eBay 2009 Annual Report Download - page 31

eBay faces similar risks with respect to fraudulent activities on its websites. eBay periodically receives
complaints from users who may not have received the goods that they had purchased. In some cases individuals
have been arrested and convicted for fraudulent activities using our websites. eBay also receives complaints from
sellers who have not received payment for the goods that a buyer had contracted to purchase. Non-payment may
occur because of miscommunication, because a buyer has changed his or her mind and decided not to honor the
contract to purchase the item, or because the buyer bid on the item maliciously in order to harm either the seller
or eBay. In some European and Asian jurisdictions, buyers may also have the right to withdraw from a sale made
by a professional seller within a specified time period. While eBay can, in some cases, suspend the accounts of
users who fail to fulfill their payment or delivery obligations to other users, eBay does not have the ability to
require users to make payment or deliver goods, or otherwise make users whole other than through our limited
buyer protection programs. The impact of changes to our dispute resolutions program implemented in 2009 is
discussed in more detail above under the caption “Changes to our dispute resolution process could increase our
costs and loss rate.”
Other than through these programs, eBay does not compensate users who believe they have been defrauded
by other users, although users who pay through PayPal may have reimbursement rights from their credit card
company or bank, which in turn will seek reimbursement from PayPal. eBay also periodically receives
complaints from buyers as to the quality of the goods purchased. We expect to continue to receive
communications from users requesting reimbursement or threatening or commencing legal action against us if no
reimbursement is made. Our liability for these sort of claims is only beginning to be clarified in some
jurisdictions and may be higher in some non-U.S. jurisdictions than it is in the U.S. Litigation involving liability
for third-party actions could be costly and time consuming for us, divert management attention, result in
increased costs of doing business, lead to adverse judgments, or otherwise harm our business. In addition,
affected users will likely complain to regulatory agencies that could take action against us, including imposing
fines or seeking injunctions.
Negative publicity and user sentiment generated as a result of fraudulent or deceptive conduct by users of
our Marketplaces and Payments services could damage our reputation, reduce our ability to attract new users or
retain our current users, and diminish the value of our brand names. We believe that negative user experiences
are one of the primary reasons users stop using our services.
Any factors that reduce cross-border trade could harm our business.
Cross-border trade has become an increasingly important source of both revenue and profits for us. Cross-
border transactions using our websites generally provide higher revenues and gross margins than similar
transactions that take place within a single country or market. We generally earn higher transaction fees for
cross-border transactions involving PayPal, and our Marketplaces business continues to represent a relatively
easy way for buyers and sellers to engage in cross-border trade compared with other alternatives. To the extent
that any factors result in a net reduction in cross-border trade, including, among other factors, fluctuations in
exchange rates, the application of specific national or regional laws (e.g., selective distribution channel laws and
parallel import laws) to users in other countries, or any other factors impose restrictions on, or increase the costs
of, shipping goods across national borders (including customs enforcement and tariffs), our business would
suffer.
Our business is subject to online security risks, including security breaches and identity theft.
To succeed, online commerce must provide a secure transmission of confidential information over public
networks. Our security measures may not detect or prevent security breaches that could harm our business.
Currently, a significant number of our users authorize us to bill their credit card accounts directly for all
transaction fees charged by us. PayPal’s users routinely provide credit card and other financial information. We
rely on encryption and authentication technology licensed from third parties to provide the security and
authentication to effectively secure transmission of confidential information, including customer credit card
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