eBay 2004 Annual Report Download - page 120

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
reached a proposed settlement. The settlement received approval from the federal court on November 2, 2004,
but the court's approval could be appealed. In the settlement, PayPal does not acknowledge that any of the
allegations in the case are true. Under the terms of the settlement, certain PayPal account holders will be
eligible to receive payment from a settlement fund of $9.25 million, less administrative costs and the amount
awarded to plaintiÅs' counsel by the court. That sum will be distributed to class members who have submitted
timely claims in accordance with the settlement's plan of allocation, which still must be approved by the court.
The parties expect that a plan of allocation will be submitted to the court in the Ñrst quarter of 2005. The
amount of the settlement was fully accrued in our consolidated statement of income for the year ended
December 31, 2003.
In July 2004, a purported class action lawsuit was Ñled by two eBay users in Superior Court of the State
of California, County of Santa Clara (No. 104CV022708) alleging that eBay engaged in improper billing
practices as the result of problems with the rollout of a new billing software system in the second and third
quarters of 2004. The lawsuit sought damages and injunctive relief. An amended complaint was Ñled in
January 2005, dropping one plaintiÅ, changing the capacity of the other plaintiÅ to that of representative
plaintiÅ, and adding seven additional eBay users as plaintiÅs. The amended complaint expanded its claim to
include numerous alleged improper billing practices from September 2003 until the present. In February 2005,
eBay Ñled a motion to strike and a demurrer seeking to dismiss the complaint. We believe that we have
meritorious defenses and intend to defend ourselves vigorously.
In February 2005, eBay was sued in Superior Court of the State of California, County of Santa Clara
(No. 105CV035930) in a purported class action alleging that certain bidding features of our site constitute
""shill bidding'' for the purpose of artiÑcially inÖating bids placed by buyers on the site. The complaint alleges
violations of California's Auction Act, California's Consumer Remedies Act, and unfair competition. The
complaint seeks injunctive relief, damages, and a constructive trust. The plaintiÅs have not yet served eBay
with the complaint. We believe that we have meritorious defenses and intend to defend ourselves vigorously.
Other third parties have from time to time claimed, and others may claim in the future, that we have
infringed their intellectual property rights. We have been notiÑed of several potential patent disputes, and
expect that we will increasingly be subject to patent infringement claims as our services expand in scope and
complexity. In particular, we expect to face additional patent infringement claims involving services we
provide, including various aspects of our Payments business. We have in the past been forced to litigate such
claims. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium
Copyright Act, the Lanham Act and the Communications Decency Act are interpreted by the courts and as
we expand geographically into jurisdictions where the underlying laws with respect to the potential liability of
online intermediaries like ourselves are either unclear or less favorable. These claims, whether meritorious or
not, could be time consuming and costly to resolve, 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.
From time to time, we are involved in other disputes that arise in the ordinary course of business. The
number and signiÑcance of these disputes is increasing as our business expands and our company grows larger.
Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require
signiÑcant amounts of management time, and result in the diversion of signiÑcant operational resources.
While we currently believe that the ultimate resolution of these unresolved matters will not have a
material adverse impact on our Ñnancial position, results of operations or cash Öows, the litigation and other
claims noted speciÑcally or generally above are subject to inherent uncertainties and our view of these matters
may change in the future. Were an unfavorable Ñnal outcome to occur, there exists the possibility of a material
adverse impact on our Ñnancial position, results of operations or cash Öows for the period in which the eÅect
becomes reasonably estimable. We are unable to determine what potential losses we may incur if these
matters were to have an unfavorable outcome.
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