EBay to fight US$35 million patent judgement

EBay Inc. plans to ask a judge to overturn a US$35 million jury award won by a Virginia man who claimed eBay and its subsidiary Half.com infringed on his patents related to online auctions.

The San Jose company said Wednesday it will ask Judge Jerome Friedman to overturn the award to MercExchange LLC and its owner, Thomas G. Woolston, of Great Falls, Va. A jury in U.S. District Court for the Eastern District of Virginia found Tuesday that eBay had willfully violated two patents owned by MercExchange, which holds and licenses numerous patents related to e-commerce.

The judge must now decide whether to approve the verdict, and potentially could force eBay to stop providing fixed-price auctions and other services covered by the two patents. However, an eBay representative said any discussion about the company changing its business would be speculation at this point. About a quarter of eBay’s revenues come from services affected by Woolston’s claims, according to the company spokesperson.

The sizeable jury award, which could be multiplied by the judge, could bring other would-be patentholders out of the woodwork in hope of a multi-million dollar payday, predicted Steven M. Bauer, a partner at Testa, Hurwitz & Thibeault LLP and member of the Boston firm’s Patent and Intellectual Property Practice Group.

“This is the type of case that only motivates more people to file with the lottery ticket mentality,” Bauer said. “No matter how much people rail against business-method patents, in this case, the guy won. One person wins the big state lottery and 100 million people buy tickets.”

Woolston began applying for auction-related patents in the spring of 1995, just months before eBay was launched. This case is one of several high-profile Internet patent cases that have popped up during the last several years, with Amazon.com Inc.’s business-method patent on its one-click ordering system among the most prominent.

The jury awarded damages for Woolston’s patents for software search agents and for selling fixed-price items by auction. In October, a federal judge ruled that a third Woolston patent, regarding online auction technology, was invalid and unenforceable. The paperwork on the jury decision was not yet available Wednesday, and Woolston and his lawyer didn’t immediately return messages asking for comment.

Jay Monahan, eBay’s deputy general counsel, said in a statement that the company plans to ask the judge to reverse the jury’s verdict and vacate the decision in post-trial motions. “We are disappointed with the jury’s verdict. This issue is far from over,” Monahan said in the statement. “We believe that the weight of the evidence presented during the trial did not justify the jury’s verdict.”

An eBay spokesperson declined to talk about how the jury award would affect eBay’s business, saying the company was focused on getting the judge to overturn it. “Our immediate focus is on filing the series of motions,” said Kevin Pursglove, the eBay representative.

Asked about the possibility of appeal, Pursglove said the company is concentrating first on getting the judge to overturn the jury award. “An appeal is something that’s farther down the road,” he said. “When it gets to that point, we’ll certainly consider all our options.”

Attorney Bauer said it’s rare for a judge to overturn a jury verdict in a patent case. “Judges defer to the juries in these cases,” Bauer said. “The judge has the right to correct a gross injustice, but in this case, it looks like this was a judge who gave this case an awful lot of attention.”

EBay’s chances are better before an appeals court, where lower court judgments are reversed about 40 per cent of the time, Bauer added.

Large jury awards on business methods won’t ultimately kill innovation in e-commerce, according to Bauer, but such lawsuits can slow down companies who are having to fight patent claims.

“What (patent lawsuits) do is slow down fast-moving companies that need to divert resources to battling these things,” Bauer said. “When management has to spend US$2 million to US$3 million on legal fees…it slows people down. It’s very costly, but probably doesn’t prevent (new) companies from forming.”

With the potential for patent lawsuits to include injunctions against using the patents, company officers have to pay attention to such lawsuits, Bauer added. “They treat them very seriously because the impact is so Draconian,” he said. “There’s no high-tech company that can risk a US$30 million judgement or an injunction.”