eBay business model under threat from lawsuit

NEWS eBay is being threatened with a patent infringement lawsuit that could force it to modify its auction format. A loss could force the company to pay millions of dollars in royalties and damages and even to make significant changes to its business model. MercExchange founder Thomas Woolston, an inventor and patent attorney who has been granted four online auction-related patents since 1998 and has some 10 others pending, said he sued eBay in 2001 after negotiations broke down over the auction site's offer to purchase his patents. The company first contacted Woolston in 2000 with an interest in buying the patents. Email to that effect is expected to figure prominently in the case because it indicates that eBay knew about Woolston's patents but continued to infringe them, he said. "We expect to be vindicated at trial," Woolston said. "They are rank infringers." eBay representatives did not return calls seeking comment about the lawsuit. However, in a recent regulatory filing of quarterly earnings, eBay said it believes it has "meritorious defences" to the claims, but noted that the lawsuit could prove costly even if eBay wins. "If (MercExchange) 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 practicing a significant part of our US business. Any such results could materially harm our business," eBay said in its filing. "We are unable to determine what, if any, potential losses we may incur if this lawsuit were to have an unfavourable outcome." MercExchange has suggested a specific figure to settle the case, but the court has sealed the report and the amount sought is unavailable, said Scott Robertson, an attorney with Hunton & Williams, who represents Woolston and MercExchange. "We are seeking reasonable royalties as permitted under the patent laws," Robertson said. "It's not our goal to put eBay out of business. It's our goal to provide just compensation for the patent owner." Woolston said there have been no attempts to settle the case. "We can't agree on anything," he said. "They just want to litigate everything." The trial is scheduled for 12 November in the US District Court for the Eastern District of Virginia. Troy Wolverton writes for News.com