eBay 2002 Annual Report Download - page 59

in the midst of a signiÑcant multiyear project to enhance our current technical architecture. If this
project is not successful, our business could be harmed. We have experienced periodic unscheduled
downtime. Continued unscheduled downtime would harm our business and also could anger users of
our websites and reduce future revenues.
‚Customer Support. We are expanding our customer support operations to accommodate the
increased number of users and transactions on our websites and the increased level of trust and
safety activity we provide worldwide. If we are unable to provide these operations in a cost-eÅective
manner, users of our websites may have negative experiences, and current and future revenues
could suÅer, or our operating margins may decrease.
‚Customer Accounts. Our revenues are dependent on prompt and accurate billing processes. If we
are unable to grow our transaction processing abilities to accommodate the increasing number of
transactions that must be billed, our ability to collect revenue will be harmed.
We must continue to hire, train and manage new employees at a rapid rate. If our new hires perform
poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if
we are not successful in retaining our existing employees, our business may be harmed. To manage the
expected growth of our operations and personnel, we will need to improve our transaction processing,
operational and Ñnancial systems, procedures and controls. This is a special challenge as we acquire new
operations with diÅerent systems. Our current and planned personnel, systems, procedures and controls
may not be adequate to support our future operations. We may be unable to hire, train, retain and manage
required personnel or to identify and take advantage of existing and potential strategic relationships and
market opportunities. The additional headcount and capital investments we are adding increase our cost
base, which will make it more diÇcult for us to oÅset any future revenue shortfalls by oÅsetting expense
reductions in the short term.
Our business may be harmed by the listing or sale by our users of illegal items.
The law relating to the liability of providers of online services for the activities of their users on their
service is currently unsettled. We are aware that certain goods, such as Ñrearms, 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 our service or paid for through PayPal. We may be
unable to prevent the sale of unlawful goods, or the sale of goods in an unlawful manner, by users of our
service (including PayPal users), and we may be subject to allegations of civil or criminal liability for
unlawful activities carried out by users through our service. We have been subject to several lawsuits based
upon such allegations. In order to reduce our exposure to this liability, we have prohibited the listing of
certain items and increased the number of personnel reviewing questionable items. In the future, we may
implement other protective measures that could require us to spend substantial resources and/or to reduce
revenues by discontinuing certain service oÅerings. 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 our business. In
addition, we have received signiÑcant and continuing media attention relating to the listing or sale of
unlawful goods on our websites. This negative publicity could damage our reputation and diminish the
value of our brand name. It also could make users reluctant to continue to use our services.
We are subject to intellectual property and other litigation.
On April 25, 2001, our European subsidiaries, eBay GmbH and eBay International AG, were sued by
Montres Rolex S.A. and certain Rolex aÇliates, or Rolex, in the regional court of Cologne, Germany. The
suit subsequently was transferred to the regional court in Dusseldorf, Germany. Rolex alleged that our
subsidiaries were infringing Rolex's trademarks as a result of users selling counterfeit Rolex watches
through our German website. The suit also alleges unfair competition. Rolex sought an order forbidding
the sale of Rolex watches on the website as well as damages. In December 2002, a trial was held in the
matter and the court ruled in favor of eBay on all causes of action. Rolex has appealed the ruling, but the
appeal has not yet been briefed or heard.
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