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eBay may face injunction in patent case

A United States appeals court yesterday upheld $25 million in damages against eBay resulting from a patent lawsuit brought by MercExchange, a developer of e-commerce technology, and cleared the way for a permanent injunction related to the dispute.

In a wide-ranging, 30-page ruling on Wednesday, the U.S. 4th Circuit Court of Appeals found one MercExchange patent invalid but reversed a lower court's rejection of MercExchange's motion for a permanent injunction.

The ruling also affirmed one MercExchange patent and resurrected another patent invalidated by the lower court.

"The big factor here is the awesome power of a nationwide injunction," said Sean Hodge, a partner at Howrey Simon Arnold & White in San Francisco.

A federal judge in 2003 ordered eBay to pay Virginia-based MercExchange $29.5 million for infringing e-commerce patents that MercExchange charged were key to eBay's "Buy it Now" feature that handles fixed-price sales.

Such sales accounted for about 31 percent of the total value of goods sold on eBay in the fourth quarter of last year, eBay said.

That lower court also denied MercExchange's request for a permanent injunction against eBay.

eBay had appealed the initial judgment and was allowed to suspend payment to MercExchange during appeal.

"Each side can claim partial victory in the appeal," Dennis Crouch, a patent attorney at McDonnell Boehnen Hulbert & Berghoff in Chicago, wrote in an email to Reuters.

Attorneys for MercExchange said the judgment on the invalidated patent was equal to $4.5 million, meaning that $25 million of the earlier judgment was affirmed.

"In this case, the district court did not provide any persuasive reason to believe this case is sufficiently exceptional to justify the denial of a permanent injunction," the U.S. 4th Circuit Court of Appeals said in its ruling.

We're going to go back to the district court and ask for the permanent injunction and ask for an additional two years of damages," MercExchange lawyer Scott Robertson, a partner at Hunton & Williams, told Reuters.

"We believe that any injunction that might be issued by the district court with respect to the other patent will not have an impact on our business because of changes we have made following the District Court's original verdict," eBay said in a statement.

EBay said it was pleased with the appeals court's decision to invalidate one of MercExchange's patents, and as a result, the related damages.

"We are confident in our position against MercExchange and do not believe that these matters will have any impact on our business," said eBay, which in 2003 booked a $30 million charge related to the lawsuit.

The U.S. Patent and Trademark Office is re-examining the validity of MercExchange's patents upon eBay's request, the company said.

"This means that a substantial question was raised as to whether the patents should have issued in the first place," Crouch said.

"This case may involve a race against time. If the litigation is concluded before the re-examination is complete, then the result of the re-examination may be moot as far as eBay is concerned," he added.

MercExchange last summer said it licensed its technology to online auctioneer UBid. MercExchange founder Thomas Woolston told Reuters he is working at UBid, which aims to be an alternative to eBay.

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