eBay's Next Big Challenge May Be a Legal One

The company faces an April trial date in its dispute with MercExchange, which holds three of founder Tom Woolston's patents. In a suit filed in 2001, MercExchange charged eBay with violating three of those patents, which cover online auction technology, shopping search engines and a system for creating an electronic marketplace.

Although the judge in the case has thrown out some of the claims made in the patents, MercExchange has thus far fended off numerous attempts by eBay to dismiss the case altogether. Meanwhile, MercExchange has gotten some validation for its patents lately.

Last month, ReturnBuy, an online liquidator partially owned by eBay that also was charged in the suit, agreed to settle the case and license MercExchange's patents. Erstwhile eBay partner AutoTrader, which severed its ties with the auction giant last month to set up a competing automobile auction site, also recently agreed to license MercExchange's patents.

eBay and MercExchange are not engaged in any serious settlement talks, said Woolston. Meanwhile, the AutoTrader agreement "gives us the resources to see [the eBay suit] through to trial and back on appeal," said Woolston. "We have enough now to go the limit."

Chip Perry, CEO of AutoTrader.com, declined to say how much the company paid to license MercExchange's patents. But noting that the privately held company had some $100 million in revenue last year, Perry said the upfront payment made to MercExchange was significant.

"It was not a rounding error in our financials," Perry said.

PayPal's Baggage

eBay's business fared well in the fourth quarter, boosted in no small part by PayPal, its recently acquired online payments subsidiary. But PayPal brought with it a couple of outstanding legal cases that could prove to be a headache for eBay.