Will eBay End up Paying for Its Own Auctions?

eBay representatives did not return calls seeking comment on ReturnBuy's decision to settle the case.

The settlement must still be filed by the court. MercExchange and ReturnBuy are expected to file the settlement documents this week. Details are confidential, but both sides claimed satisfaction with the terms.

ReturnBuy's move comes as the patent case, filed last year, edges closer to trial, with a scheduled start date in April.

Walt Shill, ReturnBuy's CEO, said he was pleased with the settlement. Shill declined to say whether eBay agreed with ReturnBuy's decision to settle the case.

eBay invested in ReturnBuy as part of the company's $15 million second round of funding. Shill declined to say how much eBay has invested in the company or what its percentage stake is.

"We're happy to be partners with MercExchange," Shill said.

Woolston said he too was pleased with the settlement, calling it a "milestone" in the case.

"It's an important development for us to have a large member of the eBay community license us on fair and reasonable terms," Woolston said. "It can only help the cause for us to vindicate our rights."

eBay is not the only big name company MercExchange has accused of infringing its patents. Overture Services (OVER - Cramer's Take - Stockpickr) paid the company an undisclosed sum to settle a patent lawsuit MercExchange filed against it in 2000. Meanwhile, MercExchange is awaiting a decision on an administrative action it filed against Priceline.com (PCLN - Cramer's Take - Stockpickr) in 1998.

MercExchange counts Overture and Overture spinoff Channel Advisor among its licensees.