News.com is reporting that eBay is being threatened with a patent infringement lawsuit over its online auction system. The threat is being brought by Thomas Woolston, founder of MercExchange. Woolston owns four online auction-related patents and has ten others pending. Woolston wants eBay to pay him royalties for his patents.
At the heart of the issue are three patents fundamental to eBay's business practices. The first is patent number 5,845,265, a system that creates a computerized marketplace. The second is patent number 6,085,176, a method to search virtual marketplaces. Lastly, patent number 6,202,051 covers a method for holding automated auctions using computers, databases, and the Internet to register and link buyers and sellers, and facilitate transactions.
eBay is naturally contesting the allegations of patent infringement, but they warn that regardless of the outcome, such litigation will prove to be very costly for eBay.