eBay 2012 Annual Report Download - page 22

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. See “Item 3: Legal
Proceedings” below. Although we have sought to work actively with the owners of intellectual property rights to eliminate listings offering
infringing items on our websites, some rights owners have expressed the view that our efforts are insufficient. Content owners and other
intellectual property rights owners have actively asserted their purported rights against online companies, including eBay. Allegations of
infringement of intellectual property rights have resulted in threatened and actual litigation against us from time to time by rights owners,
including litigation brought by luxury brand owners such as Tiffany & Co. in the U.S.; Rolex S.A. and Coty Prestige Lancaster Group GmbH in
Germany; Louis Vuitton Malletier and Christian Dior Couture in France; and L'Oréal SA, Lancôme Parfums et Beauté & Cie and Laboratoire
Garnier & Cie in several European countries. The plaintiffs in these cases seek to hold eBay liable for alleged counterfeit items listed on our sites
by third parties; for “tester” and other consumer products labeled in a manner to prevent resale and for unboxed and other allegedly
nonconforming products in each case listed on our sites by third parties; for the alleged misuse of trademarks or copyrights in listings or
otherwise on our sites and in connection with paid search advertisements; for alleged violations of selective distribution channel laws or parallel
import laws for listings of authentic items; and for alleged non-compliance with consumer protection laws. Such plaintiffs seek, among other
remedies, injunctive relief and damages. In the aggregate, these suits could result in significant damage awards and injunctions that could,
individually or in the aggregate, adversely affect our business. There are approximately 37,000 rights owners in our verified rights owner
(VeRO) program, and each rights owner has anywhere from one to several hundred brands. Statutory damages for copyright or trademark
violations could range up to $150,000 per copyright violation and $2,000,000 per trademark violation in the U.S., and may be even higher in
other jurisdictions. These and similar suits may force us to modify our business practices, which could lower our revenue, increase our costs or
make our websites and mobile platforms less convenient to our customers, which could materially harm our business. In addition, rights owners
have aggressively sought to reduce the applicability of limitations to intellectual property rights such as copyright exhaustion and the first sales
doctrine in cases such as Vernor v. Autodesk Inc. (Ninth Circuit Court of Appeals) and Wiley v. Kirtsaeng (pending before the U.S. Supreme
Court). To the extent the scope or applicability of such doctrines is limited or narrowed, the supply of goods available for resale on our sites may
be adversely affected.
In addition to litigation from rights owners, we may be subject to regulatory, civil or criminal proceedings and penalties if governmental
authorities believe we have aided and abetted in the sale of counterfeit goods. While we have had some early success in defending against such
litigation, more recent cases have been based, at least in part, on different legal theories than those of earlier cases, and there is no guarantee that
we will continue to be successful in defending against such litigation. Plaintiffs in recent cases have argued that we are not entitled to safe
harbors under the Digital Millennium Copyright Act in the U.S. or as a hosting provider in the European Union under the Electronic Commerce
Directive because of the alleged active nature of our involvement with our sellers, and that whether or not such safe harbors are available, we
should be found liable because we supposedly have not adequately removed listings that are counterfeit or are authentic but allegedly violate
trademark or copyright law or effectively suspended users who have created such listings. While we do not believe the European Court of Justice
decision in the L'Oréal case (see “Item 3: Legal Proceedings”
below) changes the standard for hosting immunity under the Electronic Commerce
Directive, rights owners in European jurisdictions have asserted that our degree of participation in the transaction should cause us to be unable to
take advantage of the hosting immunity exception. Final resolution of this issue has been left to the national courts of countries in the European
Union. We believe that the legal climate, especially in Europe, is becoming more adverse to our positions, which may require us to take actions
which could lower our revenues, increase our costs, or make our websites and mobile platforms less convenient to our customers, which could
materially harm our business. In addition, public perception that counterfeit or pirated items are commonplace on our sites, even if factually
incorrect, would damage our reputation, lower the price our sellers receive for their items and damage our business.
We are continuously seeking to improve and modify our efforts to eliminate counterfeit and pirated items through ongoing business
initiatives designed to reduce bad buyer experiences and improve customer satisfaction and by responding to new patterns we are seeing among
counterfeiters and others committing fraud on our users. Increased intermediation of transactions between buyers and sellers, which we generally
refer to as our Managed Marketplace initiatives, intended to achieve those goals may result in us being unable to rely, to the same extent that we
have in the past, on hosting immunity and other secondary liability safe harbors when sued by users and rights owners over actions taken on our
site by our users. While we are taking steps to mitigate this impact on our safe harbor defenses, we may be subject to more intellectual property
litigation and may lose more cases as a result of these business model changes, which would adversely affect our business.
Content owners and other intellectual property rights owners may also seek to bring legal action against entities that are peripherally
involved in the sale of infringing items, such as payment companies. To the extent that intellectual property rights
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