AT&T; Sues EBay Over Payment System
AT&T; Corp. filed a patent infringement lawsuit against EBay Inc. on Thursday, alleging the online auction company has been using a payment system that the telecommunications giant developed more than a decade ago.
The case, filed in federal court in Delaware, comes on the heels of an August verdict in which a Virginia judge ordered San Jose-based EBay to pay $29.5 million to an inventor who accused the company of stealing his ideas for fixed-price sales formats. EBay is appealing that case.
According to the lawsuit, which seeks injunctive relief, AT&T; is demanding that EBay pay licensing fees because its lucrative PayPal division functions as a “trusted intermediary” between buyers and sellers who may not know each other.
The system -- widely regarded as crucial to EBay’s gangbuster growth and a boon to e-commerce in general -- allows buyers to provide credit card or bank account information to a reliable third party instead of individual sellers around the world. Buyers merely have to trust PayPal, and they don’t have to worry about disreputable sellers using sensitive financial data for fraudulent purposes.
AT&T; says three senior engineers working for the phone company filed for a patent in 1991 for exactly such a process.
AT&T; engineers Alexander Fraser, Carlos Perea and Roy Weber began working on the project in the late 1980s, the lawsuit states. They received U.S. Patent No. 5,329,589 in July 1994, when they were working at AT&T; Labs and other divisions of the company.
EBay spokesman Chris Donlay dismissed the lawsuit as meritless.
The acquisition of PayPal was completed in October 2002, and the division became an engine of profit for EBay, one of the few Silicon Valley companies to emerge unscathed from the 2000 dot-com collapse.
PayPal generated $106.4 million in revenue in the third quarter of 2003, nearly double what it generated in the same period a year earlier.
Before PayPal, EBay relied on a similar system called Billpoint, which also is named in the lawsuit. The lawsuit does not state how much money Bedminster, N.J.-based AT&T; is demanding in licensing fees.
