eBay 2013 Annual Report Download - page 28

filed a motion to dismiss the cases asserted against us and, in September 2013, the U.S. District Court for the Northern District of California
granted the motion to dismiss regarding the California asserted case but denied the motion to dismiss regarding the DOJ asserted case. The
State of California has filed an amended complaint, which we have moved to dismiss. These cases are currently stayed. We believe these
allegations are without merit and intend to defend ourselves vigorously. These claims and any other claims or regulatory actions against us,
whether meritorious or not, could be time consuming, result in costly litigation, damage awards (including statutory damages for certain causes
of action in certain jurisdictions), injunctive relief, or increased costs of doing business through adverse judgment or settlement, require us to
change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant
operational resources, or otherwise harm our business.
Changes to our programs to protect buyers and sellers could increase our costs and loss rate.
Our eBay and PayPal buyer protection programs represent the means by which we compensate users who believe that they have been
defrauded, have not received the item that they purchased, or have received an item different than what was described. However, users who pay
through PayPal may have reimbursement rights from their payment card company or bank, which in turn will seek recovery 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 slowly 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.
Over the last several years, we have enhanced the buyer and seller protections offered by PayPal in certain eBay marketplaces, and in
certain countries for transactions outside of eBay marketplaces. In October 2013, PayPal launched and expanded its seller protection to eligible
merchants in the Asia Pacific region. These changes to PayPal's buyer and seller protection program could result in future changes and
fluctuations in our Payments transaction loss rate. For the year ended December 31, 2013, our Payments transaction losses (including both direct
losses and buyer protection payouts) totaled $369 million, representing 0.21% of our net total payment volume, respectively. Beginning in 2009,
we have also changed the dispute resolution process for transactions for buyers in the U.S., U.K. and Germany (on eBay.com, eBay.co.uk and
eBay.de, respectively), as described in more detail above under the caption “Changes to our dispute resolution process could increase our costs
and loss rate,” which could result in an increase in our combined eBay and PayPal transaction losses.
Beginning in 2009, we have transitioned buyers in the U.S., U.K. and Germany to a dispute resolution process, or resolutions, provided by
eBay customer support, which now serves as the primary entry point for buyers in these countries if they are unable to resolve their disputes with
eBay sellers. Among other things, the resolutions process provides that eBay will generally reimburse the buyer for the full amount of an item's
purchase price (including original shipping costs) in cases where the item was not received or the item they received was different from that
described in the listing and the seller does not provide adequate resolution to the buyer. eBay then attempts to recoup amounts paid to the buyer
from the seller's PayPal accounts or through other collection methods. We have recently simplified the process for filing a resolutions case,
which has resulted in a significant increase in the number of cases being opened. Our costs associated with resolutions have increased as a result
of these changes to our resolutions policies and process, in part because eBay may not have the same level of rights of recoupment against sellers
as PayPal, resulting in higher costs to operate the program. These changes, together with any additional changes that we may make to our
resolutions process in the future, may be negatively received by, and lead to dissatisfaction on the part of, some of our sellers, and may also
result in an increase in buyer fraud and associated transaction losses. Increased costs, loss rates or liabilities resulting from eBay and/or PayPal’s
current buyer and seller protection programs, or changes to such buyer and seller protection programs, could have an adverse effect on our
business and financial results.
Failure to deal effectively with fraud, bad transactions and negative customer experiences would increase our loss rate and harm our
business.
PayPal's highly automated and liquid payment service makes PayPal an attractive target for fraud. In configuring its service, PayPal
continually strives to maintain the right balance of appropriate measures to promote both convenience and security for customers. Identity
thieves and those committing fraud using stolen payment card or bank account numbers can potentially steal large amounts of money from
businesses such as PayPal. We believe that several of PayPal's current and former competitors in the electronic payments business have gone out
of business or significantly restricted their businesses largely due to losses from this type of fraud. While PayPal uses advanced anti-fraud
technologies, we expect that technically
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