Poll: Will eBay lose the "Buy It Now" patent dispute filed by MercExchange?
mercurydimeguy
Posts: 4,625 ✭✭✭✭
Today the United States Supreme Court will hear arguments in the patent dispute between eBay and MercExchange. The legal question at issue is whether a federal appeals court was right in reversing a district court's decision to deny an injunction against eBay's use of the so-called Buy It Now feature.
If the Supreme Court upholds the appellate court ruling, it would severely limit the discretion of lower court judges to decide whether or not to enforce injunctions.
The high court's ruling, which could come as early as June, may potentially affect future patent lawsuits, and how much high-tech services or products cost consumers.
From a shareholder standpoint
But for eBay shareholders, the question you really care about is: what's the risk to eBay?
The worst-case scenario would be that eBay's "Buy It Now" service faces a shutdown. That could happen if the Supreme Court upholds the appeals court ruling.
But in that event, eBay would have every incentive to reach a settlement rather than shutter its fixed-price business.
"Most patent law suits are settled," said Stanley Young, an IP litigator at Heller Ehrman, adding that there have been more than $1 billion in settlements with patent holders over the last five years. The figure includes Research In Motion's $612 million settlement with NTP, a patent holding company in Arlington, Va. Earlier this year.
In addition, even in the event of an injunction, eBay's business would have a good chance to remain running since eBay says it has changed its platform.
In eBay's most recent 10-K, the company said: "In addition, as a precautionary measure, we have modified certain functionality of our websites and business practices in a manner which we believe would avoid any further infringement. For this reason, we believe that any injunction that might be issued by the district court will not have any impact on our business."
To this end, some attorneys don't believe eBay will have to pay for any back damages between 2003 and now since eBay wasn't found to be infringing on the Buy It Now patent during that period.
"Even if MercExchange wins, the only thing it can do is enforce the scope of its patent, and the patent doesn't reach to the current platform," said Ian Ballon, an IP litigator with Greenberg, Traurig, who also represents eBay in copyright and trademark infringement matters. He doesn't represent eBay in MercExchange vs. eBay case.
An almost-certain injunction?
But for argument's sake, let's assume the worse-case-scenario (from eBay shareholders' point of view): that is, an injunction is almost certain, and eBay has to pay damages between 2003 through today.
For one, MercExchange would definitely have more leverage to get the highest settlement amount it can from eBay.
"If you could settle with eBay, how much in damages are you looking for?" I asked Thomas Woolston, the founder of MercExchange. "In excess of $100 million," he said, adding that that amount is just a minimum.
What Woolston is looking for the $25 million in damages that he was awarded in the original jury trial in 2003.
Additionally, he's seeking damages from the second quarter of 2003 to the present, he said. Woolston is seeking 0.75% of the gross merchandise value that eBay generated from the Buy It Now business.
During the second quarter of 2003, he said that the Buy It Now business accounted for roughly 16% of eBay's gross merchandise value in that period. By using Woolston's figures for eBay's entire business in 2003, in which eBay handled $23.8 billion in gross merchandise volume, eBay generated about $3.8 billion from this Buy It Now business. Applying the 0.75% royalty Woolston is seeking would mean that eBay would owe him $28 million for 2003.
In 2004, eBay handled $34.1 billion in gross merchandise value, of which 29% was completed through the fixed-price payment system. That means Woolston would be seeking $73.9 million in fees for that year.
For 2005, the Buy It Now business accounted for some 32% of eBay's gross merchandise value for the entire year, according to eBay.
That means of eBay's $44 billion in gross merchandise value, about $14 billion was generated through the Buy It Now feature. If eBay had to pay .75% in fees to Woolston, it would owe him $105 million.
So, as you can see, the numbers add up. But it's nowhere near the amount that RIM paid to NTP.
But for argument sake, let's say that eBay would have to pay that much. How much would that really affect eBay's shares?
Whether it's $100 million or $600 million, the settlement amount seems rather small for eBay, which generated $2 billion in cash from operations in 2005. EBay also had about $2.9 billion in cash and cash equivalents, and long-term and short-term investments last year.
