eBay 2012 Annual Report Download - page 127

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 against 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
("ECJ") questions of liability for the use of L'Oréal trademarks, hosting liability, and the scope of a possible injunction against intermediaries.
On July 12, 2011 the ECJ ruled on the questions certified by the U.K. High Court of Justice. It held that (a) brand names could be used by
marketplaces as keywords for paid search advertising without violating a trademark owner's rights if it were clear to consumers that the goods
reached via the key word link were not being offered by the trademark owner or its designees but instead by third parties, (b) that marketplaces
could invoke the limitation from liability provided by Article 14 of the ecommerce directive if they did not take such an active role with respect
to the listings in question that the limitation would not be available, but that even where the limitation was available, the marketplace could be
liable if it had awareness (through notice or its own investigation) of the illegality of the listings, (c) that a marketplace would be liable in a
specific jurisdiction only if the offers on the site at issue were targeting that jurisdiction, a question of fact, (d) that injunctions may be issued to a
marketplace in connection with infringing third party content, but that such injunctions must be proportionate and not block legitimate trade and
(e) that trademark rights can only be evoked by a rights owner as a result of a seller's commercial activity as opposed to private activity. The
matter will now return to the U.K. High Court of Justice for further action in light of the ECJ opinion. 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 resale 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 then operated was insufficient to prevent such infringement. The scope of a
possible injunction claimed is to be specified after the trial upon remand from the ECJ.
eBay's Korean subsidiary, IAC (which has merged into Gmarket and is now named eBay Korea), has notified its approximately 20 million
users of a January 2008 data breach involving personally identifiable information including name, address, resident registration number and
some transaction and refund data (but not including credit card information or real time banking information). Approximately 149,000 users
sued IAC over this breach in several lawsuits in Korean courts and more may do so in the future (including after final determination of liability).
Trial for a group of representative suits began in August 2009 in the Seoul District Court, and trial for a group of 23 other suits began in
September 2009 in the Seoul District Court. There is some precedent in Korea for a court to grant “consolation money”
for data breaches without
a specific finding of harm from the breach. Such precedents have involved payments of up to approximately $200 per user. In January 2010, one
bench of the Seoul District Court ruled that IAC had met its obligations with respect to defending the site from intrusion and, accordingly, had
no liability for the breach. This ruling has been appealed by approximately 34,000 plaintiffs to the Seoul High Court. In September 2012, a
bench of the Seoul High Court announced its decision upholding the Seoul District Court's 2010 decision for three cases involving 55 plaintiffs.
The remaining cases before the Seoul High Court are currently being heard de novo, and a decision is expected in 2013. In January 2013, the
Seoul Western District Court ruled in favor of IAC with respect to two cases filed by 2,291 plaintiffs following the January 2010 ruling.
General Matters
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 are subject to patent disputes, and expect that we will increasingly be subject to additional patent infringement claims involving
various aspects of our Marketplaces, Payments and GSI businesses as our services continue to expand in scope and complexity. Such claims may
be brought directly against our companies and/or against our customers (who may be entitled to contractual indemnification under their contracts
with us), and we are subject to increased exposure to such claims as a result of our recent acquisitions, particularly in cases where we are
entering into new businesses in connection with such acquisitions. 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 the range and geographical scope of our services and become subject to laws in jurisdictions
where the underlying laws with respect to the potential liability of online intermediaries like ourselves are either unclear or less favorable. We
believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws will be filed against us. Intellectual property
claims, whether meritorious or not, are time consuming and costly to defend and resolve, could require expensive changes in our methods of
doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms.
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