eBay 1999 Annual Report Download - page 19

reduce exposure to this liability, the Company has prohibited the listing of certain items and increased the number
of personnel reviewing questionable items. The Company may in the future implement other protective measures
that could require spending substantial resources or may reduce revenues by discontinuing certain service
offerings. Any costs incurred as a result of liability or asserted liability relating to the sale of unlawful goods or
the unlawful sale of goods, could harm the Company’s business. In addition, the Company has received
significant and continuing media attention relating to the listing or sale of unlawful goods on the Company’s
website. This negative publicity could damage the Company’s reputation and diminish the value of its brand
name. It also could make users reluctant to continue to use the Company’s services.
Fraudulent Activities on the eBay Website
The Company’s future success will depend largely upon sellers reliably delivering and accurately
representing their listed goods and buyers paying the agreed purchase price. The Company has received in the
past, and anticipates that it will receive in the future, communications from users who did not receive the
purchase price or the goods that were to have been exchanged. While the Company can suspend the accounts of
users who fail to fulfill their delivery obligations to other users, it does not have the ability to require users to
make payments or deliver goods or otherwise make users whole other than through our limited insurance
program. Other than through this program, the Company does not compensate users who believe they have been
defrauded by other users. The Company also periodically receives complaints from buyers as to the quality of
the goods purchased. Negative publicity generated as a result of fraudulent or deceptive conduct by users of our
service could damage the Company’s reputation and diminish the value of the Company’s brand name. The
Company expects to continue to receive requests from users requesting reimbursement or threatening or
commencing legal action against the Company if reimbursement is not made. This sort of litigation could be
costly for the Company, divert management attention, result in increased costs of doing business, lead to adverse
judgments or could otherwise harm the Company’s business. See ‘‘Risk Factors—Our business may be harmed
by fraudulent activities on our website.’’
Government Inquiries
On January 29, 1999, the Company received requests to produce certain records and information to the
federal government relating to an investigation of possible illegal transactions in connection with its website.
The Company has been informed that the inquiry includes an examination of the Company’s practices with
respect to these transactions. The Company has provided further information in connection with this ongoing
inquiry. In order to protect the investigation, the court has ordered that no further public disclosures be made
with respect to the matter.
On March 24, 2000, B&B received a grand jury subpoena from the antitrust division of the Department of
Justice requesting documents relating to, among other things, changes in B&B’s seller’s commissions and buyer’s
premiums and discussions, agreements or understandings with other auction houses, in each case since 1992.
The Company believes this request may be related to a publicly reported criminal investigation of auction houses
for price fixing.
Should these or any other investigations lead to civil or criminal charges against the Company, eBay would
likely be harmed by negative publicity, the costs of litigation and the diversion of management time and other
negative effects even if the Company ultimately prevails. The Company’s business would certainly suffer if the
Company were not to prevail in any action like this. Even the process of providing records and information can
be expensive, time consuming and result in the diversion of management attention.
A large number of transactions occur on the eBay website. As a result, the Company believes that
government regulators have received a substantial number of consumer complaints about the eBay website
which, while small as a percentage of its total transactions, are large in aggregate numbers. As a result, the
Company has from time to time been contacted by various federal, state and local regulatory agencies and been
told that they have questions with respect to the adequacy of the steps the Company takes to protect its users
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