eBay 2003 Annual Report Download - page 19

defendants breached Ñduciary duties they assertedly owed to PayPal's stockholders in connection with
PayPal entering into the merger agreement, and the exchange ratio in the merger was unfair and
inadequate. The plaintiÅs sought, among other things, an award of unspeciÑed compensatory damages. In
January 2004, the plaintiÅs in the consolidated Delaware actions voluntarily dismissed these actions
without prejudice. The consolidated California actions remain pending, but there has been no activity in
them for over a year and the plaintiÅs have indicated their intent to dismiss these actions.
In September 2002, Bank One Delaware (formerly known as First USA Bank, N.A.) Ñled a
complaint against PayPal in the U.S. District Court for the District of Delaware (No. 02-CV-1462)
alleging infringement of two First USA patents relating to assigning an alias to a credit card so as to
eliminate the need for the physical presence of the card in a Ñnancial transaction. In September 2003,
PayPal Ñled a complaint against Bank One Corp., Bank One Delaware's parent, in the same district court
alleging infringement of a PayPal patent relating to a process that allows Internet users to make secure
payments and authenticated transactions over a computer network. On October 20, 2003, the parties
Ñnalized the terms of an agreement to dismiss both lawsuits. The terms of the settlement agreement are
conÑdential.
In November 2003, AT&T Corporation Ñled a lawsuit against eBay and PayPal in the U.S. District
Court for the District of Delaware (No. 03-1051) alleging infringement of a patent entitled ""Mediation of
Transactions by a Communication System.'' AT&T claims that PayPal's and Billpoint's payment services
infringe its patent, and seeks monetary damages and injunctive relief. On December 24, 2003, eBay and
PayPal answered the complaint, denied infringement of AT&T's patent, and Ñled counterclaims. The case
is at a very early stage, with trial currently scheduled for April 2005. We believe that we have meritorious
defenses to this suit and intend to defend ourselves vigorously. Even if our defense is successful, the
litigation could be costly and require signiÑcant management time.
In May 2002, Tumbleweed Communications Corporation Ñled a complaint against PayPal alleging
infringement of two patents relating to electronic document delivery. Tumbleweed subsequently amended
the complaint to add eBay as a defendant, and later amended the complaint to add a third related patent.
On December 19, 2003, the parties entered into a settlement agreement dismissing the lawsuit, including
counterclaims Ñled by PayPal, and entered into a patent cross-licensing agreement. The terms of the
settlement agreement are conÑdential.
Other third parties have from time to time claimed, and others may claim in the future, that we have
infringed their intellectual property rights. We have been notiÑed of several potential patent disputes, and
expect that we will increasingly be subject to patent infringement claims as our services expand in scope
and complexity. In particular, we expect to face additional patent infringement claims involving services we
provide, including various aspects of our Payments business. We have in the past been forced to litigate
such claims. We may also become more vulnerable to intellectual property claims as laws such as the
Digital Millennium Copyright Act are interpreted by the courts and as we expand into jurisdictions where
the underlying laws with respect to the potential liability of online intermediaries like ourselves is less
favorable. We expect that we will increasingly be subject to copyright and trademark infringement claims
as the geographical reach of our services expands. These claims, whether meritorious or not, could be time
consuming, result in costly litigation, cause service upgrade delays, require expensive changes in our
methods of doing business, or could require us to enter into costly royalty or licensing agreements.
From time to time, we are involved in other disputes that arise in the ordinary course of business. The
number and signiÑcance of these disputes is increasing as our business expands and our company grows
larger. Any claims against us, whether meritorious or not, could be time consuming, result in costly
litigation, require signiÑcant amounts of management time, and result in the diversion of signiÑcant
operational resources.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submissions of matters to a vote of security holders during the quarter ended
December 31, 2003.
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