eBay 2012 Annual Report Download - page 126

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Litigation and Other Legal Matters
Overview
We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be
reasonably estimated, we accrue the estimated liability in our financial statements. If only a range of estimated losses can be determined, we
accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better
estimate than any other amount, we accrue the low end of the range. Amounts accrued for legal proceedings for which we believe a loss is
probable were not material for the year ended December 31, 2012. Except as otherwise noted, we have concluded that reasonably possible losses
arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our accruals are also not
material. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have disclosed an estimate of the
reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or range of losses arising
directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we cannot estimate the
probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact.
In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as
the potential impact of non-
monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in
a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 12, we are unable to
estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.
Specific 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 alleged 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. We appealed this decision, and in September 2010, the Paris Court of Appeal reduced the
damages award to EUR 5.7 million and modified the injunction. We further appealed this decision to the French Supreme Court, and in May
2012, the French Supreme Court ruled that the appeal court should not have assumed jurisdiction upon activity that took place on the eBay.com
site and that the injunction was too broad insofar as it did not exclude private sales. The court also noted that the appeal court had not sufficiently
dealt with assertions that the plaintiffs' distribution contracts were not valid. Those matters will now be remanded to the Paris Court of Appeal.
In 2009, plaintiffs filed an action regarding our compliance with the original 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 should do a better job of enforcing the
injunction. Parfums Christian Dior has filed another motion relating to our compliance with the injunction. We have taken measures to comply
with the injunction and have appealed these rulings, noting, among other things, the modification of the initial injunction. In light of the French
Supreme Court ruling mentioned above, we asked the court to stay proceedings with respect to enforcement of the injunction pending the retrial
of the matters on appeal, and this request has been granted. 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 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, “tester” and other not for resale consumer
products listed on our websites by third parties, alleged misuse of trademarks in listings, alleged violations of selective distribution channel laws,
alleged violations of parallel import laws, alleged non-compliance with consumer protection laws and in connection with paid search
advertisements. We have
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