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eBay Ordered to Pay $35M in Patent Claim

A federal jury Tuesday ordered online auction giant eBay to pay $35 million in damages after it found the company infringed on several patents owned by Great Falls, Va.-based MercExchange.

The jury reached its unanimous verdict Tuesday in a civil court in the U.S. District Court for the Eastern District of Virginia in Norfolk, saying eBay "willfully and directly" infringed on all counts of two of MercExchange's patents. The judge must still approve the decision and may tack on even more damages.

San Jose, Calif.-based eBay spokesperson Kevin Pursglove summed it up in one word: "Disappointed."

"Our next move will be to wait for the judge's timetable for post trial motions where we will ask the court to set aside the verdict," Pursglove told internetnews.com. "That means that he could order a new trial, and depending on how we present our case, we could argue a legal point evidence that no reasonable jury could have arrived at this decision."

The suit focused mainly on 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 U.S. patents in question -- referred to as '265 and '176 -- similarly cover the procedure of using a credit card to lock in an offer to purchase items online. A third claim brought forward by MercExchange against eBay 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.

"I'm incredibly thankful that a small guy can get his day in court and be vindicated by a jury," Woolston told internetnews.com. "We persevered this far, we'll fight this to the bitter end."

MercExchange, which filed the lawsuit two years ago, also named eBay's Half.com subsidiary as a co-defendant.

The jury assigned eBay to pay $16 million for its part in the infringement and Half.com to pay the remaining $19 million.

Also named in the verdict were other reference companies that the auction sites had partnerships with including CNET , its mySimon property as well as BizRate, ReturnBuy and BidXS. In each case, the jury was asked if either eBay or Half.com had "actively induced others to infringe."

Woolston said his company has no intention of pursuing the legal issue beyond eBay and Half.com.

"We just want to sell off the assets and move on," he said.

Paying MercExchange damages or royalties, however unpleasant, wouldn't break eBay. In the first three months of the year, eBay had revenues of $476 million and profits of $104 million. The company's stock hit a three-year high Tuesday on strong market news. Shares of the online auction giant topped out at $103.05, its highest level since March 2000.

But being unable to use the method could disrupt business.

Back in March, eBay reported in an SEC filing that "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 even concluded it may become more vulnerable to even more claims as the courts begin interpreting both the Digital Millennium Copyright Act and Communications Decency Act. The company even hinted it may be leaving itself open for even more litigation as its builds its business "into jurisdictions where the underlying laws with respect to the potential liability of online intermediaries like ourselves is less favorable."

Bruce D. Sunstein, a Boston attorney who specializes in intellectual property law told internetnews.com last month that MercExchange will probably have to win twice: once at the pending trial, and a second time on appeal.

By some measures, the appeals court reverses the trial court's patent claim interprestation around 40 percent of the time, Sunstein says. What's more, the appeals process can drag on for a year or more.

Pursglove said the company will explore its other legal options before considering other alternatives.