If you take $612.5 million and divided it by the number of eBay's outstanding shares -- which is roughly 1.4 billion -- the settlement would be equivalent to having an impact of roughly 43 cents a share.
That's about 1% of eBay's share price of $37 today.
It's not small by any means, especially if you own millions of shares. And, to the extent that negative market sentiment that's weighed on all the large Internet stocks -- like Google and Yahoo -- has dragged down eBay's shares too, any adverse court ruling that results in a big settlement amount would certainly affect eBay on the downside.
But in the grand scheme of things, there are a lot of other issues that can negatively affect eBay's shares more than the worse-case-scenario of this case.
And, at the end of the day, this is just an exercise of the worst-case scenario regarding this case, and eBay will continue to do just fine when it's over.
Consider Research In Motion. After its settlement, the stock rose sharply on relief that an unknown risk had become a known quantity.
If the Supreme Court upholds the appellate court ruling, it would severely limit the discretion of lower court judges to decide whether or not to enforce injunctions.
The high court's ruling, which could come as early as June, may potentially affect future patent lawsuits, and how much high-tech services or products cost consumers.
From a shareholder standpoint
But for eBay shareholders, the question you really care about is: what's the risk to eBay?
The worst-case scenario would be that eBay's "Buy It Now" service faces a shutdown. That could happen if the Supreme Court upholds the appeals court ruling.
But in that event, eBay would have every incentive to reach a settlement rather than shutter its fixed-price business.
"Most patent law suits are settled," said Stanley Young, an IP litigator at Heller Ehrman, adding that there have been more than $1 billion in settlements with patent holders over the last five years. The figure includes Research In Motion's $612 million settlement with NTP, a patent holding company in Arlington, Va. Earlier this year.
In addition, even in the event of an injunction, eBay's business would have a good chance to remain running since eBay says it has changed its platform.
In eBay's most recent 10-K, the company said: "In addition, as a precautionary measure, we have modified certain functionality of our websites and business practices in a manner which we believe would avoid any further infringement. For this reason, we believe that any injunction that might be issued by the district court will not have any impact on our business."
To this end, some attorneys don't believe eBay will have to pay for any back damages between 2003 and now since eBay wasn't found to be infringing on the Buy It Now patent during that period.
"Even if MercExchange wins, the only thing it can do is enforce the scope of its patent, and the patent doesn't reach to the current platform," said Ian Ballon, an IP litigator with Greenberg, Traurig, who also represents eBay in copyright and trademark infringement matters. He doesn't represent eBay in MercExchange vs. eBay case.
An almost-certain injunction?
But for argument's sake, let's assume the worse-case-scenario (from eBay shareholders' point of view): that is, an injunction is almost certain, and eBay has to pay damages between 2003 through today.
For one, MercExchange would definitely have more leverage to get the highest settlement amount it can from eBay.
"If you could settle with eBay, how much in damages are you looking for?" I asked Thomas Woolston, the founder of MercExchange. "In excess of $100 million," he said, adding that that amount is just a minimum.
What Woolston is looking for the $25 million in damages that he was awarded in the original jury trial in 2003.
Additionally, he's seeking damages from the second quarter of 2003 to the present, he said. Woolston is seeking 0.75% of the gross merchandise value that eBay generated from the Buy It Now business.
During the second quarter of 2003, he said that the Buy It Now business accounted for roughly 16% of eBay's gross merchandise value in that period. By using Woolston's figures for eBay's entire business in 2003, in which eBay handled $23.8 billion in gross merchandise volume, eBay generated about $3.8 billion from this Buy It Now business. Applying the 0.75% royalty Woolston is seeking would mean that eBay would owe him $28 million for 2003.
In 2004, eBay handled $34.1 billion in gross merchandise value, of which 29% was completed through the fixed-price payment system. That means Woolston would be seeking $73.9 million in fees for that year.
For 2005, the Buy It Now business accounted for some 32% of eBay's gross merchandise value for the entire year, according to eBay.
That means of eBay's $44 billion in gross merchandise value, about $14 billion was generated through the Buy It Now feature. If eBay had to pay .75% in fees to Woolston, it would owe him $105 million.
