eBay 2011 Annual Report Download - page 123

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accrued for legal proceedings for which we believe a loss is probable were not material for the year ended December 31, 2011. Except as
otherwise noted, we have concluded that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid
in judgment or settlement) in excess of our accruals are also not material. For those proceedings in which an unfavorable outcome is reasonably
possible but not probable, we have disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate
of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or
settlement) are not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we
have disclosed that fact.
In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the
potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a
manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 13, we are unable to estimate
the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.
Specific Matters
In August 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of Commerce against eBay Inc.
and eBay International AG. Among other things, the complaint alleged that we violated French tort law by negligently broadcasting listings posted
by third parties offering counterfeit items bearing plaintiffs' trademarks and by purchasing certain advertising keywords. Around September 2006,
Parfums Christian Dior, Kenzo Parfums, Parfums Givenchy, and Guerlain Société also filed a lawsuit in the Paris Court of Commerce against
eBay Inc. and eBay International AG. The complaint alleged that we had interfered with the selective distribution network the plaintiffs
established in France and the European Union by allowing third parties to post listings offering genuine perfumes and cosmetics for sale on our
websites. In June 2008, the Paris Court of Commerce ruled that eBay and eBay International AG were liable for failing to prevent the sale of
counterfeit items on its websites that traded on plaintiffs' brand names and for interfering with the plaintiffs' selective distribution network. The
court awarded plaintiffs approximately EUR 38.6 million in damages and issued an injunction (enforceable by daily fines of up to EUR 100,000 )
prohibiting all sales of perfumes and cosmetics bearing the Dior, Guerlain, Givenchy and Kenzo brands over all worldwide eBay sites to the
extent that they are accessible from France. We appealed this decision, and in September 2010, the Paris Court of Appeal reduced the damages
award to EUR 5.7 million and modified the injunction. We have further appealed this decision to the French Supreme Court. In 2009, plaintiffs
filed an action regarding our compliance with the original injunction, and in November 2009, the court awarded the plaintiffs EUR 1.7 million
(the
equivalent of EUR 2,500 per day) and indicated that as a large Internet company we should do a better job of enforcing the injunction. Parfums
Christian Dior has filed another motion relating to our compliance with the injunction. We have taken measures to comply with the injunction and
have appealed these rulings, noting, among other things, the modification of the initial injunction. However, these and similar suits may force us to
modify our business practices, which could lower our revenue, increase our costs, or make our websites less convenient to our customers. Any
such results could materially harm our business. Other brand owners have also filed suit against us or have threatened to do so in numerous
different jurisdictions, seeking to hold us liable for, among other things, alleged counterfeit items listed on our websites by third parties, “tester”
and other not for resale consumer products listed on our websites by third parties, alleged misuse of trademarks in listings, alleged violations of
selective distribution channel laws, alleged violations of parallel import laws, alleged non-compliance with consumer protection laws and in
connection with paid search advertisements. We have prevailed in some of these suits, lost in others, and many are in various stages of appeal. We
continue to believe that we have meritorious defenses to these suits and intend to defend ourselves vigorously.
In May 2009, the U.K. High Court of Justice ruled in the case filed by L'Oréal SA, Lancôme Parfums et Beauté & Cie, Laboratoire
Garnier & Cie and L'Oréal (UK) Ltd against eBay International AG, other eBay companies, and several eBay sellers (No. HC07CO1978) that
eBay was not jointly liable with the seller co-defendants as a joint tortfeasor, and indicated that it would certify to the European Court of Justice
("ECJ") questions of liability for the use of L'Oréal trademarks, hosting liability, and the scope of a possible injunction against intermediaries. On
July 12, 2011 the ECJ ruled on the questions certified by the U.K. High Court of Justice. It held that (a) brand names could be used by
marketplaces as keywords for paid search advertising without violating a trademark owner's rights if it were clear to consumers that the goods
reached via the key word link were not being offered by the trademark owner or its designees but instead by third parties, (b) that marketplaces
could invoke the limitation from liability provided by Article 14 of the ecommerce directive if they did not take such an active role with respect to
the listings in question that the limitation would not be available, but that even where the limitation was available, the marketplace could be liable
if it had awareness (through notice or its own investigation) of the illegality of the listings, (c) that a marketplace would be liable in a specific
jurisdiction only if the offers on the site at issue were targeting that jurisdiction, a question of fact, (d) that injunctions may be issued to a
marketplace in connection with infringing third party
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