eBay 2009 Annual Report Download - page 118

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Rent expense in the years ended December 31, 2007, 2008 and 2009 totaled $51.4 million, $78.6 million
and $92.3 million respectively. There were no material capital leases at December 31, 2007 and 2008.
Litigation and Other Legal Matters
In August 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of
Commerce against eBay Inc. and eBay International AG. Among other things, the complaint alleges that we
violated French tort law by negligently broadcasting listings posted by third parties offering counterfeit items
bearing plaintiffs’ trademarks, and by purchasing certain advertising keywords. Around September 2006,
Parfums Christian Dior, Kenzo Parfums, Parfums Givenchy, and Guerlain Société also filed a lawsuit in the Paris
Court of Commerce against eBay Inc. and eBay International AG. The complaint alleged that we had interfered
with the selective distribution network the plaintiffs established in France and the European Union by allowing
third parties to post listings offering genuine perfumes and cosmetics for sale on our websites. In June 2008, the
Paris Court of Commerce ruled that eBay and eBay International AG were liable for failing to prevent the sale of
counterfeit items on its websites that traded on plaintiffs’ brand names and for interfering with the plaintiffs’
selective distribution network. The court awarded plaintiffs approximately EUR 38.6 million in damages and
issued an injunction (enforceable by daily fines of up to EUR 100,000) prohibiting all sales of perfumes and
cosmetics bearing the Dior, Guerlain, Givenchy and Kenzo brands over all worldwide eBay sites to the extent
that they are accessible from France. A hearing took place in September 2009 regarding our compliance with the
injunction and in November 2009, the court awarded the plaintiffs EUR 1.7 million (the equivalent of EUR 2,500
per day) and indicated that as a large Internet company we could do a better job of enforcing the injunction. We
have taken measures to comply with the injunction and have appealed these rulings. However, these and similar
suits may force us to modify our business practices, which could lower our revenue, increase our costs, or make
our websites less convenient to our customers. Any such results could materially harm our business. Other luxury
brand owners have also filed suit against us or have threatened to do so in numerous different jurisdictions,
seeking to hold us liable for, among other things, alleged counterfeit items listed on our websites by third parties,
for “tester” and other not for resale consumer products listed on our websites by third parties, for the alleged
misuse of trademarks in listings, for alleged violations of selective distribution channel laws, for alleged
violations of parallel import laws, for alleged non-compliance with consumer protection laws or in connection
with paid search advertisements. We have prevailed in some of these suits, lost in others, and many are in various
stages of appeal. We continue to believe that we have meritorious defenses to these suits and intend to defend
ourselves vigorously.
In May 2009, the U.K. High Court of Justice ruled in the case filed by L’Oréal SA, Lancôme Parfums et
Beauté & Cie, Laboratoire Garnier & Cie and L’Oréal (UK) Ltd v. eBay International AG, other eBay
companies, and several eBay sellers (No. HC07CO1978) that eBay was not jointly liable with the seller
co-defendants as a joint tortfeasor, and indicated that it would certify to the European Court of Justice questions
of liability for the use of L’Oreal trademarks, hosting liability, and the scope of a possible injunction against
intermediaries. The U.K. High Court of Justice has released its certification request to the European Court of
Justice. We have filed our briefs before the European Court of Justice. A decision is not expected before 2011.
The case was originally filed in July 2007. L’Oréal’s complaint alleged that we were jointly liable for trademark
infringement for the actions of the sellers who allegedly sold counterfeit goods, parallel imports and testers (not
for re-sale products). Additionally, L’Oréal claimed that eBay’s use of L’Oréal brands on its website, in its
search engine and in sponsored links, and purchase of L’Oréal trademarks as keywords, constitute trademark
infringement. The suit sought an injunction preventing future infringement, full disclosure of the identity of all
past and present sellers of infringing L’Oréal goods, and a declaration that our Verified Rights Owner (VeRO)
program as currently operated was insufficient to prevent such infringement. Other damages claimed were to be
specified after the liability stage of the proceedings.
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