The lawsuit, filed in U.S. District Court for the Eastern District of Pennsylvania, stems from the launch last December of NoBidding's AuXpal auction site, which it later renamed as BidVille. Bethlehem, Penn.-based NoBidding alleges that PayPal backed out of an agreement with NoBidding to integrate PayPal's online payment service into the new auction site and later e-mailed its customers, attempting to dissuade them from using AuXpal.
"Four days before opening day, they said they no longer were interested in the site and couldn't support it in any way," NoBidding President Ed Orlando said. "If they had turned down the proposal from the start, we wouldn't have spent the time, the money and the energy building the system."
PayPal spokesman Vince Solitto said PayPal did not have a contract with NoBidding.
"PayPal acted entirely appropriately in all its dealings with BidVille.com," Solitto said. "Accordingly, we will contest this suit quite vigorously."
BidVille has about 680,000 ongoing auctions, according to a counter on its Web site, compared with about 200,000 for Yahoo and around 5 million for eBay. Despite the large number of listings, few auctions on BidVille end with winning bids.
As NoBidding originally envisioned the site, AuXpal would automatically transfer money from the winning bidder to the seller through their PayPal accounts once an auction ended. Instead of the automated transfer, BidVille allows sellers to set their own preferences for the types of payments they will accept.
In the lawsuit filed last month, NoBidding claims that after PayPal pulled out of the agreement, the Palo Alto, Calif.-based company blocked NoBidding's access to PayPal accounts. NoBidding also alleges that PayPal sent libelous messages to its customers, claiming that AuXpal was a fraud.
PayPal is also embroiled in a war of words with auction giant eBay concerning eBay's Billpoint system, although that dispute has not reached the courts. PayPal has accused eBay of changing its sellers' preferences without their knowledge or consent. eBay has denied the charge.