So, as you can see, the numbers add up. But it's nowhere near the amount that RIM paid to NTP.
But for argument sake, let's say that eBay would have to pay that much. How much would that really affect eBay's shares?
Whether it's $100 million or $600 million, the settlement amount seems rather small for eBay, which generated $2 billion in cash from operations in 2005. EBay also had about $2.9 billion in cash and cash equivalents, and long-term and short-term investments last year.
If you take $612.5 million and divided it by the number of eBay's outstanding shares -- which is roughly 1.4 billion -- the settlement would be equivalent to having an impact of roughly 43 cents a share.
That's about 1% of eBay's share price of $37 today.
It's not small by any means, especially if you own millions of shares. And, to the extent that negative market sentiment that's weighed on all the large Internet stocks -- like Google and Yahoo -- has dragged down eBay's shares too, any adverse court ruling that results in a big settlement amount would certainly affect eBay on the downside.
But in the grand scheme of things, there are a lot of other issues that can negatively affect eBay's shares more than the worse-case-scenario of this case.
And, at the end of the day, this is just an exercise of the worst-case scenario regarding this case, and eBay will continue to do just fine when it's over.
Consider Research In Motion. After its settlement, the stock rose sharply on relief that an unknown risk had become a known quantity.
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Comments
There are many many patents that are like that. Did you know that using a laser pointing device to exercise animals has been patented?
Patent legislation is suffocating innovation.
My World Coin Type Set
<< <i>I think the patent is basically rediculous. I don't see how any judge would uphold a patent on the "buy it now" process. >>
Actually, the patent has already been upheld. The current fight is not over the patent (which eBay lost) but over whether or not an injunction will be issued for eBay to immediately stop offering the BIN function. The MercExchange is claiming that monetary damages are not sufficient and that eBay must also stop using the function.
The Wall Street Journal said that on Friday the U.S. Patent and Trademark office "rejected (for the second time) MercExchange's patent claims under re-examination." However, as you say, this decision came after eBay lost the original suit and was found in violation of the patent. At that time, MercExchange was awarded about $30 million but the judge did not grant an injuction forcing eBay to cease using the BIN technology.
Mark
<< <i>Mecurydimeguy:
The Wall Street Journal said that on Friday the U.S. Patent and Trademark office "rejected (for the second time) MercExchange's patent claims under re-examination." However, as you say, this decision came after eBay lost the original suit and was found in violation of the patent. At that time, MercExchange was awarded about $30 million but the judge did not grant an injuction forcing eBay to cease using the BIN technology.
Mark >>
That is how I undertand it. What's fascinating here is what is at stake. If a patent was upheld but a judge refused to give injunctive relief, what kind of message does that send? It's OK for me to violate your patent because all I need to do is pay you, but I can still keep on using it.
Interestingly enough, Microsoft, Oracle, Google and a host of other tech companies filed briefs on behalf of eBay. However, the biggest support comes on behalf of MercExchange, with nearly every single bio/pharma/health, etc., company filing briefs on their behalf. What a fascinating thing to watch.
Having said that, though, how different would eBay really be without BIN? Would people just start auctions at a higher price? Same thing, for the most part...thoughts?
42/92
How do you spell AUCTION ?
If it has a price tag, it isn't really an auction is it ?
Patents don't protect your invention, but just gie you the right to sue.
A witty saying proves nothing- Voltaire (1694 - 1778)
An error does not become truth by reason of multiplied propagation, nor
does the truth become error because nobody will see it. -Mohandas K. Gandhi (1869-1948)
<< <i>Pet peeve -- it's spelled "LOSE". El Oh Ess Ee. One O. >>
Sticky fingers at 7:30 AM
<< <i>Does anyone care? >>
Well, depending on the outcome it can directly effect eBay's fees. It can also effect the eBay store concept as that model is purely driven by the BIN function.
I do not use the BUY IT NOW feature but doesn't it involve 2 steps? and it used to be one?
If you want to be safe from my attorneys, I will gladly license the right for you to use it.
I suppose I...will....take paypal for licensees.