eBay Ordered To Ante Up In Patent-violation Suit

In a closely watched case with implications for the impact patents will have on E-commerce, MercExchange LLC, a three-man holding company, last week won a major court decision in a lawsuit against online-auction house eBay Inc. Whether the decision will stand through the appeals process, and whether it will have a ripple effect on similar patent disputes, is unclear. "I guess that opens up the whole E-commerce game a little more," says Jeff Toler, a patent attorney with Toler, Larson & Abel LLP.

The five-week trial that ended last week with eBay being ordered to pay $35 million in compensatory damages to MercExchange began in September 2001, when MercExchange sued eBay for violating three patents that Tom Woolston, MercExchange's founder and CEO, filed for in 1995. Those patents, Nos. 6,202,051, 5,845,265, and 6,085,176, deal with methods for online auctions, fixed-price bidding, and online comparison shopping, respectively. Earlier this year, U.S. District Court Judge Jerome Friedman threw out the online-auction patent. But the 10-member jury last week found that eBay had willfully violated the other two in connection with its "buy it now" option and its Half.com subsidiary. Because the infringement was willful, the judge could treble damages when he makes a final ruling later this year.

"Man, we feel great," says Woolston, adding that MercExchange is negotiating the sale of its patents with several E-commerce players (though not eBay). MercExchange isn't interested in suing other companies. "It's definitely not our goal to be in the patent-enforcement business," Woolston says. EBay has asked the judge to reverse the verdict, and barring that, said it will appeal. "This issue is far from over," eBay counsel Jay Monahan said in a statement.

John Ferrell, head of the intellectual-property practice at Carr & Ferrell LLP, says the ruling is significant for its potential effect on eBay's business model, but there's a 40% to 50% chance it will be overturned by the appeals court. Says Ferrell, "It's almost a coin flip about who will prevail there."