eBay 2007 Annual Report Download - page 112

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the underlying laws with respect to the potential liability of online intermediaries like ourselves are either unclear or
less favorable. We believe that additional lawsuits alleging that we have violated copyright or trademark laws will
be filed against us, especially in Europe. Intellectual property claims, whether meritorious or not, are time
consuming and costly to resolve, could require expensive changes in our methods of doing business, or could
require us to enter into costly royalty or licensing agreements.
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. 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.
As part of the earn out settlement agreement with the former shareholders of Skype who had elected the earn
out alternative at the time of the acquisition (See “Note 3 — Business Combinations, Goodwill and Intangible
Assets” in these consolidated financial statements for further details), we agreed that if, on or prior to March 31,
2008, eBay sells or transfers to an unaffiliated third party securities representing greater than 50% of the outstanding
voting power of, or economic interest in, Skype or all or substantially all of the assets of Skype and its subsidiaries,
taken as a whole, we would pay up to an additional A138.4 million, or approximately $195.2 million, in the
aggregate, to these former shareholders of Skype.
Indemnification Provisions
In the ordinary course of business, we have included limited indemnification provisions in certain of our
agreements with parties with whom we have commercial relations, including our standard marketing, promotions
and application-programming-interface license agreements. Under these contracts, we generally indemnify, hold
harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in
connection with claims by a third party with respect to our domain names, trademarks, logos and other branding
elements to the extent that such marks are applicable to our performance under the subject agreement. In a limited
number of agreements, we have provided an indemnity for other types of third-party claims, which are indemnities
mainly related to various intellectual property rights. In our PayPal business, we have provided an indemnity to our
payment processors in the event of certain third-party claims or card association fines against the processor arising
out of conduct by PayPal or PayPal’s customers. It is not possible to determine the maximum potential loss under
these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and
circumstances involved in each particular provision. To date, no significant costs have been incurred, either
individually or collectively, in connection with our indemnification provisions.
Note 9 — Related Party Transactions:
We have entered into indemnification agreements with each of our directors, executive officers and certain
other officers. These agreements require us to indemnify such individuals, to the fullest extent permitted by
Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with us.
All contracts with related parties are at rates and terms that we believe are comparable with those entered into
with independent third parties. There were no material related party transactions in 2005, 2006 and 2007. As of
December 31, 2007, there were no significant amounts payable or amounts receivable from related parties.
Note 10 — Preferred Stock:
We are authorized, subject to limitations prescribed by Delaware law: to issue Preferred Stock in one or more
series; to establish the number of shares included within each series; to fix the rights, preferences and privileges of
the shares of each wholly unissued series and any related qualifications, limitations or restrictions; and to increase or
decrease the number of shares of any series (but not below the number of shares of a series then outstanding) without
102
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)