Software Wars: MercExchange vs. eBay

Software Wars: MercExchange vs. eBay

Great Falls software company MercExchange continues to battle eBay over ‘Buy It Now’ patent.

In the summer of 1994, Great Falls resident Tom Woolston had an inspiration for a new kind of software.

"There was a baseball strike and the World Series was canceled, and I heard a radio show on NPR [National Public Radio] about a baseball card and memorabilia store in McLean that was suffering because of the backlash against the players for the strike," said Woolston, founder and CEO of Great Falls-based software company MercExchange.

"I thought, wow, there has to be some way to help small businesses sell their baseball cards and memorabilia online."

After eight months of programming, Woolston filed a patent application for his idea. Woolston says the original name for MercExchange was "Fleanet."

"We got the company rolling in '97," said Woolston. "We had raised money, had about 40 employees on staff and a building in Old Town Alexandria. We were going great guns until the Internet wall hit and we ran out of money."

In the summer of 2000, representatives from eBay, Inc. approached Woolston and his company about the possibility of buying some of MercExchange's patents.

"They approached us and sized us up, and I think they made the decision they could roll us," said Woolston. "Within probably 10 weeks of the negotiation, they were infringing."

Not one to take things lying down, Woolston took eBay to court. Subsequently, MercExchange has been battling eBay for the last six years over patents that cover several aspects of online auctioning, including searching, auctioning and the so-called "Buy It Now" patent.

In 2003, a federal district court judge ruled that eBay's "Buy It Now" feature violated two of MercExchange's patents, and eBay was fined $29.5 million. eBay appealed this decision, and the appeals court ruled that eBay had only infringed on one of MercExchange's patents and reduced the fine to $25 million.

"eBay has litigated through the end and lost at every stage," said Michael Caputo, a spokesperson for MercExchange.

NOW EBAY HAS taken its case to the highest court in the nation. On Monday, Nov. 28, the U.S. Supreme Court agreed to hear a patent infringement case that involves eBay, Inc. and Great Falls software firm MercExchange. The court must decide if the appeals judge erred by issuing a permanent injunction against eBay, blocking the company from using any of MercExchange's technology while it is under patent.

"What's in front of the Supreme Court right now is whether injunctions in general are compulsory or discretionary in patent infringement cases where guilt has been established and litigated," said Caputo.

For his part, Woolston has decided to take this latest legal development in stride.

"I'm trying to be philosophical about the whole thing," said Woolston. "MercExchange wants to compete with eBay. ... If the Supreme Court says 'yes, MercExchange you're allowed to compete, then they will give us the injunction. If they say no, they will force us to license our patent to eBay and I guess they will owe us some money."

Whatever the court decides, Woolston is sure of two things.

"MercExchange is going to do something in technology because that's my passion, and it's going to do something in Great Falls because that's where I like to work," said Woolston.

Representatives from eBay were unavailable for comment.