eBay 1998 Annual Report Download - page 34

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reputation or otherwise impact the growth of our business. We carry liability insurance, but it may not be adequate
to fully compensate us if we become liable for information carried on or through our service. Any costs incurred as a
result of this liability or asserted liability could harm our business.
We are subject to intellectual property litigation.
On March 24, 1999 we were sued by Network Engineering Software, Inc. in the U.S. District Court for the
Northern District of California for our alleged willful and deliberate violation of a patent. The suit seeks unspecified
monetary damages as well as an injunction against our operations. It also seeks treble damages and attorneys’ fees
and costs. We believe that we have meritorious defenses against this suit and intend to vigorously defend ourselves.
We could be forced to incur material expenses during this defense, and in the event we were to lose this suit our
business would be harmed.
Other third parties have from time to time claimed and may claim in the future that we have infringed their
past, current or future technologies. We expect that participants in our markets increasingly will be subject to
infringement claims as the number of services and competitors in our industry segment grows. Any claim like this,
whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. These royalty or licensing agreements might not be available
on acceptable terms or at all. As a result, any claim like this could harm our business.
The inability to expand our systems may limit our growth.
We seek to generate a high volume of traffic and transactions on our service. The satisfactory performance,
reliability and availability of our website, processing systems and network infrastructure are critical to our reputation
and our ability to attract and retain large numbers of users. Our revenues depend on the number of items listed by
users, the volume of user auctions that are successfully completed and the final prices paid for the items listed. If the
volume of traffic on our website or the number of auctions being conducted by customers continues to increase, we
will need to expand and upgrade our technology, transaction processing systems and network infrastructure. We
may not be able to accurately project the rate or timing of increases, if any, in the use of our service or to timely
expand and upgrade our systems and infrastructure to accommodate any increases.
We use internally developed systems to operate our service and for transaction processing, including billing
and collections processing. We must continually improve these systems in order to accommodate the level of use of
our website. In addition, we may add new features and functionality to our services that would result in the need to
develop or license additional technologies. Our inability to add additional software and hardware or to upgrade our
technology, transaction processing systems or network infrastructure to accommodate increased traffic or transaction
volume could have adverse consequences. These consequences include unanticipated system disruptions, slower
response times, degradation in levels of customer support, impaired quality of the users’ experience on our service
and delays in reporting accurate financial information. Our failure to provide new features or functionality also
could result in these consequences. We may be unable to effectively upgrade and expand our systems in a timely
manner or to integrate smoothly any newly developed or purchased technologies with our existing systems. These
difficulties could harm or limit our ability to expand our business.
System failures could harm our business.
Our future success, and in particular our ability to facilitate trades successfully and provide high quality
customer service, will depend on the efficient and uninterrupted operation of our computer and communications
hardware and software systems. Substantially all of our computer hardware for operating our service currently is
located at the facilities of Exodus Communications, Inc. (“Exodus”) in Santa Clara, California. These systems and
operations are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication
failures and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism and similar
misconduct. We do not have fully redundant systems, a formal disaster recovery plan or alternative providers of
hosting services, and we do not carry sufficient business interruption insurance to compensate us for losses that may