Expert: MercExchange Must Beat eBay Twice

After months of delays and legal wrangling, MercExchange’s high-stakes patent infringement claim against eBay is finally being tried in U.S. District Court in Virginia.

MercExchange, of Great Falls, Va., filed the lawsuit two years ago, which also named eBay’s Half.com subsidiary as a co-defendant. The firm lays claim to patents covering the process of using a credit card to lock in an offer to purchase items online.

Tom Woolston, a patent lawyer and founder of MercExchange, applied for the disputed patents in the spring of 1995 — about five months before eBay went live. He is asking the court for two remedies: money and a court order barring eBay from using the technique.

“The posture of the case against eBay is serious indeed, since it has survived, at least in part, motions of eBay for summary judgment,” said Bruce D. Sunstein, a Boston attorney who specializes in intellectual property law.

But just because the the judge allowed the case to proceed, doesn’t mean MercExchange will win. And even if it does there are actions eBay could take to reverse the verdict or limit its impact.

“MercExchange in fact will probably have to win twice: once at the pending trial, and a second time on appeal,” Sunstein said.

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.

Given the costs of a prolonged legal battle and the uncertainty of the outcome, it’s not unusual for the parties to settle even after a jury verdict in favor of the plaintiff.

So far, eBay has refused to settle the case.

“We believe we have meritorious defenses and will defend ourselves vigorously,” the San Jose, Calif., online auction giant said in a recent regulatory filing.

Although its lawyers failed to have the case stopped, they convinced the judge to throw out patent claims covering eBay’s auction business, which will limit any damages, Sunstein said. What remains is a claim on eBay’s fixed-price sales.

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. But being unable to use the method could disrupt business.

The trial is expected to take about three weeks.

There have been similar cases pitting small patent holders against IT giants. Microsoft once lost a case over file compression technology and was orderd to pay $120 million in damages. The Redmond, Wash., software giant resolved the case for about $83 million.