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Jury Awards Inventor in Suit Against EBay

May 28, 2003|Alex Pham and P.J. Huffstutter | Times Staff Writers

A federal jury in Virginia found Tuesday that EBay Inc. infringed an inventor's patents and ordered the online auction giant to pay him $35 million.

Though the award is small compared with the nearly $250-million profit EBay racked up last year, the jury's finding is a substantial setback for the San Jose company, which had never lost a trial nor settled a lawsuit.

EBay plans to ask U.S. District Judge Jerome Friedman in Norfolk, Va., to set aside the verdict.

"We believe the weight of the evidence presented in the case does not support the verdict," EBay spokesman Kevin Pursglove said.

The victor in the case is Thomas Woolston, a 39-year-old electrical engineer in Great Falls, Va. An avid collector of baseball cards, Woolston said he got the idea to create a virtual marketplace during the Major League Baseball player strike in 1994. He envisioned an online swap meet where collectors could gather to securely buy and sell baseball cards.

After filing for several patents in April 1995, he launched MercExchange to turn his vision into a business.

Unable to raise the necessary funds, Woolston set aside the venture and opted to license his patents to other companies. To date, Web search firm Overture Services Inc. and online car seller AutoTrader.com Inc. have paid Woolston licensing fees for his patents. He sued EBay in September 2001.

Among Woolston's patents are one for a system for selling items at a fixed price and for a technology that lets buyers compare prices from multiple online sellers.

The jury found that EBay's "Buy It Now" option, which lets people purchase items outright without having to go through the auction process, violates the first patent, and that EBay subsidiary Half.com infringes the second patent by simultaneously displaying the prices of several Web merchants, said Woolston's attorney, Scott L. Robertson of Hunton & Williams in Washington.

If Friedman decides to set aside the jury's verdict, the case would have to be tried anew in the same court but with another set of jurors. If he lets the verdict stand, EBay could appeal in the U.S. Court of Appeals.

The verdict raises questions for the company, which could be forced to pay Woolston licensing fees or royalties on each of the millions of transactions it facilitates and, analysts say, could encourage other patent holders to file suit.

"Is there going to be a business interruption for EBay?" said Steve Weinstein, an analyst with Pacific Crest Securities. "That is the bigger question."

Before the jury award was announced, EBay shares rose $3.61 to $103.05 on Nasdaq, reaching their highest price since 2000. The stock pulled back to $102.45 in after-hours trading.

Attorneys who track intellectual property issues say the case is part of a growing trend of litigation in the post-dot-com economy.

Online commerce companies such as Amazon.com Inc., Priceline.com Inc. and Expedia Inc. have gone to court over patent disputes, either as plaintiffs seeking to enforce their patents or as defendants fighting to shield their businesses from them.

"People used to have the money to invest in patents during the bubble," said Stewart Baker, an intellectual-property law attorney with Steptoe & Johnson in Washington. "Now, that bubble has burst, and so has the revenue coming from the investment community. The economy is so tough, a lot of people are looking back at their patents and seeing a chance to raise money by litigating.

"The issue is whether the patent is really being [infringed], or whether the parties involved are trying to fit current business models to conflict with their patents," Baker said.

Woolston declined to say whether he plans to sue other Web sites with features similar to EBay's.

"We do not want to be in the enforcement business," he said in an interview. "We just want to sell the patents to a good home and move on."

Woolston settled a patent-infringement case for an undisclosed amount against Pasadena-based Overture in June 2001. He has no other outstanding lawsuits.

Legal experts say the once-arcane world of patents is becoming increasingly contentious with the growth of the Internet. Many people say the trend began four years ago, when a court upheld Amazon's "one-click" system for online payment.

The number of businesses and individuals seeking patents from the U.S. Patent and Trademark Office has skyrocketed in recent years. Applications for business-method patents jumped to more than 8,500 in 2001 from less than 1,000 in 1996.

Like the EBay case, the Amazon suit involved a patent that wasn't for a particular product or its technology but for a method of doing business that made use of the technology and applied it to the Internet.

Such patents have prompted legal experts to criticize the Patent Office for its generous approval process.

A case in point involves a business-method patent awarded to a Minnesota minor for his method of moving sideways on a swing rather than swinging back and forth.

Reuters was used in compiling this report.

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