card to lock in an offer when purchasing items online, Smith said.

"The important implication is the specter of an injunction," Smith said. "It casts some uncertainly over the right to use the invention, which may impact the 'Buy It Now' feature at both eBay and Half.com. That feature certainly relates to a good chunk of their business."

Last year a judge ruled that the third patent, which covers online auction technology, is invalid and unenforceable.

eBay intends to ask the judge to set aside Tuesday's verdict and seek a new trial, said spokesman Kevin Pursglove. The evidence presented in the course of the trial doesn't justify the verdict, he said.

"In eBay's view, this dispute that is far from over," Pursglove added.

It's likely that eBay will move to appeal the verdict, Smith said. "It's not the end," he said. "They've certainly lost the first round and it's an important round because the U.S. jury system gives a lot of faith to what a jury does."

eBay has previously said that losing the case would have serious implications for the company, whose revenue last year was $1.2 billion.

"If the plaintiff were to prevail on any of its claims, we might be forced to pay significant damages and licensing fees, modify our business practices or even be enjoined from conducting a significant part of our U.S. business," eBay stated in an annual report filed in March to the U.S. Securities and Exchange Commission.

Some fear that the verdict against eBay could prove counterproductive to the fledgling e-commerce industry, which has become increasingly litigious in recent years.

"I think it's a red flag to the Internet commerce industry that there's a whole slew of these patents that are issued that are basically what I would call well-known or common methods of doing business," said Norm Beamer, a partner at Fish & Neave, a law firm specializing in intellectual property.

"Right now it seems there is this looming problem of not very sensible patents that are nevertheless being used to threaten and extort people who are in business, and this appears to be one (being used against eBay) of them," he added.

Beamer represented eBay subsidiary PayPal before it was purchased by eBay but the companies no longer have ties to the firm.

During the Internet boom, U.S. courts ruled that business processes could be patented, leading numerous e-commerce companies to seek patent protection for their services. Amazon.com, Barnesandnoble.com and Expedia are among the major names to become entangled with patent suits, most of which ended in settlements.

Woolston began applying for the two patents at the heart of the case in the spring of 1995, some five months before eBay founder Pierre Omidyar launched the auction site.

Woolston said he is "walking on sunshine" over of the favorable verdict. The former technology expert for the CIA has prevailed in patent violation cases with other Internet companies before, including GoTo.com, now Overture Services. He enforced his patents with online car seller AutoTrader.com, which offers auctions as part of its service. He's also in the midst of a patent dispute with Priceline.com.

The trial, which was held in the U.S. District Court for the Eastern District of Virginia in Norfolk, lasted more than four weeks. Jury deliberations lasting more than two days.

 

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