eBay 2001 Annual Report Download - page 89

Download and view the complete annual report

Please find page 89 of the 2001 eBay annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 101

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
watches on the website as well as damages. We believe that we have meritorious defenses against this
claim and intend to defend ourselves vigorously.
On September 26, 2001, a complaint was Ñled by MercExchange LLC against us, our Half.com
subsidiary and ReturnBuy, Inc. in the Eastern District of Virginia (No. 2:01-CV-736) alleging
infringement of three patents (relative to online auction technology, multiple database searching, and
electronic consignment systems) and seeking a permanent injunction and damages (including treble
damages for willful infringement). We have answered this complaint, denying the allegations, and we
believe we have meritorious defenses and will defend ourselves vigorously. However, even if successful, our
defense against this action could be costly and divert our management's time. If the plaintiÅ were to
prevail on all of its claims, we might be forced to pay signiÑcant damages and licensing fees, modify our
business practices or even be enjoined from practicing a signiÑcant part of our U.S. business. Any such
results could materially harm our business.
Other third parties have from time to time claimed, and others may claim in the future that we have
infringed their past, current or future intellectual property rights. We have in the past been forced to
litigate such claims. We may become more vulnerable to such claims as laws such as the Digital
Millennium Copyright Act are interpreted by the courts and as we expand into jurisdictions where the
underlying laws with respect to the potential liability of online intermediaries like ourselves is less
favorable. We expect that we will increasingly be subject to copyright and trademark infringement claims
as the geographical reach of our services expands. We also expect that we will increasingly be subject to
patent infringement claims as our services expand. These claims, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays, require expensive changes in our
methods of doing business or could require us to enter into costly royalty or licensing agreements, if
available. As a result, these claims could harm our business.
The credit card companies providing payment services to our majority-owned Korean subsidiary,
Internet Auction, have experienced higher than anticipated delinquency rates on transactions carried out
on the Internet Auction platform. Some of these delinquencies are related to Ñctitious transactions on
Internet Auction and other Korean Internet sites to enable users to receive cash advances on their credit
cards that would not otherwise be permitted by the credit card companies. As of December 31, 2001, the
credit card companies had withheld approximately 3.4 billion Won (about $2.6 million) as ""collateral''
against certain delinquent accounts, and had threatened to terminate their agreements with Internet
Auction if matters were not resolved to their satisfaction. Beginning in the spring of 2001, Internet Auction
has been putting into place certain user veriÑcation and site-monitoring processes that it believes have
substantially reduced this type of credit card misuse on its system. The credit card companies are
requesting that Internet Auction enter into new agreements that could shift the risk of credit card misuse,
nonpayment or chargeback by the purchaser to Internet Auction and would formalize the ability of the
credit card companies to withhold ""collateral'' against future delinquencies. Internet Auction is currently in
negotiations with the credit card companies to resolve this situation. If these negotiations are not
successful, termination of its agreements with the credit card companies would adversely aÅect Internet
Auction's business and could adversely impact eBay's business. Any settlement related to past transactions
could adversely aÅect Internet Auction's results of operations. Proposed legislation now pending in the
Korean legislature, would, if enacted, make Internet Auction liable for credit card misuses by its users. If
Internet Auction becomes liable for credit card misuse or failure to pay by its users, Internet Auction may
have to change its procedures and processes relating to payments, accept higher losses, or both, which
could adversely aÅect its business and could thereby adversely aÅect our business.
From time to time, we are involved in other disputes that arise in the ordinary course of business. We
believe that the ultimate resolution of these other disputes will not have a material adverse impact on our
business, Ñnancial position, results of operations, or cash Öows.
85