The suit, filed by online security company CertCo,PayPal's planned offering. The shares were scheduled to be priced Wednesday night and to debut Thursday. In a filing with the Securities and Exchange Commission, PayPal warned that while it doesn't believe it infringed on CertCo's patents, the lawsuit could prove damaging.
"Even if we prevail, the litigation could be time consuming and expensive to defend and could affect our business materially and adversely," PayPal said in its filing. "If any portions of our service were found to be infringing the patent, and if we were unwilling or unable to obtain a license on terms acceptable to CertCo, then we would likely be unable to continue to offer those portions of our service found to be infringing."
PayPal delayed its IPO after learning of the suit on Tuesday. The company and the lead underwriter of the offering, Salomon Smith Barney, have not yet rescheduled the IPO.
According to the filing, CertCo filed suit Monday in U.S. District Court in Delaware, charging that PayPal had infringed its patent no. 6,029,150, which covers a type of online payment system. Charging that PayPal had engaged in "willful" infringement of that patent, CertCo, which has held the patent since February 2000, asked the court for a permanent injunction against PayPal and an unspecified amount of damages, according to the regulatory filing.
CertCo representatives, including the attorney representing the New York-based company, did not return calls seeking comment.
Despite the lawsuit, PayPal has not changed the terms of its IPO. The company still plans on offering 5.4 million shares at a price range of $12 to $14 per share.
CertCo's suit is not the only potential patent problem for PayPal. Last month, Tumbleweed Communications notified the company of two of Tumbleweed's patents covering electronic document delivery and warning PayPal that it needed to license those patents to continue its service, according to the filing. PayPal said it believed Tumbleweed's claims were without merit.