In the summer of 2003, a Virginia District Court ruled that with its 'Buy It Now' function, eBay had infringed upon a patent for direct online buying held by MercExchange founder and former CIA engineer, Tom Woolston.

Federal Judge Jerome Friedman also stated that that auction portal had violated a patent held by Mr Woolston for searching the internet for merchandise from other vendors, but dismissed a violation claim regarding the entire online auction process, arguing that MercExchange had not made an effective case.

Earlier this year, an appeals court upheld the earlier ruling on the direct buy patent, and recommended an injunction to prevent eBay from using it, meaning that the firm would either have to remove the 'Buy It Now' function, create a substantially different version, or license the technology from MercExchange.

In a partial victory for eBay, the court denied the validity of the search patent. The biggest surprise, according to observers, was the decision to reinstate MercExchange's patent on the entire auction process.

However, in an initial ruling delivered in March, the USPTO took a step towards overturning the appeals court ruling against eBay, suggesting that the auction-related patents held by the smaller firm could be invalidated by prior art, and by their obviousness.

The Supreme Court is set to rule on the matter in the spring of 2006.