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Tech Industry sues eBay, PayPal

The online postage service files a breach-of-contract suit claiming the companies derailed an agreement for it to provide shipping tools through the PayPal Web site. has filed a breach-of-contract suit against PayPal and eBay, claiming the companies derailed an agreement for it to provide shipping tools through the PayPal Web site.

In a complaint filed Tuesday in Superior Court in Los Angeles County, the online postage company alleges that eBay pressured payment-processing service PayPal to back out of a deal announced in July 2002.

Under that deal, Santa Monica, Calif.-based agreed to provide a system that would, among other things, allow sellers using PayPal to calculate the exact amount of postage required and print a shipping label with the buyer's information. PayPal's main service allows people to buy and sell products online without using credit cards or checks, while typically provides customers with software that allows them to download postage over the Net.

The service was scheduled to be up and running in time for the holiday season of 2002. Instead, the implementation of the project was stalled under pressure from eBay executives, claims, leading to the lawsuit.

"Litigation is always viewed as a last resort, but given the fact that made a considerable investment towards this relationship, we felt we had to take this action," CEO Ken McBride said. "Of course, we remain hopeful the parties can work out their differences."

According to the suit, Mountain View, Calif.-based PayPal asked to revamp the system's payment mechanism, but then refused to help the company get the necessary approval from the U.S. Postal Service (USPS) for the new method.

According to the suit, an eBay executive threatened to "rip up" the existing contract with unless the postage company negotiated a new deal and agreed to a large up-front payment for the auction giant. said it's seeking to recover the $1.5 million it invested in the technology for PayPal, in addition to damages and other fees.

A representative for San Jose, Calif.-based eBay, which completed its purchase of PayPal in October, said he could not comment on the specifics of the lawsuit because the company has not yet seen the filing.