May 30, 2003, 12:00 AM

Jury`s finding threatens eBay`s fixed-price auction business

A jury`s patent infringement award against eBay threatens eBay`s fixed-price sales and could cause problems for other e-retailers, an attorney says.

EBay Inc.`s eBay.com has been reporting strong growth in fixed-price sale transactions, which account for more than 22% of its revenue and 32% of its listings. But a jury`s award of $35 million against eBay this week in a patent infringement case brought by MercExchange threatens to end eBay`s fixed-price business, Jon Hangartner, an attorney with San Diego-based Sheppard Mullin Richter & Hampton LLP specializing in patent infringement cases, tells InternetRetailer.com. He adds that the case could also prevent other e-retailers from offering fixed-price auctions.

"This is a real problem for eBay, and other retailers will also have a very, very real problem if they they`re doing the same thing in offering fixed-price auctions," Hangartner says. Fees from fixed-price sales account for more than a fifth of eBay`s revenue, which reached $1.2 billion last year. Gross merchandise sales at eBay reached $15 billion last year.

A Virginia jury in a U.S. District Court in Norfolk, VA, awarded MercExchange $35 million this week based on MercExchange`s charge that eBay infringed on two patents for MercExchange`s fixed-price auction technology. The technology enables buyers to immediately bypass auction bidding to purchase at a pre-set fixed price.

MercExchange had also charged that eBay infringed on a third patent related to auction bidding technology, but the judge in the Virginia case threw out that charge. Nonetheless, Greg Stillman, an attorney representing MercExchange, says the court`s overall findings in the case put the plaintiff in a good position to withstand any appeals and to possibly reap a far greater award. He suggests that the judge in the case could treble the $35 million award because the jury determined that eBay`s infringement was intentional. "Even more significantly, the $35 million was awarded for only 18 months of patent infringement," he says. "The two infringed patents have 13 more years to run."

Jay Monahan, eBay’s deputy general counsel, said the case has not reached a final judgment and that eBay will file post-trial motions asking the court to reverse the jury’s verdict, to vacate the decision and to reduce the damages found by the jury. "We are disappointed with the jury’s verdict. This issue is far from over," Monahan said in statement released by eBay. "We believe that the weight of the evidence presented during the trial did not justify the jury’s verdict."

Hangartner notes that eBay will most likely ask the judge to delay any injunction that would force eBay to stop offering fixed-price sales. If the judge concurs with the jury that eBay infringed on MercExchange`s patents and orders an injunction, eBay would face multiple problems, Hangartner says.

"Not only would they lose that revenue stream, but they`d have to figure out how to shut down the system without opening itself up to litigation from its customers,” he says. “An injunction would be a heavy blow."

Some observers, however, say an alternative option for MercExchange is to use its position to work out a deal to sell its patents to eBay in exchange for dropping the lawsuit.

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