eBay 2010 Annual Report Download - page 30

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and planned antifraud efforts, customer support procedures, operating procedures and disclosures. If one or more
of these agencies is not satisfied with our response to current or future inquiries, we could be subject to
enforcement actions, fines or other penalties, or forced to change our operating practices in ways that could harm
our business.
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 have increased as our business has
expanded and our company has grown 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. We are also subject to federal, state, local
and foreign laws of general applicability, including laws regulating working conditions (e.g., the Fair Labor
Standards Act). Any claims or regulatory actions against us, whether meritorious or not, could be time
consuming, result in costly litigation, damage awards, injunctive relief, or increased costs of doing business
through adverse judgment or settlement, require us to change our business practices in expensive ways, require
significant amounts of management time, result in the diversion of significant operational resources, or otherwise
harm our business.
Changes to our dispute resolution process could increase our costs and loss rate.
In April 2009, we announced plans to change the dispute resolution process (which we refer to as
“resolutions”) for transactions on eBay.com and eBay.co.uk in which a buyer claims the item was not received or
the item they received was different from that described in the listing. We implemented these plans beginning in
the fourth quarter of 2009. Previously, buyers with an issue on our eBay.com and eBay.co.uk platform were
generally required to contact the seller directly and, if they were unable to resolve the issue, to start the
resolutions process online via PayPal’s resolution center. We have transitioned to a new, on-eBay resolutions
process provided by eBay customer support, which now serves as the primary entry point for buyers on
eBay.com and eBay.co.uk who are unable to resolve their disputes with eBay sellers. Among other things, the
new resolutions process provides that eBay will generally reimburse the buyer for the full amount of an item’s
purchase price (including original shipping costs), in cases where the item was not received or the item they
received was different from that described in the listing, and the seller does not provide adequate resolution to the
buyer. eBay then attempts to recoup amounts paid to the buyer from the seller’s PayPal accounts or other
payment methods.
Our costs associated with resolutions have increased as a result of these changes to our resolutions policies
and process. These changes, together with any further changes that we may make to our resolutions process in
the future, may be negatively received by, and lead to dissatisfaction on the part of, some of our sellers. These
changes may also result in an increase in buyer fraud and associated transaction losses. In addition, eBay does
not have the same level of rights of recoupment against sellers as PayPal, which may result in higher costs to
operate the program.
Failure to deal effectively with bad transactions and customer disputes would increase our loss rate and harm
our business.
Over the last several years, we have enhanced the buyer and seller protections offered by PayPal in certain
eBay marketplaces, and in certain countries for transactions outside of eBay marketplaces. These changes to
PayPal’s buyer and seller protection program could result in future increases and fluctuations in our Payments
transaction loss rate. For the fiscal years ended December 31, 2008, 2009 and 2010, our Payments transaction
losses (including both direct losses and buyer protection payouts) totaled $171.5 million, $180.9 million and
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