eBay 2008 Annual Report Download - page 25

Content owners and other intellectual property rights owners may also seek to bring legal action against
entities that are peripherally involved in the sale of infringing items, such as payment companies. To the extent that
intellectual property rights owners bring legal action against PayPal based upon the use of PayPal’s payment
services in a transaction involving the sale of infringing items, including on our websites, our business could be
harmed.
We are subject to patent litigation.
We have repeatedly been sued for allegedly infringing other parties’ patents. Some of these ongoing suits are
described under the heading “Item 3 — Legal Proceedings,” below. We are a defendant in other patent suits and we
have been notified of several other potential patent disputes, and expect that we will increasingly be subject to patent
infringement claims involving various aspects of our Marketplaces, Payments and Communications businesses as
our services expand in scope and complexity. These claims, whether meritorious or not, are time consuming and
costly to resolve, and could require expensive changes in our methods of doing business, could require us to enter
into costly royalty or licensing agreements, or could require us to cease conducting certain operations.
Use of our services for illegal purposes could harm our business.
The law relating to the liability of providers of online services for the activities of their users on their service is
often challenged in the U.S. and internationally. In violation of our policies, unlawful goods and stolen goods have
been listed and traded on our services. We may be unable to prevent our users from selling unlawful or stolen goods
or unlawful services or selling goods or services in an unlawful manner, and we may be subject to allegations of civil
or criminal liability for unlawful activities carried out by users through our services. We have been subject to several
lawsuits based upon such allegations. In December 2004, an executive of Baazee.com, our Indian subsidiary, was
arrested in connection with a user’s listing of a pornographic video clip on that website. We continue to contest the
charges related to this arrest. Similarly, our Korean subsidiary and one of its employees were found criminally liable
for listings on the Korean subsidiary’s website. The German Federal Supreme Court has ruled that we may have a
duty to take reasonable measures to prevent prohibited DVDs from being sold on our site to minors and that
competitors may be able to enforce this duty. In a number of circumstances, third parties have alleged that our
services aid and abet certain violations of certain laws, including antiscalping laws with respect to the resale of
tickets, laws regarding the sale of counterfeit items, the fencing of stolen goods, and restrictive distribution laws and
distance selling laws.
Although we have prohibited the listing of stolen goods and certain high-risk items and implemented other
protective measures, we may be required to spend substantial resources to take additional protective measures or
discontinue certain service offerings, any of which could harm our business. Any costs incurred as a result of
potential liability relating to the alleged or actual sale of unlawful goods or the unlawful sale of goods could harm
our business. In addition, we have received significant and continuing media attention relating to the listing or sale
of unlawful goods and stolen goods using our services. This negative publicity, even if factually incorrect, could
damage our reputation, diminish the value of our brand names and make users reluctant to use our services.
PayPal’s payment system is also susceptible to potentially illegal or improper uses. These may include illegal
online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or controlled
substances, piracy of software and other intellectual property, money laundering, bank fraud, child pornography
trafficking, prohibited sales of alcoholic beverages or tobacco products, and online securities fraud. Recent changes
in law have increased the penalties for intermediaries providing payment services for certain illegal activities.
Despite measures PayPal has taken to detect and lessen the risk of this kind of conduct, including PayPal’s ability to
take legal action to recover its losses for certain violations of its acceptable use policy, illegal activities could still be
funded using PayPal. Any resulting claims or liabilities could adversely affect 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 often unsettled. Claims could be made against online services companies under both
U.S. and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or
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