eBay 2005 Annual Report Download - page 38

both U.S. 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 us under a number of these theories have
been brought against us. In addition, domestic and foreign legislation has been proposed that would prohibit or
impose liability for 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, claims of defamation or other injury have been made in the past and could
be made in the future against us for content posted in the Feedback Forum. Several recent court decisions
have narrowed the scope of the immunity provided to Internet service providers like us under the
Communications Decency Act. This trend, if continued, may increase our potential liability to third parties for
the user-provided content on our site. Our liability for such claims may be higher in jurisdictions outside the
U.S. where laws governing Internet transactions are unsettled. If we become liable for information provided by
our users and carried on our service in any jurisdiction in which we operate, 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 or to discontinue certain service offerings, which would negatively affect our
financial results. In addition, the increased attention focused upon liability issues as a result of these lawsuits
and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs
incurred as a result of this potential liability could harm our business.
Customer complaints or negative publicity about our customer service could diminish use of our services.
Customer complaints or negative publicity about our customer service could severely diminish consumer
confidence in and use of our services. Measures we sometimes take to combat risks of fraud and breaches of
privacy and security can damage relations with our customers. These measures heighten the need for prompt
and accurate customer service to resolve irregularities and disputes. Effective customer service requires
significant personnel expense, and this expense, if not managed properly, could significantly impact our
profitability. Failure to manage or train our customer service representatives properly could compromise our
ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our
reputation may suffer and we may lose our customers' confidence.
Because it is providing a financial service and operating in a more regulated environment, PayPal, unlike
eBay, must provide telephone as well as email customer service and must resolve certain customer contacts
within shorter time frames. As part of PayPal's program to reduce fraud losses, it may temporarily restrict the
ability of customers to withdraw their funds if those funds or the customer's account activity are identified by
PayPal's anti-fraud models as suspicious. PayPal has in the past received negative publicity with respect to its
customer service and account restrictions, and has been the subject of purported class action lawsuits and state
attorney general inquiries alleging, among other things, failure to resolve account restrictions promptly. If PayPal
is unable to provide quality customer support operations in a cost-effective manner, PayPal's users may have
negative experiences, PayPal may receive additional negative publicity, its ability to attract new customers may
be damaged, and it could become subject to additional litigation. Current and future revenues could suffer, or its
operating margins may decrease. In addition, negative publicity about or experiences with PayPal's customer
support could cause eBay's reputation to suffer or affect consumer confidence in the eBay brands as a whole.
Problems with third parties who provide services to us or to our users could harm our business.
A number of parties provide services to us or to our users that benefit us. Such services include seller
tools that automate and manage listings, merchant tools that manage listings and interface with inventory
management software, storefronts that help our users list items, and caching services that make our sites load
faster, among others. In some cases we have contractual agreements with these companies that give us a direct
financial interest in their success, while in other cases we have none. In either circumstance, financial,
regulatory, or other problems that prevent these companies from providing services to us or our users could
reduce the number of listings on our websites or make completing transactions on our websites more difficult,
and thereby harm our business. Any security breach at one of these companies could also affect our customers
and harm our business. Although we generally have been able to renew or extend the terms of contractual
34