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eBay Accused of Stealing Trade Secrets in $3.8B Patent Suit

By Erika Morphy
Jul 14, 2010 2:21 PM PT

eBay has been slammed with a lawsuit alleging that the e-commerce giant infringes on six patents with its PayPal, Bill Me Later, Shopping.com and StubHub services.

eBay Accused of Stealing Trade Secrets in $3.8B Patent Suit

The suit, filed in the U.S. District Court in Delaware by XPRT Ventures, veers from the typical pattern of patent disputes. For starters, XPRT has already tabulated its damages and is asking the court for US$3.8 billion.

It also alleges that eBay stole information that it had shared in confidence when it pitched its technology to the company. Essentially, XPRT claims, it gave eBay the idea to buy PayPal in 2001 by explaining the advantages of the system and how easily it could be integrated into eBay's operations via technologies on which XPRT had patents pending at the time.

"eBay's familiarity with the confidential information provided by the Inventors allowed eBay to recognize the advantages it would realize by acquiring, modifying and integrating PayPal's payment platform with eBay's own e-commerce payment platform," the lawsuit reads. "eBay also knew or should have known that such modification and combination would violate Inventors' patent application claims should they issue as patents."

eBay later filed applications for patents on the technologies used in these services, according to the suit, but those applications were declined by the Patent and Trademark Office because XPRT already owned them.

A Peg

It would appear that XPRT is heading into this legal battle better armed than many patent dispute plaintiffs, based on the filing, said Christopher M. Collins, a partner with Vanderpool, Frostick & Nishanian.

"Presumably, there is communication between the two companies and, hopefully, a contractual agreement that was carefully drawn" with respect to how eBay would use the information it received during the pitch, Collins told the E-Commerce Times.

Patent plaintiffs don't usually start in such a position, he said.

On the other hand, if such an agreement was drawn imperfectly or not at all, eBay would have some available defenses, he said, including independent patent development.

Not Frivolous

The complaint is very detailed, providing many names, dates and other specific allegations. It doesn't read like a frivolous suit, David Burgert, a partner with Porter & Hedges, told the E-Commerce Times.

XPRT claims it received assurances of confidentiality and a signed Non-Disclosure Agreement from eBay, he noted.

Also, "XPRT points to the fact that the eBay lawyer prosecuting the eBay patent application is the same lawyer to whom it had made its disclosures several years earlier," Burgert pointed out.

Easy to Understand

Another thing in XPRT's favor -- and that works against eBay -- is the likelihood that the jury may find it easier to paint eBay as the villain because the case is easier to understand than the usual tech-laden patent cases, said Alexander Poltorak, chairman and CEO of the General Patent Corporation.

"When juries can't understand the technology in dispute or the nuances of patent law, they try to simply figure who are the 'good guys' and who are the 'bad guys,'" he said.

"Having trade-secret theft allegations, should they prove convincing, will help the jury to put a white hat on XPRT and a black hat on eBay," Poltorak told the E-Commerce Times. "The allegations that eBay may have tried to patent the inventions they had learned from XPRT only exacerbates eBay's troubles and may go a long way in proving willfulness."

eBay's best bet is try to dismiss this lawsuit on summary judgment, if it can, he suggested.

Some Challenges

Still, XPRT is facing some challenges with this case. For instance, it's unlikely that the firm will receive $3.8 billion, even if it should win the case, according to Dan Venglarik, a shareholder at Munck Carter.

"From a patent litigation standpoint, I don't see where they're going to get anywhere near that. The largest patent damages in history have been less than half of that," he told the E-Commerce Times.

"Patent damages typically are royalty-based," Venglarik said.

"You just don't get those kinds of numbers in patent litigation. They're going to have prove that it was really worth that much money, and that's going to be tough to do," he explained, noting that eBay and PayPal are international operations, and that this litigation will only apply to U.S. operations.

"They're going to have to prove that eBay, which was already doing well, stole their idea and profited wildly because of these few patents," emphasized Venglarik.

XPRT also runs the risk of having its patents invalidated with the litigation, said Derek Bambauer, assistant professor of law at Brooklyn Law School. "About half -- some 45 percent -- of patents are found invalid during litigation."


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