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EBay Takes $30-Million Charge

August 12, 2003|From Reuters

EBay Inc. on Monday said it took a $30-million charge in the second quarter after a federal court ruled against the online auction house in a patent infringement case. The charge reduces EBay's second-quarter earnings by about 16%.

A federal judge last week ordered EBay to pay MercExchange $29.5 million for infringing an e-commerce patent that MercExchange said was key to EBay's "Buy It Now" feature.

The charge reduced EBay's quarterly net income to $91.9 million from its previously announced $109.7 million, the company said in a Securities and Exchange Commission filing.

"EBay believes that the trial court verdict in the MercExchange case was incorrect and intends to appeal the court's judgment," the company said in the filing.

The San Jose-based company, a venue for sellers and buyers of everything from collectible spoons to California towns, said the charge reduced its diluted earnings on a split-adjusted basis by 3 cents a share, to 14 cents a share. Its earnings before a planned stock split were 28 cents a share, compared with the 33 cents reported in July.

EBay announced the 2-for-1 stock split last month, when it first reported results from its second quarter ended June. The company will distribute new shares Aug. 28.

EBay said it had a related tax benefit of $12.1 million and its outlook for the third and fourth quarters was unchanged.

The company also said it saw more patent lawsuits ahead.

"We expect that we will increasingly be subject to patent infringement claims as our services expand in scope and complexity. In particular, we expect that patent infringement claims involving services we provide, including various aspects of our payments business, will continue to be made," EBay said.

One such lawsuit, filed in September by First USA Bank, alleges that EBay infringed two patents related to credit card transactions. That lawsuit is scheduled for trial in March.

If EBay is found to have infringed any patents, it may be required to pay the patent holders licensing fees -- an expense that could cut into its earnings.

The company in its quarterly filing also said its PayPal business had received inquiries from the Federal Trade Commission and the attorneys general of a number of states regarding its account restriction practices.

EBay shares rose $1.36 to close at $101.86 in Nasdaq trading.

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