AT&T Slams PayPal

Tina Reilly
BEDMINSTER, New Jersey -- The mud slinging between AT&T Corp. and eBay, parent company of PayPal, got off to a raucous start this week when the telephone carrier accused America's favorite online auction site of patent infringement.

AT&T is claiming that eBay has been infringing on its technology for secure online payment processing, used by both eBay's former payment service Billpoint and its current payment processing service PayPal, which eBay purchased in 2002.

The purchase of PayPal signaled a pinnacle time for the auction house, and both business units have profited immensely from the steady inflow of transaction fees PayPal charged eBay auctioneers.

The technology in question supports third-party payment transactions between a buyer and a seller. The buyer pays PayPal by either check or credit card, the transaction is processed for a fee, and then the money is deposited into the PayPal member's bank account.

AT&T claims its patent covers the method of using a trusted third-party to complete a transaction over the Internet, although it has never used the technology for any of its own services.

AT&T says that it developed the secure payment technology in 1991 and then received the patent in 1994. The telephone carrier claims that eBay's infringement has gone on since 1999 and it is seeking unspecified damages. AT&T is also requesting a Delaware court to prevent eBay and PayPal from using the technology until the terms of use have been determined.

AT&T has also expressed interest in having eBay and PayPal license its technology in the future, although after a one-year period of negotiations that eventually led to the lawsuit, eBay has refused to concede to AT&T's demands.

According to AT&T, the basis of the lawsuit is sound and the company is simply trying to enforce it portfolio of patents.

"EBay and PayPal have refused to compensate us for patented technology, and so we're forced to take this to the courts," said an AT&T spokesperson.

XBiz was not able to reach eBay or PayPal representatives for comment, but eBay has been quoted by Reuters as saying that the lawsuit is "meritless," and that PayPal's more than 11 million users can continue to rely on the popular payment processing service in the future.

PayPal reported $106.4 million in revenue in the third quarter of 2003, nearly double from the same period last year, and eBay continues to be the Teflon King in terms of its resilience to economic uncertainty.