eBay 2011 Annual Report Download - page 28

Our limited eBay and PayPal buyer protection programs represent the means by which we compensate users who believe that they have
been defrauded, have not received the item that they purchased, or have received an item different than what was described. However, users who
pay through PayPal may have reimbursement rights from their credit card company or bank, which in turn will seek recovery from PayPal. eBay
also periodically receives complaints from buyers as to the quality of the goods purchased. We expect to continue to receive communications from
users requesting reimbursement or threatening or commencing legal action against us if no reimbursement is made. Our liability for these sort of
claims is only beginning to be clarified in some jurisdictions and may be higher in some non-U.S. jurisdictions than it is in the U.S. Litigation
involving liability for third-party actions could be costly and time consuming for us, divert management attention, result in increased costs of
doing business, lead to adverse judgments, or otherwise harm our business. In addition, affected users will likely complain to regulatory agencies
that could take action against us, including imposing fines or seeking injunctions.
Negative publicity and user sentiment generated as a result of fraudulent or deceptive conduct by users of our Marketplaces, Payments and
GSI services could damage our reputation, reduce our ability to attract new users or retain our current users and diminish the value of our brand
names. We believe that negative user experiences are one of the primary reasons users stop using our services.
From time to time, we have considered more active mechanisms designed to combat bad buyer experiences and increase buyer satisfaction,
including evaluating sellers on the basis of their transaction history and restricting or suspending their activity as a result. For example, in the U.S.
and the U.K., we may request that PayPal hold seller funds in certain instances (e.g., for sellers with a limited selling history or below-standard
performance ratings), which is intended to help improve seller performance and increase buyer satisfaction. We may expand the scope of such
programs in the future and introduce other programs with similar aims in these and other countries. Our increased usage of these or other
mechanisms to attempt to improve buyer satisfaction could result in dissatisfaction on the part of sellers, loss of share to competing marketplaces,
reduced selection of inventory on our sites and other adverse effects.
Governmental regulators worldwide are also evaluating approaches intended to reduce online fraud. Some of the current proposals (e.g.,
two-factor authentication in France to verify a user's identity) could increase our costs or require us to change our business practices in a manner
that could harm our business.
Any factors that reduce cross-border trade could harm our business.
Cross-border trade has become an increasingly important source of both revenue and profits for us. Cross-border transactions using our
websites generally provide higher revenues and gross margins than similar transactions that take place within a single country or market. We
generally earn higher transaction fees for cross-border transactions involving PayPal, and our Marketplaces business continues to represent a
relatively straightforward way for buyers and sellers to engage in cross-border trade compared with other alternatives. Cross-border trade also
represents our primary (or in some cases, only) presence in certain markets in which Internet use is accelerating and we have a limited (or no)
domestic Marketplaces business (e.g., Brazil/Latin America, China, Russia and various developing countries).
The interpretation and application of specific national or regional laws, such as selective distribution channel laws and parallel import laws,
to users in other countries (e.g., the interpretation and application of such laws to the sale of “gray market” goods) and the potential interpretation
and application of laws of multiple jurisdictions (e.g., the jurisdiction of the buyer, the seller, and/or the location of the item being sold) are
extremely complicated in the context of cross-
border trade, and to the extent any interpretation or application of such laws imposes restrictions on,
or increases the costs of, purchasing, selling or shipping goods across national borders, our business would be harmed. Any additional factors that
increase the costs of purchasing, selling or shipping goods across national borders make it more difficult to do so in practice, including
fluctuations in currency exchange rates, delivery service rates, currency restrictions, export control laws, customs enforcement, court rulings and
tariffs, or that otherwise would result in a net reduction in cross-border trade on our sites, would adversely affect our business.
Our business is subject to online security risks, including security breaches.
Our businesses involve the storage and transmission of users' proprietary information, and security breaches could expose us to a risk of loss
or misuse of this information, litigation and potential liability. An increasing number of websites, including several other large Internet companies,
have recently disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their sites.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not
recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an
actual or perceived breach of our security occurs, public perception of the effectiveness of our security measures could be harmed and we could
lose users. A party that is able to circumvent our security measures could misappropriate our or our users' proprietary
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