Skip to main content

A federal judge on Wednesday reaffirmed a multimillion dollar jury verdict against



in a patent dispute, but the company avoided worse sanctions.

U.S. District Court Judge Jerome Friedman denied eBay's motions to throw out the jury's verdict, which was announced in May. But Friedman trimmed the amount awarded to plaintiff


by $5.5 million to $29.5 million, and denied the company's request for treble damages.

The judge also declined MercExchange's requests for a permanent injunction against eBay and delayed ruling on whether eBay should have to pay continuing damages while the two sides appeal the case.

Addressing eBay's argument that MercExchange's patents were invalid, Friedman wrote: "The defendants had the burden to prove invalidity by clear and convincing evidence. The court believes that the jury was entirely reasonable in finding that the defendants did not meet their burden."

Overall, MercExchange was "pleased" with the judge's decision, said Scott Robertson, an attorney with Hunton & Williams who represented MercExchange.

"It's a little bit frustrating" that the court denied the injunction and the award of treble damages, Robertson said. "Then again, the court did affirm that eBay was a willful infringer. The judge said that the verdict was absolutely correct."

eBay representatives did not return calls seeking comment about the judge's decision.

MercExchange filed suit in the U.S Court for the Eastern District of Virginia against eBay in September 2001, charging the e-commerce giant with violating three of its patents, related to online auction technology, fixed-price trading and marketplace search agents. Judge Friedman later dismissed the charges concerning online auction technology, but a jury in May

found that eBay and its subsidiary willfully violated MercExchange's other patents.

Pending the outcome of the prospective appeals, the decision could affect one of the most popular features on eBay's site: its fixed-price sales. With fixed-price sales, eBay shoppers can buy items for a set price, instead of going through a bidding process. The amount of revenue generated through such transactions accounted for 27% of all the sales made through eBay's system in the second quarter.

The case was notable not only because it involved one of the most successful online companies, but because of vigor with which eBay fought MercExchange's charges. Most patent disputes never reach trial; instead they typically end in an out-of-court settlement.

Scroll to Continue

TheStreet Recommends

Even more surprising is that eBay fought the case given its contention in the trial that it could design around MercExchange's patents for a mere $15,000. Legal experts estimate that the company spent far more than that defending itself against MercExchange's charges.

On to Appellate Court

Despite prevailing in the case, MercExchange plans to appeal some of the judge's decisions, Robertson said. The company would like to have an appeals court reverse Friedman's decision to throw out its patent on online auction technology. Meanwhile, the company would like to appeal the judge's ruling on treble damages, he said.

Perhaps most galling to MercExchange was the judge's denial of a permanent injunction. Normally, when a jury finds a defendant guilty of infringement, a judge will grant an injunction against further infringement, legal experts say.

"As night follows day, a judge will grant an injunction," said Carl Oppedahl, a patent attorney with Dillon, Colo.-based Oppedahl & Larson. "It puts an infringer on the spot."

Friedman ruled that because MercExchange doesn't operate a business that utilizes its patents, instead merely licensing them to others, that it essentially didn't need to have an injunction against eBay. Friedman also worried that if he granted an injunction, the two sides would repeatedly end up back in his court room to dispute whether eBay continued to infringe on MercExchange's patents.

However, Friedman warned eBay that they needed to find a way to stop infringing.

"If the defendants continue to infringe the plaintiff's patents, the court will be more inclined to award enhanced damages," Friedman wrote.

Friedman's denial of an injunction was a "plain error," argued Robertson, indicating that MercExchange would appeal that decision.

"We think that was an abuse of his discretion," he said.

eBay, too, is likely to appeal the verdict given the large amount of the award, legal experts say. And the company may have better luck on appeal than MercExchange.

The appeals court is unlikely to overturn findings of fact by the jury or decisions made by the judge based on the jury's findings, Oppedahl said. What that means is that the appeals court is unlikely to overturn Judge Friedman's rulings on treble damages or attorneys fees, both of which he denied to MercExchange based on the jury's determination of the facts, Oppedahl said.

But eBay may have better luck than MercExchange on its appeals. The court of appeals reverses district court decisions in patent cases about 40% of the time, said Neil Smith, a patent attorney with San Francisco-based Howard, Rice, Nemerovski, Canady, Falk & Rabkin.

"They have a reasonable shot," Smith said.

Regardless, assuming that both sides do appeal, they'll have to wait at least 6 to 9 months after filing one to get a decision, Oppedahl said. In the meantime, if eBay does appeal, it will have to post a bond equal to the $29 million judgment, he said.

The judge's ruling in the MercExchange case follows a decision by eBay last month to pay $10 million to settle a dispute with federal authorities. The U.S. Attorney for the Eastern District of Missouri had accused eBay's PayPal unit of violating the USA Patriot Act by providing services to online gambling outlets.

eBay said it would account for the settlement as a reduction in its purchase price for PayPal, rather than as a charge to earnings.