EBay Sued for $3.8 Billion by XPRT Over Infringement of Patents on PayPal

EBay Inc., the most-visited U.S. e- commerce site, and units including PayPal Inc. were sued by XPRT Ventures LLC for $3.8 billion over claims the online retailer infringed patents related to e-commerce payment systems.

EBay infringed six patents for online payments and stole trade secrets by sharing information in a patent application after making a confidentiality agreement, XPRT, based in Greenwich, Connecticut, said today in a complaint in U.S. District Court in Wilmington, Delaware.

“XPRT asserts EBay unfairly stole the idea and method of payment used in EBay’s PayPal and similar electronic payment systems,” XPRT said today in an e-mailed statement.

“We are reviewing the complaint filed today,” said Alina Piacentino, a spokeswoman for San Jose, California-based EBay. “We believe it is without merit, and intend to defend ourselves vigorously.”

EBay rose 79 cents, or 3.9 percent, to $21.01 in Nasdaq Stock Market trading.

EBay and it units have been using the alternative payment activities “asserted in XPRT’s patents’ claims since at least 2002,” lawyers for XPRT said in court papers. “EBay has benefited enormously from the use of the inventors ideas without compensation to the inventors.”

Business Relationship

In September 2001, the inventors of the payment patents contacted EBay to establish a potential business relationship, offering them a preview of their patent applications before they would made public, according to court documents. The same month a lawyer representing EBay agreed to treat the information and applications of the inventors as confidential so they could be reviewed and analyzed.

The inventors told EBay how their technology could provide it with added revenue by using their automatic fund transfer concept in EBay’s online auction system, giving them a “significant business advantage over competing online payment systems,” court papers show.

The inventors told the online retailer systems such as PayPal, which EBay did not own at the time, could be modified to use the concept.

Billpoint, the payment method used by EBay, was losing millions of dollars a year because most of its customers were using credit to make purchases, forcing EBay to pay merchant fees. The investors “presented EBay with an opportunity to solve” this problem.

PayPal Purchase

EBay announced its plans to buy PayPal in July 2002, to modify and integrate it into its e-commerce payment system, according to the complaint. EBay “knew or should have known that such modification and combination would violate inventors’ patent application claims.”

XPRT claims it is owed at least $600 million from the more than 4.4 billion transactions that generated more than $10 billion in revenue using the PayPal payment system since the fourth quarter 2002 through 2009.

The company will face more than $3.2 billion in infringement damages over the life of its patents, according to court documents. The patents expire at various times between January 2021 and December 2024.

To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.

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