Heirs of Gaye's co-writer, Ed Townsend, argue that Sheeran, Warner Music Group and Sony Music Publishing owe them money for allegedly stealing the song.
As the case opened, a lawyer called Sheerin's use of Gaye's lyrics at his concerts a "smoking gun".
The Grammy winner, 32, testified that he did not copy from Gaye's 1973 hit.
Asked by lawyer Keisha Rice about another song he wrote, Take it Back, which contains the lyrics "plagiarism is hidden", Sheeran confirmed that he had written the words.
