AT&T sues eBay for patent infringement

U.S. telecommunications giant AT&T Corp. has sued eBay Inc. and its PayPal Inc. unit alleging that the payment systems the companies use infringe on an AT&T patent.

The suit was filed Thursday in U.S. federal court in Delaware, AT&T said in a statement. EBay completed its acquisition of PayPal last October.

The eBay and PayPal payment systems involve a trusted intermediary to process payments over the Internet. This third party safeguards payment details such as credit card numbers. AT&T claims the systems infringe its patent 5,329,589 awarded in July 1994 for “mediation of transactions by a communications system.”

EBay and PayPal refused to license the patented technology, so “AT&T has been forced to bring the matter to court,” the company said. AT&T first contacted eBay and PayPal about the alleged patent infringement over a year ago, the Bedminster, N.J., company said.

EBay confirmed there had been talks with AT&T on the patent issue, but dismissed the lawsuit. “We haven’t seen the complaint yet, but based on what we know about it we believe the suit is without merit and we plan to defend ourselves vigorously,” eBay spokesperson Chris Donlay said.

AT&T is asking the Delaware court unspecified damages and for permanent injunctions barring eBay and PayPal from using the Billpoint and PayPal payment systems, according to a copy of the complaint filed Thursday.

Being ordered to pay damages is not unsurmountable, but injunctions could seriously affect eBay’s business, said David Schlitz, partner with Burns, Doane, Swecker & Mathis LLP in Alexandria, Va., a law firm specialized in intellectual property cases.

“The danger is really an injunction, if the court finds that there is infringement and they have to change their system, that can have a real adverse effect on their business,” he said.

The U.S. District Court for the District of Delaware handles many patent infringement cases. The cases take about 15 months, Schlitz said. “This lawsuit is just the opening act in a long play. This will not be resolved through a trial for another year or more. Of course, after that, there can be an appeal,” he said.

EBay is one of the world’s largest online auction sites. Last month the San Jose company reported third quarter net income of US$103.3 million, on revenue of US$530.9 million and said it had a record 85.5 million registered users at the end of the quarter.

EBay has fought and lost patent battles in the past. In May a jury awarded US$35 million to a Virginia man who claimed eBay and its subsidiary infringed on his patents related to online auctions. The jury found that eBay had willfully violated two patents owned by MercExchange LLC, which holds and licenses numerous patents related to e-commerce.