Updated from 1:40 p.m.

The Supreme Court will hear an eBay ( EBAY) patent dispute case.

The San Jose, Calif., auction company said its four-year-old patent dispute with MercExhange LLC over the technology behind "Buy It Now" sales will get a hearing in the nation's highest court.

At issue is a suit MercExchange filed against eBay in September 2001, alleging eBay infringed on three of its patents. One of those patents was eventually invalidated. In May 2003, a jury ruled against eBay and ordered it to pay $35 million in damages. That was lowered to $25 million following an appeal. In bringing its case to the Supreme Court, eBay is arguing that a federal court was wrong to issue an order prohibiting it from technology derived from MercExchange's patents.

"MercExchange remains confident in its view that it will ultimately prevail against the infringer," said Scott Robertson of Hunton & Williams, the lead attorney representing the Virginia company, in a statement. "The bottom line is whether we will be able to obtain an injunction on eBay's buy-it-now operations or whether the court will force a compulsory license."

An eBay spokesman said the company is "gratified" that the court will hear the case. eBay, which has asked the U.S. Patent and Trademark Office to invalidate MercExchange's patents, says it has what it considers "appropriate reserves" for the lawsuit. It has also made operational changes to avoid infringements.

"Nonetheless, if we are not successful in appealing or modifying the court's ruling, and if the modifications to the functionality of our Web sites and business practices are not sufficient to make them non-infringing, we would likely be forced to pay significant additional damages and licensing fees and/or modify our business practices in an adverse manner," the company said.

The case is attracting the interest of other technology companies. Time Warner's ( TWX) America Online unit and Qualcomm ( QCOM) filed briefs supporting eBay, as did the Computer and Communications Industry Association. Other tech companies likely will file friend of the court briefs, said Jonathan Band, an attorney representing the trade group.

"Everyone is going to take it very seriously," he said.

In its brief, the Association argues that the patents are "too easy to get, easier to assert, more potent and widely available." This results in "in patents of decreasing quality."

eBay shares fell $1.34 to $45.37

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