eBay 2006 Annual Report Download - page 39

expected in the first half of 2007. In September 2004, the German Federal Supreme Court issued its written opinion
in favor of Rolex in a case involving an unrelated company, ricardo.de AG, but somewhat comparable legal theories.
Although it is not yet clear what the ultimate effect of the reasoning of the German Federal Supreme Court’s
ricardo.de decision will have when applied to eBay, we believe the Court’s decision has resulted in an increase in
similar litigation against us in Germany, although we do not currently believe that it will require a significant change
in our business practices.
In August 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of
Commerce against eBay Inc. and eBay International AG. The complaint alleges we have violated French tort law by
negligently broadcasting listings posted by third parties offering counterfeit items bearing plaintiffs’ trademarks,
and by purchasing certain advertising keywords. The plaintiffs seek approximately EUR 35 million in damages. In
or about September 2006 Parfums Christian Dior, Kenzo Parfums, Parfums Givenchy, and Guerlain Société also
filed a lawsuit in the Paris Court of Commerce against eBay Inc. and eBay International AG. The complaint alleges
that we have interfered with the selective distribution network plaintiffs’ have set up in France and the European
Union by allowing third parties to post listings offering genuine perfumes and cosmetics for sale on our sites. The
plaintiffs in this suit seek approximately EUR 9 million in damages and injunctive relief. We filed our initial briefs
responding to the first complaint in February 2007, and initial briefs in response to the second complaint are due in
April 2007. We believe that we have meritorious defenses to these suits and intend to defend ourselves vigorously.
Other luxury brand owners have also filed suit against us or have threatened to do so.
In September 2001, MercExchange LLC filed a complaint against us, our Half.com subsidiary and ReturnBuy,
Inc. in the U.S. District Court for the Eastern District of Virginia (No. 2:01-CV-736) alleging infringement of three
patents (relating to online consignment auction technology, multiple database searching and electronic consign-
ment systems) and seeking a permanent injunction and damages (including treble damages for willful infringe-
ment). Following a trial in 2003, the jury returned a verdict finding that we had willfully infringed the patents
relating to multiple database searching and electronic consignment systems, and the court entered judgment for
MercExchange in the amount of approximately $30 million, plus pre-judgment interest and post-judgment interest.
In May 2006, following appeals to the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court, the
Supreme Court remanded the case back to the district court for further action. In parallel with the federal court
proceedings, at our request, the U.S. Patent and Trademark Office agreed to reexamine each of the patents in suit,
finding that substantial questions existed regarding the validity of the claims contained in them. In separate actions
in 2005, the Patent and Trademark Office initially rejected all of the claims contained in the three patents in suit. In
March 2006, the Patent and Trademark Office reiterated its earlier ruling rejecting the claims contained in the patent
that underlies the jury verdict, which relates to electronic consignment systems. We have requested that the district
court stay all proceedings in the case pending the final outcome of the reexamination proceedings, and
MercExchange has renewed its request that the district court grant an injunction. The district court recently
allowed additional discovery regarding these matters, and final briefs regarding both claims are due in March 2007.
Even if successful, our litigation of these matters will continue to be costly. As a precautionary measure, we have
modified certain functionality of our websites and business practices in a manner which we believe avoids any
infringement of the consignment patent. For this reason, we believe that any injunction that might be issued by the
district court will not have any impact on our business. We also believe we have appropriate reserves for this
litigation. Nonetheless, if the modifications to the functionality of our websites and business practices are not
sufficient to make them non-infringing, we would likely be forced to pay significant additional damages and
licensing fees and/or modify our business practices in an adverse manner.
In June 2006, Net2Phone, Inc. filed a lawsuit in the U.S. District Court for the District of New Jersey
(No. 06-2469) alleging that eBay Inc., Skype Technologies S.A., and Skype Inc. infringed five patents owned by
Net2Phone relating to point-to-point Internet protocol. The suit seeks an injunction against continuing infringe-
ment, unspecified damages, including treble damages for willful infringement, and interest, costs, and fees. We
have filed an answer and counterclaims asserting that the patents are invalid, unenforceable, and not infringed. The
parties are in the process of conducting discovery, and we expect a trial date to be scheduled for 2008. We believe
that we have meritorious defenses and intend to defend ourselves vigorously.
In August 2006, Peer Communications Corporation filed a lawsuit in the U.S. District Court for the Eastern
District of Texas (No. 6-06CV-370) alleging that eBay Inc., Skype Technologies S.A., and Skype Inc. infringed two
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