EcommerceBytes-NewsFlash, Number 1414 - November 20, 2006     2 of 3

eBay Patent War: Patents, Lies and Videotape

By Julia Wilkinson

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The ongoing saga of the litigation between eBay and MercExchange over patents saw yet another day in court Friday, November 17, 2006, with several comments made by parties present about the concern for a case that could drag on ad nauseum. MercExchange's attorneys argued that "time is of the essence" and that MercExchange "may not be able to survive much longer without an injunction." eBay's attorneys argued that if MercExchange is allowed to submit new, and what it considers improperly submitted and irrelevant evidence, eBay should be entitled to "a full range of discovery." The attorneys also had animated exchanges over an issue of "prior art" from the original trial involving a videotape of another inventor's multimedia system.

District Court Judge Jerome Friedman, who also presided over the original jury trial of eBay vs. MercExchange in 2003, was only considering certain motions Friday, and not the matters of eBay's motion to stay proceedings in light of the ongoing U.S. Patent Office reexamination of the patents, nor MercExchange's motion for a permanent injunction.

Since the 2003 trial, eBay and Merc Exchange lawyers have met in Appeals court and in the U.S. Supreme Court, which vacated a U.S. Appeals Court decision that favored MercExchange's request for an injunction against eBay's Buy It Now feature. At Friday's hearing, Judge Friedman noted that the Supreme Court has made a significant change in patent law. His opening question to the attorneys was, "What's changed?"

Among the things MercExchange argued are different since the original trial is that the company has not been able to grant an exclusive license to, because as long as eBay is infringing, it's difficult to value the license on the patent.

Jeffrey Randall, of Skadden, Arps, Slate, Meagher & Flom LLP, arguing on behalf of eBay, had said that MercExchange wouldn't have been able to grant an exclusive license to uBid anyway, because it had already granted a non-exclusive license under the 265 ("Consignment Nodes" - i.e. the Fixed-Price or "Buy It Now"-related) patent. However, MercExchange pointed out that the license does not apply to the "Buy It Now" feature. It also argued that injunctive relief is "forward-looking," and it's important for the court to have a current factual record.

eBay cited MercExchange's other three licenses, with ReturnBuy,, and, and added "to argue it didn't include the Buy It Now feature - I don't know what that means." Randall also indicated the notion that "Boy, if you don't grant this injunction, MercExchange won't survive" was not valid, both because eBay believes MercExchange already would not have been able to grant that exclusive license, and because MercExchange had "cut a deal" with investment firm Altitude Capital Partners that he said was presumably worth millions of dollars.

While MercExchange objected to the reference to Altitude Capital, Randall argued that eBay would want to take a deposition from them. "If you're going to allow the uBid evidence on basis that may provide irreparable harm, I'd like to do discovery on uBid, Altitude Capital, and Mr. Woolston," he said.

On the issue of the "prior art," the judge asked eBay if MercExchange's submitted declaration by Kenneth Nahan, inventor of the system depicted in it, highlights "the fact that eBay allegedly perpetrated a fraud on the court?"

eBay responded that the videotape was authentic, dated, and "presented as this is what the Nahan system was."

"I take great offense to what he wrote was said in that meeting," said Randall, referring to a MercExchange attorney's characterization of a meeting between eBay and Nahan. But Mr. Randall pointed out that MercExchange ultimately prevailed on the prior art issue in the original trial, and also that MercExchange had not produced any confidentiality agreements relating to the videotape. "This could be a trial in and of itself," he said. "It's a sideshow."

Scott Robertson of Hunton & Williams, arguing for MercExchange, said that the notion that eBay didn't present the video tape as "prior art" was "just plain wrong." He said eBay called it an infomercial - "this conjures up Ginsu Knives and Thighmasters." The reason this issue is important, he said, is that MercExchange is showing that when you seek equity, as eBay is, "you must do equity" - you must come to court with "clean hands."

Lastly, the judge heard arguments about eBay's motion for leave to file motion to enforce the court's protective order, which relates to what documents MercExchange is allowed to provide to the U.S. Patent Office, currently reexamining the patents. MercExchange argued that they "didn't interpret it to mean that if eBay was to put these patents into reexam, our experts would be precluded from giving information on the validity of prior art."

The issue seemed to be resolved with both sides agreeing that transcripts except for the 15 depositions by eBay engineers would be submitted to the USPTO.

The morning's proceedings closed on the issue of time, with MercExchange alluding to eBay's talk of additional discovery and saying, "There are a lot of clichés, but here is one: justice delayed is justice denied. eBay comes to you as someone who has stolen someone else's property…and they want discovery on things not even in this record."

eBay said that, per a case it cited earlier, if you open the record, "you get the full rights of discovery," and again mentioned Altitude Capital and "the millions of dollars" MercExchange was collecting from them.

Judge Friedman noted that criminal cases have to take precedence over civil ones, and said, "I'll try to do the best we can possibly do."

So ended another stage in a case that has now been ongoing for years and has legal experts, patent holders, and major corporations on the edge of their seats. Stay tuned for the next development.

See AuctionBytes "eBay Patent War Timeline":

Julia Wilkinson is the author of "The eBay Price Guide," (No Starch Press, 2006 powered by Hammertap) and "eBay Top 100 Simplified Tips & Tricks" (Wiley, 2004-6); as well as "What $ells on eBay for What" ( Her newsletter, Yard Salers and eBayers is at, and her blog "bidbits" is at

About the author:

Julia Wilkinson is the author of "The eBay Price Guide" (No Starch Press, 2006) and "eBay Top 100 Simplified Tips & Tricks" (Wiley, 2004-6). Her free "Yard Salers" newsletter is at available at where you will also find her latest ebook, Flip It Again.

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