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AT&T sues eBay, PayPal over patent

The telecommunications giant files suit against eBay and PayPal, alleging patent infringement--the latest skirmish in the escalating Web patent wars.

eBay's patent woes just worsened with a new suit against its PayPal division.

AT&T on Thursday filed suit against eBay and PayPal, alleging patent infringement--the latest skirmish in the escalating Web patent wars.

The suit, filed in federal district court in Delaware, claims that eBay and PayPal's online payment systems infringe on AT&T patent No. 5,329,589, "Mediation of transactions by a communications system."

That patent, according to an AT&T release announcing the suit, describes "transactions in which a trusted intermediary securely processes payments over a communications system such as the Internet. The use of a trusted intermediary ensures that one party will not have to disclose sensitive information, such as a credit card number or bank account number, to the other party to the transaction."

eBay said it had discussed the patent with AT&T in the past but believed the suit was without merit and planned to defend itself "vigorously."

The AT&T suit comes amid heightened activity and controversy in software patents. The issue has gained special attention since the University of California and an affiliated company won a $521 million suit against Microsoft that may force significant changes in Microsoft's Internet Explorer Web browser. In an unusual development, the U.S. Patent and Trademark Office said it would re-evaluate the patent that gave rise to that suit.

AT&T's lawsuit is the latest in a series of patent headaches for eBay.

In May, the company was found guilty of patent infringement in a case brought by MercExchange, of Great Falls, Va., which prevailed on claims that eBay and its Half.com subsidiary infringed on its patents with their "Buy It Now" option. eBay has appealed the ruling.

PayPal, which eBay acquired in 2002, has been involved in previous patent infringement suits. First USA Bank sued PayPal in September 2002. A year later PayPal countersued the company (now known as Bank One) and Bank One Delaware, also on patent infringement grounds. The companies settled those suits last month without disclosing the terms.

PayPal faces another patent infringement suit by Tumbleweed Communications.

AT&T said it had warned PayPal and eBay of the alleged infringement more than a year ago and had offered them a license.

AT&T said it filed the patent in 1991. It was granted July 12, 1994.