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AT&T Becomes eBay's Latest Patent Problem

AT&T is suing eBay and its subsidiary PayPal for allegedly infringing its patent for a payment processing system.

The complaint, filed in federal court in Delaware Thursday, seeks a court order barring the companies from using the disputed technology. It also seeks unspecified monetary damages.

AT&T is taking issue with eBay's Billpoint service, which eBay used as a third-party payment provider from 1999 to 2003. eBay charged its users transaction fees for using the payment system resulting in "significant revenue for eBay," the lawsuit claims.

But eBay eventually phased out Billpoint's services after it bought PayPal, another third-party payment processor, in June 2002 for $1.5 billion.

AT&T claims its patent covers the same payment method of using a trusted third-party to complete a transaction over a communication system, such as the Internet. The intermediary eliminates the need for a buyer to transmit sensitive information, such as a credit card or bank account numbers, an early roadblock to the growth of e-commerce.

"We want them to come to the negotiating table," AT&T spokesman Michael Dickman told internetnews.com "We have been trying for more than a year to get them to take a license on the patent. Since that's failed we were forced to file a lawsuit."

eBay spokesman Chris Donlay said the company believes the lawsuit is without merit. He confirmed that there were discussions with AT&T that broke down. But Donlay said the company has not seen the full complaint and that it's too early to say whether eBay would return to the bargaining table.

The Bedminster, N.J.-based AT&T applied for the patent in 1991, which was granted three years later. It never used the technology itself however.

Online auction giant eBay and Internet payment specialist PayPal, didn't become household names until the late 1990s, Dickman said in explaining the gap between securing the patent and suing to enforce it.

It's not the first time PayPal has been a defendant an intellectual property suit. In February of 2002, the Palo Alto, Calif., company's IPO was delayed when online risk-management firm CertCo sued over a patent covering electronic payments. The suit was settled in two months later.

Then in September, PayPal was sued by a unit of BankOne over a patent for a "cardless payment system." PayPal countersued and ultimately the actions were dropped.

eBay has also been in court over patent issues. Earlier this year it was ordered to pay $35 million in damages after it found the company infringed on several patents owned by Great Falls, Va.-based MercExchange.

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.