November 21, 2003, 12:00 AM

AT&T files patent challenge to eBay’s PayPal payment system

AT&T contends that eBay Inc.`s PayPal infringes on a patent it received in 1994 for providing third-party payment services. EBay denies any patent violation.

Kurt Peters

Executive Editor


PayPal, a third-party payment service for online retailers, is producing sharp increases in payment transaction revenues for parent eBay Inc. Now AT&T; says it wants its fair share of that money and seeks a court injunction to force eBay to stop using PayPal, contending that PayPal infringes on an AT&T; patent.

Since acquiring PayPal in October 2002, eBay’s payment transaction revenue has increased by nearly 20 times year-over-year. For the first nine months of 2003, eBay reported payment transaction revenue of $298.9 million, up from $15.6 million in the first nine months of 2002, before eBay owned PayPal and had only its Billpoint service. The revenue comes from the fees that eBay charges sellers to accept PayPal.

But AT&T; contends that PayPal infringes on a patent it received in 1994 for providing third-party payment services. “PayPal and eBay have infringed AT&T;’s U.S. patent that covers transactions in which a trusted intermediary securely processes payments over a communications system such as the Internet,” AT&T; said. It did not divulge the amount of compensation it is seeking.

EBay denies any wrongdoing. “We believe the suit is without merit and we will defend ourselves against it vigorously,” an eBay spokesman said.

AT&T; said it decided to file its complaint, which is in U.S. District Court in Delaware, after trying for the past year to get eBay to pay license fees for use of the payment system.

This is not the first time eBay has dealt with patent challenges. Last month, it reached a settlement with Bank One Corp. after the two companies had filed complaints against each other related to infringement of payment system patents. And in August, it agreed to modify its fixed-price feature in online auctions after losing a patent lawsuit in which a federal court fined it $29.5 million. EBay is appealing that case.



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