eBay 1999 Annual Report Download - page 37

services. Several private lawsuits seeking to impose liability upon online services companies currently are
pending. In addition, federal, state and foreign legislation has been proposed that imposes liability for or prohibits
the transmission over the Internet of certain types of information. Our service features a Feedback Forum, which
includes information from users regarding other users. Although all such feedback is generated by users and not
by us, it is possible that a claim of defamation or other injury could be made against us for content posted in the
Feedback Forum. Claims like these become more likely and have a higher probability of success in jurisdictions
outside the U.S. If we become liable for information provided by our users and carried on our service, we could
be directly harmed and we may be forced to implement new measures to reduce our exposure to this liability.
This may require us to expend substantial resources and/or to discontinue certain service offerings. In addition,
the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could
harm our 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 and other litigation
On March 23, 1999, we were sued by Network Engineering Software, Inc. (‘‘NES’’) in the U.S. District
Court for the Northern District of California for our alleged willful and deliberate violation of a patent. The suit
sought unspecified monetary damages as well as an injunction against our operations. It also sought treble
damages and attorneys’ fees and costs. We have entered into a settlement agreement and license with NES, and
this suit has been dismissed with prejudice.
On September 1, 1999, we were served with a lawsuit filed by Randall Stoner, on behalf of the general
public, in San Francisco Superior Court (No. 305666). The lawsuit alleges that we violated Section 17200 of the
California Business & Professions Code, a statute that relates to unfair competition, based upon the listing of
‘‘bootleg’’ or ‘‘pirate’’ recordings by our users, allegedly in violation of California penal statutes relating to the
sale of unauthorized audio recordings. The lawsuit seeks declaratory and injunctive relief, restitution and legal
fees. Discovery has commenced. We believe we have meritorious defenses to this lawsuit and intend to defend
ourselves vigorously. However, even if successful, this defense could be costly and, if we were to lose this
lawsuit, our business could be harmed.
On December 10, 1999, we sued Bidder’s Edge, Inc in the United States District court for the Northern
District of California alleging trespass, unfair competition, violation of the computer fraud and abuse act,
misappropriation, false advertising, trademark dilution, injury to business reputation, interference with
prospective economic advantage, and unjust enrichment. On February 7, 2000, Bidder’s Edge denied these claims
and counterclaimed against us alleging that we have violated the antitrust laws by monopolizing or attempting to
monopolize a market, we are competing unfairly, and that we interfered with their contract with eBay magazine.
Bidder’s Edge is seeking treble damages, an injunction and its fees and costs. Expedited discovery in this case
has commenced. We intend to prosecute our claims and defend ourselves against Bidder’s Edge counterclaims
vigorously. However, this lawsuit could be costly and our business could be harmed if we were to lose.
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
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