PayPal: Difference between revisions

On February 4 2002, the Initial Public Offering of PayPal was delayed due to a patent infringement lawsuit filed by [[CertCo]],  a private online security and risk management company based in New York.<ref>[http://news.cnet.com/2100-1017-830235.html?tag=mncol;txt PayPal delays IPO]</ref> CertCo alleged that PayPal's electronic system infringed its patent no. 6,029,150 (Payment and Transactions in Electronic Commerce System), which was awarded by the United States Patent and Trademark Office ([[USPTO]]) on February 22, 2000.<ref>[http://www.internetnews.com/ec-news/article.php/970181/CertCo+Lawsuit+Postpones+PayPal+IPO.htm CertCo Lawsuit Postpones PayPal IPO]</ref> PayPal denied CertCo's allegations  and described it a deliberate attempt to disrupt its initial public offering.<ref>[http://news.cnet.com/PayPal-Lawsuit-designed-to-delay-IPO/2110-1017_3-834040.html?tag=mncol;1n PayPal: Lawsuit designed to delay IPO]</ref> On April 25, 2002, PayPal settled the lawsuit with CertCo. According to them the settlement agreement involved "a non-consequential payment and mutual releases." The details of the settlement agreement were not disclosed to the public.<ref>[http://www.internetnews.com/bus-news/article.php/1023191/CertCo+Drops+PayPal+Patent+Suit.htm CertCo Drops PayPal Patent Suit]</ref>

A second patent infringement case was filed by Tumbleweed Communications in the US District Court of Northern California on May 7, 2002. Tumbleweed Communications claimed that PayPal violated its electronic notification processes and document storage and retrieval patents. E-bay, the parent company of PayPal agreed to settle the legal charges under a cross licensing agreement in December of the same year.<ref>[http://www.crn.com/news/channel-programs/18840325/ebay-settles-patent-lawsuit-with-tumbleweed-communications.htm;jsessionid=CZrcnTI-iIRmXGEuXaVVUA**.ecappj03 EBay Settles Patent Lawsuit With Tumbleweed Communications]</ref>

In September, 2002, another patent infringement case was filed against PayPal by First USA Bank, N.A., a subsidiary of Bank One Corporation. The company claimed that PayPal infringed its two patents; one was the use of telephone numbers and personal identification numbers and the use of e-mail addresses  as transaction identifiers for its cardless payment system. First USA Bank asked the court to issue an injunction order to stop PayPal from using its payment system. In addition, the company asked for financial damages from PayPal. PayPal denied the accusations and promised to fight the case in court.<ref>[http://www.pcworld.com/article/104855/paypal_hit_with_patent_infringement_lawsuit.html PayPal Hit With Patent Infringement Lawsuit]</ref><ref>[http://www.finextra.com/news/fullstory.aspx?newsitemid=6677 Paypal rebuffs First USA patent infringement suit]</ref>

PayPal faced another legal battle in 2002, just days after its Initial Public Offering. A class action lawsuit was filed by the law firm Jacoby & Meyers on behalf of consumers, alleging that the company violated the Federal Electronic Fund Transfer Act. According to Atty. Gail Koff, PayPal locked customers' accounts instead of freezing for the amount of transaction in question when it suspects that a fraud has been committed. Since the consume'rs entire accounts were frozen, they weren't able to make any business transactions. They claimed that PayPal's restriction of their accounts is illegal.<ref>[http://news.cnet.com/2100-1017-842240.html PayPal hit by class-action suit]</ref> A similar  class action lawsuit was filed by Girard, Gibbs & De Bartolomeo, a law firm in San Francisco at the U.S. District Court for the Northern District of California.<ref>[http://news.cnet.com/PayPal-customers-sue-in-federal-court/2110-1017_3-860582.html?tag=mncol;txt PayPal customers sue in federal court]</ref> In 2004, PayPal settled the class action lawsuit and agreed to pay $9.25 million, to be distributed to all the complainants. The administrative costs and legal fees were included in the settlement.<ref>[http://www.auctionbytes.com/cab/abn/y04/m07/i30/s01 PayPal Sends Users Notice of Class-Action Lawsuit Settlement]</ref>

On July 7, 2002, two shareholders of PayPal filed a lawsuit over the company's merger with eBay. The shareholders claimed that eBay's proposed price for the Paypal stocks is "inadequate and unfair", which is 0.39 eBay shares for every PayPal share. The total value of the transaction was $1.5 billion. Despite the objections, the Department of Justice cleared the Ebay and PayPal merger after conducting an investigation.<ref>[http://www.zdnet.com/news/paypal-ebay-hit-with-shareholder-lawsuit/124018 PayPal, eBay hit with shareholder lawsuit]</ref>