Jury orders eBay to pay $35 million in patent dispute case

NORFOLK, Va. -- A federal jury on Tuesday ordered eBay to pay $35 million for violating patents filed by a Virginia attorney, a ruling that could change how the online auction house does business.

Jurors ruled for MercExchange, based in Great Falls, Va., which had claimed that its founder, Thomas G. Woolston, filed three patent applications for programs and procedures to operate an Internet-based auction.

MercExchange filed suit in federal court in September 2001 accusing eBay of using Woolston's ideas to operate its online auction house, without his permission and without paying him.

EBay countered that the company's procedures didn't infringe Woolston's patents, and that those patents are unenforceable anyway because other people had proposed similar systems and methods before Woolston filed his applications.

Jurors found eBay had acted "willfully," meaning U.S. District Judge Jerome B. Friedman can triple the damages. The verdict involved eBay's Half.com business and "Buy it Now" service and does not involve its auction operation.

Friedman is expected to rule later on whether eBay must change any of its practices in light of the verdict.

At the core of the dispute is one of three patents issued to Woolston in 2000 and 2001 that were spawned from an original, or "parent," application he filed in April 1995.

The 1995 filing was several months before eBay founder Pierre Omidyar launched the auction site using a combination of his own programming and software obtained for free over the Internet. A San Francisco patent attorney, Neil Smith, called the $35 million damages a "drop in the bucket to eBay." He noted, though, that the judge could order the company to halt parts of its business affected by the verdict.

"If it's upheld that the patents were violated, then the court could issue an injunction against practicing the patents," Smith said.

The trial began April 24. Friedman said the case was one of the most contentious he had seen in nearly 20 years on the bench.

"I'm walking on sunshine," Woolston said. "We are thankful that a small company got its day in court and was vindicated by a jury."

In a statement, eBay executives said they will ask the judge to set aside the verdict and will then appeal if he doesn't vacate the ruling.

"We believe the weight of evidence does not support the verdict," said Jay Monahan, eBay's deputy general counsel. "The verdict is still very much in dispute, and the battle is still far from over. This was really the first step."

Ebay, based in San Jose, Calif., is one of the Internet's great success stories and one of the last remaining winners from the dot-com bubble. Its stock is up more than 40 percent this year alone and it reported a first-quarter profit last month of $104.2 million, more than double the amount it earned in the same period last year.

But in its most recent annual report filed with the Securities and Exchange Commission that it "might be forced to pay significant damages and licensing fees, modify our business practices or even be enjoined from conducting a significant part of our U.S. business. Any such results could materially harm our business."