What's Behind eBay's Settlement with MercExchange?

After several years of battles in the media and the courts, eBay (EBAY) has finally settled with MercExchange. Originally, MercExchange’s founder, patent lawyer and engineer, Thomas Woolston, argued in court that eBay was illegally infringing on various patents that he had created. One of the patents in questions was the very popular “Buy it Now" technology prominently featured on many eBay auctions. Woolston promised to do everything in his power to have the courts issue an injunction against eBay. His goal was an immediate injunction to prevent eBay from using the “But it Now” feature until they promised to pay for the license.

Spokesmen for MercExchange argued in court that Tom Woolsten invented this patent before eBay was a twinkle in investors' eyes. eBay countered that Woolsten was jumping on the bandwagon and trying to rob the company for as many millions as the legal system allowed. Woolsten wasn’t going to stop there; if his “Buy it Now” patent successfully held up in court, he was going to go after eBay and others for additional patents, mentioning eBay, Amazon (AMZN) and countless others. It is debatable whether Woolsten actually did invent these patents as eBay’s lawyers argued that some people were using this technology on the internet for their businesses long before Woolsten patented this feature. Thus, the major question was whether eBay is telling the truth - or Woolsten. After many trials, the courts came to the conclusion that eBay was to pay MercExchange $30 million, which was further reduced to $25 million.

eBay was in the process of appealing this decision, stating that they believed they owed MercExchange the lump sum of zero dollars, when on February 28^th, we were greeted with the news that eBay has finally decided to purchase these patents and has settled with MercExchange. Why the sudden change of heart? Perhaps President-to-be Donahue would like to start off fresh and wipe away any old headaches from the past? One can only wonder. Additionally, if MercExchange was very disappointed with the $25 million they received, what would it have taken to acquire all three patents? 50 million? 75 million? 200 million? Had eBay acquired all three patents for $25 million you can be sure that you would have seen a press release stating that “eBay has prevailed in court by receiving all 3 patents for $25 million." Thus, my guess would be that eBay paid $100 million.

Now that eBay has possession of the 3 patents, will they up their fight against Amazon and take them and others to court for infringement? One can only wonder.

If it did cost $100 million, eBay still came out of the deal way ahead, as they now hold the patent technology and can sue other companies at will. Additionally, MercExchanges’s goal from the start was to shut down eBay’s "Buy it Now" feature and eBay prevailed. However, what happened to all of the work around patent technology that eBay was promising us if they had lost the court ruling?

Disclosure: Author has a long position in eBay