eBay 1998 Annual Report Download - page 14

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The Company has received in the past, and anticipates that it will receive in the future, communications
alleging that certain items listed or sold sold on eBay by its users infringe third-party copyrights, trademarks and
tradenames or other intellectual property rights. To assist the owners of such intellectual property rights in policing
and protecting their intellectual property, the Company developed the Legal Buddy Program. The Legal Buddy
Program provides tools to content owners to detect and respond to infringement. These tools include a soon to be
introduced automated daily key word search that will enable content owners to quickly locate potentially infringing
auction items and dedicated email accounts established solely for owners to more easily contact eBay with regard to
questionable items. Upon receipt of a written claim of intellectual property infringement by a user, the Company
removes the offending item from the eBay website, credits the user with the listing fee and, if not the first offense,
suspends the user. Although the Company has actively sought to work with the content community to eliminate
infringing listings on eBay, some content owners have expressed the view that the Company’ s efforts are
insufficient. An allegation of infringement of third-party intellectual property rights may result in litigation against
the Company. Any such litigation could be costly for the Company, could result in increased costs of doing business
through adverse judgment or settlement, could require the Company to change its business practices in expensive
ways, or could otherwise harm the Company’ s business. See Legal Proceedings and “Risk Factors—We may not be
able to adequately protect or enforce our intellectual property rights.”
Issues Related to the Listing or Sale by Users of Unlawful Items
The law relating to the liability of providers of online services for the activities of their users on their service is
currently unsettled. The Company is aware that certain goods, such as firearms, other weapons, adult material,
tobacco products, alcohol and other goods that may be subject to regulation by local, state or federal authorities,
have been listed and traded on its service. The Company may be unable to prevent the sale of unlawful goods, or the
sale of goods in an unlawful manner, by users of its service, and the Company may be subject to civil or criminal
liability for unlawful activities carried out by users through its service. In order to reduce its exposure to this
liability, the Company has increased the number of personnel reviewing potentially illegal items and may in the
future implement other protective measures that could require it to spend substantial resources and/or to reduce
revenues by discontinuing certain service offerings. Any costs incurred as a result of liability or asserted liability
relating to the sale of unlawful goods or the unlawful sale of goods could harm the Company’ s business. In addition,
the Company has received significant media attention relating to the listing or sale of unlawful goods on its website.
A continuation of this negative publicity could damage the Company’ s reputation and diminish the value of the
eBay brand name. It could also make users reluctant to continue to use its services. See “Risk Factors—Our business
may be harmed by the listing or sale by our users of illegal items.”
Fraudulent Activities on the eBay Website
The Company’ s future success will depend largely upon sellers reliably delivering and accurately representing
their listed goods and buyers paying the agreed purchase price. The Company does not take responsibility for
delivery of payment or goods to any user of the eBay service. The Company has received in the past, and anticipates
that it will receive in the future, communications from users who did not receive the purchase price or the goods that
were to have been exchanged. While the Company can suspend the accounts of users who fail to fulfill their delivery
obligations to other users, the Company does not have the ability to otherwise require users to make payments or
deliver goods or otherwise make users whole other than through the Company’ s limited insurance program. Other
than through this program, the Company does not compensate users who believe they have been defrauded by other
users. The Company also periodically receives complaints from buyers as to the quality of the goods purchased. Any
negative publicity generated as a result of fraudulent or deceptive conduct by users of the Company’ s service could
damage its reputation and diminish the value of its brand name. The Company may in the future receive additional
requests from users requesting reimbursement or threatening legal action against the Company if no reimbursement
is made. Any resulting litigation could be costly for the Company, divert management attention, result in increased
costs of doing business, lead to adverse judgments or could otherwise harm its business. See “Risk Factors—Our
business may be harmed by fraudulent activities on our website.”