eBay’s PayPal Sued for $11.4 Billion for Patent Infringement
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: July 13, 2010 @ 11:17 pm
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The attorneys at Kelley Drye & Warren LLP are back at it making big news. You will likely recall that it was the attorneys of Kelley Drye & Warren that represented Dr. Tafas in the successful claims and continuations challenge, effectively prevailing against long odds against the United States Patent and Trademark Office. Now they are representing XPRT Ventures, LLC, in a enormous $11.4 billion lawsuit brought against eBay’s PayPal. The complaint filed in the United States District Court for the District of Delaware, asserts trade secret theft and patent infringement claims with respect to six XPRT patents. In a nutshell, XPRT asserts eBay unfairly stole the idea and method of payment used in eBay’s PayPal and similar electronic payment systems.
The complaint seeks $3.8 billion in damages at a minimum, but in no event less than a fair and full reasonable royalty, but also seeks tripled damages as a result of willful infringement, which would bring the total to $11.4 billion at a minimum. While willful infringement is quite hard to prove, if the facts actually are what is alleged it would seem as if the case is exceptional, which could lead to triple damages and attorneys fees as well. So when you add that all together and add pre-judgment and post-judgment interest, the total amount on the line could easily exceed $15 billion. And before you write this off as a patent troll trying to hold up a true innovator, which some of the uninformed in the popular press are doing already, read the rest of the article and take a look at the complaint. If the facts alleged even remotely resemble reality this could turn out to be an epic battle to which we will all want front row seats!
XPRT Ventures holds patents covering e-commerce payment systems and methods. In question are United States Patents 7,567,937, 7,627,528, 7,610,244 and 7,599,881. They today announced that it has filed a lawsuit against eBay, Inc, its subsidiaries, PayPal, Inc. and Bill Me Later Inc., Shopping.com, Inc., and StubHub, Inc. The complaint alleges that the Inventors listed on XPRT’s patents shared their patent applications, and ideas on how to implement such concepts taught therein, with eBay in confidence. eBay incorporated such inventive concepts and ideas into its auction payment process during current California gubernatorial candidate Meg Whitman’s tenure as eBay’s CEO. eBay’s unauthorized incorporation was a misuse of Inventors’ confidential and proprietary material. In fact, XPRT claims that eBay’s upper management knew or should have known, that the unauthorized use of Inventors’ confidential and proprietary material ran the risk of patent infringement if XPRT’s patent applications issued as patents.
One of the attorneys leading the case is Steven J. Moore, who was the lead attorney who represented Dr. Tafas and who argued the case on behalf of Dr. Tafas at the United States Court of Appeals for the Federal Circuit. When I reached him for comment on this lawsuit Moore told me:
This case entails not only patent infringement assertions with respect to claims found in a total of six patents, but also trade secret theft. What makes this case particularly egregious is the allegation that eBay incorporated our client XPRT’s inventive concepts into one of eBay’s own patent applications without reference to XPRT’s own patent filings. Claims of this patent application were later rejected multiple times based on XPRT’s own patent applications without eBay being able to show earlier invention of such concepts.
According to the complaint, although eBay knew of the confidential and proprietary nature of the Inventors’ disclosures. In fact, the complaint goes through extraordinary detail explaining the back and forth between the inventors and representatives for eBay. For example, the complaint alleges that one of the inventors, George Likourezos, contacted eBay and offered eBay an exclusive opportunity to confidentially review the applications filed prior to the applications becoming publicly available through publication. For the purpose of evaluating whether the inventions could be advantageously deployed by eBay, Mr. Likourezos proposed a meeting to discuss the technology contained within the applications (See complaint para. 33). Shortly thereafter, Mr. Andre Marais, a partner at Blakely, Sokoloff, Taylor & Zafman is alleged to have contacted Mr. Likourezos. Marais is alleged to identify himself as representing eBay and requesting copies of the patent applications for purpose of review and analysis (See complaint para. 34). Marais is alleged to have agreed to the confidential treat the applications and information provided (See complaint para. 35). Based upon this promise of confidentiality the inventors provided the requested information to Marais (see complaint para. 36). Ultimately the complaint alleges that the parties understood that if eBay were interested the inventors would be compensated (See complaint para. 41).
The complaint goes on to explain that eBay filed a U.S. patent application, using the same attorney (Marais) who had reviewed XPRT’s disclosures, which incorporated numerous disclosures set forth in XPRT’s patent applications. eBay, however, did not disclose XPRT’s patent applications to the U.S. Patent and Trademark Office until a search report issued for eBay’s corresponding foreign patent application and cited one of XPRT’s published patent applications as relevant prior art. Only then did eBay cite XPRT’s published patent application to the USPTO (See complaint para. 74-75).
But wait, there is more. eBay’s U.S. patent application has been rejected four times based on the earliest filed XPRT patent application, which was filed more than two years before eBay’s patent application was filed (See complaint para. 76). On top of that, the complaint alleges that the eBay patent application has claims within it that are substantially identical to the claims filed by the Inventors. As a result of eBay’s duty of candor before the USPTO, which requires applicants only to seek claims believed by it to be patentable, XPRT asserts that eBay has admitted the patentability of the subject matter of numerous claims contained in XPRT’s patent applications (See complaint para. 67-68). I am not sure I have ever seen an argument like this, but it seems logically sound. If eBay did in fact ask for claims substantially similar then they have a lot of explaining to do, and really ought to be estopped from raising any prior art to invalidate the XPRT claims that was known by eBay at the time they filed. That could prove a powerful anti-invalidity argument should the district court buy in. I’ll hold my judgment for the moment, but the argument seems creative, logical and certainly in keeping with the duty of candor owed by applicants.
But you had to expect a twist, right? According to the complaint, a Confidentiality Agreement provided by eBay and signed by XPRT’s Inventors was later unilaterally altered in respect of its effective date by eBay’s senior patent counsel to make it appear as if eBay’s obligation to keep XPRT’s information confidential only arose on the date eBay’s patent application was filed. These facts, which seem certain to play a critical role in at least the trade secret misappropriation count, which is but one of 9 causes of action. For this saga of the allegedly altered documents see complaint para. 56 – 63.
While it is still extremely early, and every litigant should have the reader leave thinking they should prevail, I will observe this complaint is not your typical complaint in many regards. A lot of time with these type of lawsuits which seek almost shockingly high damages the complaints are nebulous, light on fact and heavy on smoke and mirrors. Even a casual observer who is uninitiated in the law can read this complaint and realize that is it presents an extraordinary level of detail that is not common in most complaints, although probably should be. For example, paragraph 63 explains that eBay Senior Patent Counsel Emily Ward unilaterally altered the aforementioned NDA on April 30, 2003. That is not alleged upon information and belief, but set forth as fact known to be true.
Perhaps I am incorrect, but this complaint reads as if this lawsuit was well prepared, the facts well chronicled and intended to demonstrate to eBay that facts and circumstances of eBay operations are well known. This is a tactic that I have seen used, and one taught to me by an early mentor of mine. There is a perception that being so specific with details early on in a litigation can signal to the defendant that the plaintiff has done an enormous amount of homework and is in the fight for the long haul, which ought to be expected I suppose if you are suing eBay for $11.4 billion.- - - - - - - - - -
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About the Author
Gene Quinn is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.