Online auction giant eBay has been sued for $3.8 billion USD by XPRT Ventures in a patent infringement suit over its use of PayPal as its preferred payment system. Do not adjust your monitors ladies and gentlemen, you read correctly, that is $3.8 billion dollars, enough money to buy a small island in the Pacific and equip it with comic book villain gizmos, including robotic sharks, heat-seeking missiles and an army of ninja assassins.
The case is rather convoluted, it involves patent trolls, secret meetings, and races to the USPTO (full complaint here). The dispute goes back supposedly to 2001, when a couple of lawyers based in Delaware applied for several electronic payment systems patents, the main ones are 7483856 for “System and method for effecting payment for an electronic auction commerce transactions”, and 7567937 for “System and method for automatically effecting payment for a user of an electronic auction system”. I have no qualms about calling these XPRT Ventures a patent troll outfit. For example, the inventors are the attorneys, and they have never done anything with their patent, they simply hold the title and snipe from the sides at the real enterprises and innovators. Even a cursory glance at the patents makes one aware that this is outrageously obvious stuff. Look at the main claim in the 7483856 patent:
“1. A method for effecting payment for a purchaser of at least one item offered for an electronic auction sale by a seller via an electronic auction web site maintained by at least one computing device of an electronic auction system, said method comprising the steps of:
maintaining an electronic database of a plurality of electronic auction payment accounts corresponding to a plurality of users, including the purchaser, of said electronic auction web site and a payment segment of said electronic auction web site by an electronic auction payment system integrated with said electronic auction system, each of said plurality of electronic auction payment accounts storing funds therein and each capable of being used for user transactions in the electronic auction system;
performing at least one payment-related activity by at least one processor of said electronic auction payment system for effecting payment for said purchaser, said at least one payment-related activity selected from the group consisting of debiting an electronic auction payment account corresponding to the purchaser of the at least one item and maintained by said electronic auction payment system, and withdrawing funds from at least one account storing funds therein and not corresponding to at least one of the plurality of users, wherein at least one payment source corresponding to the purchaser is used to obtain funds for storing within the electronic auction payment account corresponding to the purchaser prior to debiting the electronic auction payment account corresponding to the purchaser; and
crediting by said at least one processor at least one account corresponding to the seller to effect payment for the at least one item offered for the electronic auction sale via the electronic auction web site.”
So, people have been paying for things for thousands of years. New methods of paying for things are springing up all the time. Some attorneys look at a successful online auction business and think “hey, we can get in on that act, just draft a patent application that brings together the existing online auction market and the existing intermediary payment system, and we can get a patent for it!” This is not only trivial, it is so obvious that I remember following the PayPal and eBay developments at the time and thinking that it was evident that they would be joined somehow, I even wrote a paper about it in 2002! My mistake was not to get a patent for that of course.
Anyway, the patents have had a very bumpy ride through the USPTO, they have been rejected, appealed and re-examined, and it was not accepted until it had been considerably re-drafted (see the original application here, and contrast it with the final version). It is quite indicative of the quality of the “invention” that it was rejected so many times. It seems like XPRT Ventures were desperate to get this approved one way or another. Why? Hold on to your chairs, this is where the story gets weird.
Allegedly, George Likourezos and Michael Scaturro, the attorneys and “inventors” making up XPRT Ventures, arranged a meeting with eBay after filing the patents. They did not meet anyone at eBay directly, but one of their lawyers, who took the patents back to eBay for analysis and discussion. XPRT did not hear back from them, other than the message that eBay’s lawyer had made an assessment of the patents and sent it to eBay. I can bet that the assessment read something like “Nothing to worry about”, or something similar.
The timeframe is important to this case. In 2001, at the time of the alleged meeting, eBay was already one of the biggest e-commerce sites in the world, and certainly the biggest online auction site. At the time, payments were usually handled directly by the users through traditional payment methods (money transfers, cheques, escrow, cash, credit cards), or through eBay’s in-house system, called Billpoint. At the same time PayPal was becoming the standard consumer-to-consumer payment system, so it was clear that some type of arrangement was on the cards. In 2002 eBay announced, to nobody’s surprise, that they were purchasing PayPal. Here is where XPRT come in. They claim that the lawyer who met them took the idea back to eBay headquarters, where they immediately started negotiations with PayPal, so they claim that the whole idea was theirs, and that all of the success that eBay has had since is the result of that secret meeting in 2001, hence the astounding amount of money involved in the suit.
The interesting thing, and something that may be relevant for this case in the future, is that eBay did apply for similar payment method patents, which would unfortunately lend validity to XPRT’s own patent.
Anyway, this is further evidence, if more evidence was needed, that many software patents are a terrible idea, get in the way of true innovators, and are often misused by shady characters. When will the madness end?