CertCo Patent Suit Delays PayPal IPO

[R. A. Hettinga]

http://www0.mercurycenter.com/business/top/024186.htm

Suit delays eagerly awaited IPO

Posted at 7:05 p.m. PST Wednesday, Feb. 6, 2002
BY DEBORAH LOHSE

Mercury News


PayPal's hotly anticipated initial public offering was delayed this week
after the online payment company was sued over alleged patent infringement.

New York online risk-management company CertCo claimed in a lawsuit filed
Monday in federal court in Delaware that PayPal was violating CertCo's
patent covering electronic payments.

Palo Alto-based PayPal was slated Wednesday night to set a pre-trading
price for 5.4 million shares of its stock, or about 9 percent of the
company's outstanding shares. The expected price range was $12 to $14 a
share. The stock would have begun trading today on the Nasdaq stock market,
using the symbol PYPL.

Despite having racked up $277 million in losses over two years, PayPal had
been generating a great deal of buzz among investors due to its rapid
growth in customers and revenue. Investors had been expected to
significantly bid up shares of PayPal, perhaps making it the first time a
profitless Internet company has popped since the Internet bubble burst in
2000 and burned many investors.

But bankers and PayPal management made the decision Wednesday to hold the
deal, possibly to allow PayPal time to amend its securities documents to
fully disclose the lawsuit to potential investors. A new date for the IPO
hasn't been set.

The lawsuit alleges that the payment and transaction system PayPal uses to
enable customers to send and receive payments electronically violates a
Feb. 2000 patent secured by CertCo, a privately held company.

PayPal's spokesman, Vincent Sollitto, said he couldn't comment on the
lawsuit because of a ``quiet period'' imposed by the Securities and
Exchange Commission on comments before or after an IPO.

Dale Lazar, a lawyer with Pillsbury Winthrop in McLean, Va., who represents
CertCo, said the patent entails a CertCo technology using certain
electronic signals to represent a payment request. ``Our patent covers the
heart of the PayPal payment system,'' he said.

PayPal's SEC IPO document says the company believes it has unique
technology for ``transferring value'' among customers; for detecting fraud,
and for obtaining alternate funding sources if a primary source isn't
available. The company is seeking five patents covering such proprietary
technology, it said.

But the boilerplate risk language in the prospectus reveals the potential
for lawsuits like CertCo's. ``We cannot assure you that our product
features do not infringe on patents held by others or that they will not in
the future.''


-- 
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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