UPDATE 2-EBay, MercExchange settle long legal battle

(Recasts, adds detail in paragraph two)

WASHINGTON, Feb 28 (Reuters) - EBay Inc (EBAY.O) said on Thursday it would buy three patents from MercExchange LLC as part of a settlement of a long-running patent fight that prompted a landmark U.S. Supreme Court ruling.

Internet auction leader eBay will buy the three patents for an undisclosed sum. The patents cover search, online auction and fixed price or "Buy it Now" technology and software.

The legal fight, which began in 2001, resulted in a Supreme Court ruling in 2006 that weakened courts' powers to issue injunctions barring firms from using infringing technology.

In December, a U.S. District Court in Norfolk, Virginia found that eBay had intentionally infringed on MercExchange's patents and ordered eBay to pay $30 million. EBay said then it would appeal.

In July, District Judge Jerome Friedman denied eBay's request to stay proceedings on a patent needed to run eBay's "Buy It Now" feature, which allows users to buy an item outright at a given price without bidding.

EBay previously had set aside reserves to cover costs of the litigation and potential damages and modified its Web technology to avoid infringement of one of the patents in the dispute, according to the company's latest quarterly financial filing with the U.S. Securities and Exchange Commission.

"We're pleased to have been able to reach a settlement with MercExchange," said Mike Jacobson, eBay senior vice president and general counsel. (Reporting by Diane Bartz, editing by Gerald E. McCormick and Tim Dobbyn)