eBay 2006 Annual Report Download - page 20

the laws may be unsettled or less favorable to us. Such litigation is costly for us, could result in damage awards or
increased costs of doing business through adverse judgment or settlement, could require us to change our business
practices in expensive ways, or could otherwise harm our business. Litigation against other online companies could
result in interpretations of the law that could also require us to change our business practices or otherwise increase
our costs.
We are subject to general litigation and regulatory disputes.
From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of
business. The number and significance of these disputes and inquiries are increasing as our business expands and
our company grows larger. We have in the past been forced to litigate such claims. We may also become more
vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act, the Lanham Act and the
Communications Decency Act are interpreted by the courts and as we expand geographically into jurisdictions
where the underlying laws with respect to the potential liability of online intermediaries such as ourselves are either
unclear or less favorable. Any claims or regulatory actions against us, whether meritorious or not, could be time
consuming, result in costly litigation, require significant amounts of management time, and result in the diversion of
significant operational resources.
Acquisitions could result in operating difficulties, dilution, and other harmful consequences.
We have acquired a number of businesses in the past, and we expect to continue to evaluate and consider a wide
array of potential strategic transactions, including business combinations, acquisitions and dispositions of busi-
nesses, technologies, services, products and other assets. At any given time we may be engaged in discussions or
negotiations with respect to one or more of these types of transactions. Any of these transactions could be material
to our financial condition and results of operations. The process of integrating any acquired business may create
unforeseen operating difficulties and expenditures and is itself risky. The areas where we may face difficulties
include:
• diversion of management time, as well as a shift of focus from operating the businesses to issues related to
integration and administration, particularly given the large number and size and varying scope of our recent
acquisitions, and, in the case of Skype, the complex earn-out structure associated with the transaction;
• declining employee morale and retention issues resulting from changes in, or acceleration of, compensation,
or changes in management, reporting relationships, future prospects, or the direction of the business;
• the need to integrate each company’s accounting, management, information, human resource and other
administrative systems to permit effective management, and the lack of control if such integration is delayed
or not implemented;
• the need to implement controls, procedures and policies appropriate for a larger public company at
companies that prior to acquisition had lacked such controls, procedures and policies; and
• in some cases, the need to transition operations, users, and customers onto our existing platforms.
Foreign acquisitions involve special risks, including those related to integration of operations across different
cultures and languages, currency risks, and the particular economic, political, and regulatory risks associated with
specific countries. Moreover, we may not realize the anticipated benefits of any or all of our acquisitions, or may not
realize them in the time frame expected. For example, we have yet to realize significant revenue benefits from the
integration of Skype into listings on eBay sites. Future acquisitions or mergers may result in a need to issue
additional equity securities, spend our cash, or incur debt, liabilities, or amortization expenses related to intangible
assets, any of which could reduce our profitability and harm our business.
System failures could harm our business.
We have experienced system failures from time to time, and any interruption in the availability of our websites
will reduce our current revenues and profits, could harm our future revenues and profits, and could subject us to
regulatory scrutiny. eBay’s primary website has been interrupted for periods of up to 22 hours, and our PayPal site
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