eBay 2004 Annual Report Download - page 59

its restriction and disclosure practices from the Federal Trade Commission and the attorneys general of a
number of states. If PayPal's processes are found to violate federal or state law on consumer protection and
unfair business practices, it could be subject to an enforcement action or Ñnes. If PayPal becomes subject to
an enforcement action, it could be required to restructure its anti-fraud processes in ways that would harm its
business, and to pay substantial Ñnes. Even if PayPal is able to defend itself successfully, an enforcement
action could cause damage to its reputation, could consume substantial amounts of its management's time and
attention, and could require PayPal to change its customer service and operations in ways that could increase
its costs and decrease the eÅectiveness of its anti-fraud program. Both eBay and PayPal are likely to receive
additional inquiries from regulatory agencies in the future, which may lead to action against either company.
We have responded to all inquiries from regulatory agencies by describing our current and planned antifraud
eÅorts, customer support procedures and operating procedures. If one or more of these agencies is not satisÑed
with our response to current or future inquiries, we could be subject to Ñnes or other penalties, or forced to
change our operating practices in ways that could harm our business.
We are subject to laws relating to the use and transfer of personally identiÑable information about our
users, especially users located outside of the U.S. Violation of these laws, which in many cases apply not only
to third-party transactions but also to transfers of information between ourselves and our subsidiaries, and
between ourselves, our subsidiaries, and other parties with which we have commercial relations, could subject
us to signiÑcant penalties and negative publicity and could adversely aÅect us.
The listing or sale by our users of pirated or counterfeit items may harm our business.
We have received in the past, and we anticipate receiving in the future, communications alleging that
certain items listed or sold through our service by our users infringe third-party copyrights, trademarks and
trade names, or other intellectual property rights. Although we have sought to work actively with the owners of
intellectual property rights to eliminate listings oÅering infringing items on our websites, some rights owners
have expressed the view that our eÅorts are insuÇcient. Content owners and other intellectual property rights
owners have been active in defending their rights against online companies, including eBay. Allegations of
infringement of intellectual property rights have resulted in litigation against us from time to time, including
litigation brought by TiÅany & Co. in the U.S., Rolex S.A. in Germany, and a number of other owners of
intellectual property rights. While we have been largely successful to date in defending against such litigation,
more recent cases have been based, at least in part, on diÅerent legal theories than those of earlier cases, and
there is no guarantee that we will continue to be successful in our defense. In addition, we expect that this type
of litigation may increase as our sites gain prominence in markets outside of the U.S., where the laws may be
unsettled or less favorable to us. Such litigation is costly for us, could result in damage awards or increased
costs of doing business through adverse judgment or settlement, could require us to change our business
practices in expensive ways, or could otherwise harm our business. Litigation against other online companies
could result in interpretations of the law that could also require us to change our business practices or
otherwise increase our costs.
We are subject to risks associated with information disseminated through our service.
The law relating to the liability of online services companies for information carried on or disseminated
through their services is currently unsettled. Claims could be made against online services companies under
both U.S. and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the materials disseminated through their
services. Several private lawsuits seeking to impose liability upon us under a number of these theories have
been brought against us. In addition, domestic and foreign legislation has been proposed that would prohibit or
impose liability for 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, claims of defamation or other injury have been made in the past and could
be made in the future against us for content posted in the Feedback Forum. Several recent court decisions
have narrowed the scope of the immunity provided to Internet service providers like us under the
Communications Decency Act. This trend, if continued, may increase our potential liability to third parties for
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