eBay 2007 Annual Report Download - page 110

consignment systems) and seeking a permanent injunction and damages (including treble damages for willful
infringement). Following a trial in 2003, the jury returned a verdict finding that we had willfully infringed the
patents relating to multiple database searching and electronic consignment systems, and the court entered judgment
for MercExchange in the amount of approximately $30 million, plus pre-judgment interest and post-judgment
interest. The U.S. Court of Appeals for the Federal Circuit later reduced the award to $25.5 million. In May 2006,
following appeals to the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court, the Supreme
Court remanded the case back to the district court for further action. In parallel with the federal court proceedings, at
our request, the U.S. Patent and Trademark Office agreed to reexamine each of the patents in the suit, finding that
substantial questions existed regarding the validity of the claims contained in them. In separate actions in 2005, the
Patent and Trademark Office initially rejected all of the claims contained in the three patents in suit. In September
2007, the Patent and Trademark Office tentatively approved some of the claims and rejected others contained in the
patent that underlies the jury verdict, which relates to electronic consignment systems. We requested that the district
court stay all proceedings in the case pending the final outcome of the reexamination proceedings, and
MercExchange has renewed its request that the district court grant an injunction. In July 2007, the court denied
MercExchange’s request for an injunction and ruled that the proceedings related to one of the patents will be stayed
and another of the patents will not be stayed pending action by the Patent and Trademark Office. MercExchange
appealed the court’s order denying the injunction, and we filed a motion seeking that the court find the non-stayed
patent invalid. In December 2007, the district court ruled that it could not consider eBay’s motions for judgment as a
matter of law and a new trial, because it viewed the 2003 verdict for MercExchange (amounting to approximately
$30 million, plus interest) as final, subject to an accounting. We have appealed that ruling.
With the appeals pending, in February 2008, the parties agreed to settle to dismiss all claims and appeals
stemming from the lawsuit. As a part of the settlement, eBay will purchase all three patents involved in the lawsuit,
and related technology and inventions, as well as a license to another search-related patent portfolio that was not
asserted in the lawsuit. These assets will allow eBay to further enhance its operations and trust and safety effort on
its ecommerce sites. The reserves recorded in our consolidated financial statements properly reflect our liability as
of December 31, 2007 in connection with this settlement.
In June 2006, Net2Phone, Inc. filed a lawsuit in the U.S. District Court for the District of New Jersey
(No. 06-2469) alleging that eBay Inc., Skype Technologies S.A., and Skype Inc. infringed five patents owned by
Net2Phone relating to point-to-point Internet protocol. The suit seeks an injunction against continuing infringe-
ment, unspecified damages, including treble damages for willful infringement, and interest, costs, and fees. We
have filed an answer and counterclaims asserting that the patents are invalid, unenforceable, and were not infringed.
The parties have completed fact discovery and claim construction briefing. The pretrial conference is scheduled for
June 2008, and we expect a trial date to be scheduled for summer 2008. We believe that we have meritorious
defenses and intend to defend ourselves vigorously.
In August 2006, Peer Communications Corporation filed a lawsuit in the U.S. District Court for the Eastern
District of Texas (No. 6-06CV-370) alleging that eBay Inc., Skype Technologies S.A., and Skype Inc. infringed two
patents owned by Peer Communications relating to uniform network access. The suit seeks an injunction against
continuing infringement, unspecified damages, and interest, costs, and fees. The parties are in the process of
conducting discovery and claim construction briefing, and a trial date has been scheduled for October 2008. We
believe that we have meritorious defenses and intend to defend ourselves vigorously.
In September 2006, Mangosoft Intellectual Property, Inc. filed a lawsuit in the U.S. District Court for the
Eastern District of Texas (No. 2-06CV-390) alleging that eBay Inc., Skype Technologies S.A., and Skype Software
S.a.r.l. infringed a patent owned by Mangosoft relating to dynamic directory services. The suit seeks an injunction
against continuing infringement, unspecified damages, and interest, costs, and fees. We have filed an answer and
counterclaims asserting that the patents are invalid, unenforceable, and not infringed. We received an initial
scheduling order from the court that sets some discovery deadlines, but not a trial date. The parties are in the process
of conducting discovery We believe that we have meritorious defenses and intend to defend ourselves vigorously.
100
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)