eBay 1998 Annual Report Download - page 33

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Our business may be harmed by fraudulent activities on our website.
Our future success will depend largely upon sellers reliably delivering and accurately representing their listed
goods and buyers paying the agreed purchase price. We do not take responsibility for delivery of payment or goods
to any user of our service. We have received in the past, and anticipate that we 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 we can suspend the accounts of users who fail to fulfill their delivery obligations to other users, we do not
have the ability to require users to make payments or deliver goods or otherwise make users whole other than
through our limited insurance program. Other than through this program, we do not compensate users who believe
they have been defrauded by other users. We also periodically receive 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 our
service could damage our reputation and diminish the value of our brand name. We may in the future receive
additional requests from users requesting reimbursement or threatening legal action against us if no reimbursement
is made. Any resulting litigation could be costly for us, divert management attention, result in increased costs of
doing business, lead to adverse judgments or could otherwise harm our business.
Government inquiries may lead to charges or penalties.
On January 29, 1999, we received requests to produce certain records and information to the federal
government relating to an investigation of possible illegal transactions in connection with our website. We have
been informed that the inquiry includes an examination of our practices with respect to these transactions. We are
fully cooperating with the inquiry. In order to protect the investigation, the court has ordered that no further public
disclosures be made with respect to the matter at this time. Should this or any other investigation lead to civil or
criminal charges against us, we would likely be harmed by negative publicity, the costs of litigation, the diversion of
management time and other negative effects, even if we ultimately prevail. Our business would certainly suffer if we
were not to prevail in any action like this.
A large number of transactions occur on our website. As a result, we believe that government regulators have
received a substantial number of consumer complaints about us which, while small as a percentage of our total
transactions, are large in aggregate numbers. As a result, we have from time to time been contacted by various
federal, state and local regulatory agencies and been told that they have questions with respect to the adequacy of the
steps we take to protect our users from fraud. For example, the City of New York—Department of Consumer
Affairs received complaints from users about transactions on our website. In investigating these complaints, the
Department of Consumer Affairs requested information about us and these transactions. We have provided the
requested information. We are likely to receive additional inquiries from regulatory agencies in the future, which
may lead to action against us. We have responded to all inquiries from regulatory agencies by describing our current
and planned antifraud efforts. If one or more of these agencies is not satisfied with our response to current or future
inquiries, the resultant investigations and potential fines or other penalties could harm our business.
We are subject to risks associated with information disseminated through our service.
The law relating to the liability of online services companies for information carried on or disseminated
through their services is currently unsettled. Claims could be made against online services companies under both
United States and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the materials disseminated through their services.
Several private lawsuits seeking to impose liability upon other online services companies currently are pending. In
addition, federal, state and foreign legislation has been proposed that imposes liability for or prohibits the
transmission over the Internet of certain types of information. Our service features a Feedback Forum, which
includes information from users regarding other users. Although all such feedback is generated by users and not by
us, it is possible that a claim of defamation or other injury could be made against us for content posted in the
Feedback Forum. If we become liable for information provided by our users and carried on our service, we could be
directly harmed and we may be forced to implement new measures to reduce our exposure to this liability. This may
require us to expend substantial resources and/or to discontinue certain service offerings. In addition, the increased
attention focused upon liability issues as a result of these lawsuits and legislative proposals could harm our