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This excerpt taken from the EBAY 10-Q filed Apr 28, 2009. PART II: OTHER INFORMATION
The information set forth under “Note 7 - Commitments and Contingencies” to the condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.
This excerpt taken from the EBAY 10-Q filed Oct 23, 2008. PART II:
OTHER INFORMATION
In April 2001, two of our European subsidiaries, eBay GmbH and
eBay International AG, were sued by Montres Rolex S.A. and
certain of its affiliates. Rolex alleged that our subsidiaries
were infringing Rolex’s trademarks as a result of users
selling counterfeit Rolex watches through our German website.
The suit also alleged unfair competition. Rolex sought an order
enjoining the sale of Rolex-branded watches on the website as
well as damages. The matter was eventually decided by the German
Supreme Court which in 2007 held, following a 2004 precedent in
the matter of Rolex v Ricardo, that eBay must take
reasonable measures to prevent recurrence once it is informed of
clearly identified infringement, and that eBay may in certain
circumstances be liable upon first notice of infringement. The
court referred the case back to the Higher Regional Court to
determine whether, in some circumstances, a low starting listing
price was sufficient to indicate that a listing was infringing.
In July 2007, the German Federal Supreme Court extended the
reach of the Rolex decision in IVD v. eBay.
The court held that (i) in certain circumstances, a duty of
care could be found to exist to competitors requiring eBay to
take reasonable measures to prevent illegal items from being
listed (even where the competitors were not directly harmed) and
(ii) such duty would extend to listings by the same seller
in the same category (not just identical listings). We expect
that this ruling will likely result in increased costs and
litigation against us in Germany although we do not currently
believe that it will require a major change in our business
practices.
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 alleges 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 alleges that we have 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 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 have taken measures to
comply with the injunction and have appealed these rulings.
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
luxury brand owners have also filed suit against us or have
threatened to do so, seeking to hold us liable for, among other
things, alleged counterfeit items listed on our websites by
third parties, for “tester” and other not for resale
consumer products listed on our websites by third parties, for
the alleged misuse of trademarks in listings, for alleged
violations of selective distribution channel laws, for alleged
non-compliance of consumer protection laws or in connection with
paid search advertisements. We continue to believe that we have
meritorious defenses to these suits and intend to defend
ourselves vigorously.
In June 2006, Net2Phone, Inc. filed a lawsuit in the
U.S. District Court for the District of New Jersey
(No. 06-2469)
alleging that eBay Inc., Skype Technologies S.A., and Skype Inc.
infringed five patents owned by Net2Phone relating to
point-to-point Internet protocol. The suit seeks an injunction
against continuing infringement, unspecified damages, including
treble damages for willful infringement, and interest, costs,
and fees. We have filed an answer and counterclaims asserting
that the patents are invalid, unenforceable, and were not
infringed. The parties have completed claim construction
briefing and most of fact discovery and are conducting expert
discovery. The pretrial conference is scheduled for November
2008. We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
In March 2007, a plaintiff filed a purported antitrust class
action lawsuit against eBay in the Western District of Texas
alleging that eBay and its wholly owned subsidiary PayPal
“monopolized” markets through various anticompetitive
acts and tying arrangements. The plaintiff alleges claims under
sections 1 and 2 of the Sherman Act, as well as
Table of Contents
related state law claims. The complaint seeks treble damages and
an injunction. In April 2007, the plaintiff re-filed the
complaint in the U.S. District Court for the Northern
District of California
(No. 07-CV-01882-RS),
and dismissed the Texas action. In May 2007, the case was
consolidated with other similar lawsuits
(No. 07-CV-01882JF).
In June 2007, we filed a motion to dismiss the class action
complaint. In March 2008, the court granted the motion to
dismiss the tying claims with leave to amend and denied the
motion with respect to the monopolization claims. Plaintiffs
subsequently decided not to refile the tying claims. The class
certification motion is scheduled for January 2009. We believe
that we have meritorious defenses and intend to defend ourselves
vigorously.
In May 2007, Netcraft Corporation filed a lawsuit in the Western
District of Wisconsin
(No. 07-C-0254C)
alleging that eBay and PayPal infringed two of its patents
entitled “Internet billing methods.” The suit seeks an
injunction against continuing infringement, unspecified damages,
and interest, costs, and fees. In September 2007, we filed a
motion for summary judgment of noninfringement on both patents.
In December 2007, the U.S. District Court for the Western
District of Wisconsin entered a judgment granting our motion for
summary judgment of non-infringement on both of the patents that
Netcraft asserted against eBay and PayPal. Netcraft Corporation
has appealed the judgment. Both sides have filed their appeal
briefs, and oral argument took place in October 2008 before the
Court of Appeals for the Federal Circuit.
In October 2007, PartsRiver filed a lawsuit in the Eastern
District of Texas
(No. 2-07CV-440-DF)
alleging that eBay, Microsoft, Yahoo!, Shopzilla, PriceGrabber
and PriceRunner infringed its patent relating to search methods.
The suit seeks an injunction against continuing infringement,
unspecified damages, and interest, costs, and fees. The
defendants have moved to transfer venue and the parties are
conducting discovery. Fact discovery cutoff is scheduled for
July 2009, and trial is scheduled for October 2009. We believe
that we have meritorious defenses and intend to defend ourselves
vigorously.
eBay’s Korean subsidiary, IAC, has notified a majority of
its approximately 20 million users of a 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 139,000 users have sued
IAC over this breach in several lawsuits and we expect more to
do so in the future. 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. IAC intends to vigorously defend itself in this
lawsuit.
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 additional
patent disputes, and expect that we will increasingly be subject
to patent infringement claims as our services expand in scope
and complexity. In particular, we expect that we may face
additional patent infringement claims involving various aspects
of our Marketplaces, Payments and Communications businesses. 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 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 copyright or trademark laws will be filed against
us. Intellectual property claims, whether meritorious or not,
are time consuming and costly to resolve, could require
expensive changes in our methods of doing business, or could
require us to enter into costly royalty or licensing agreements.
From time to time, we are involved in other disputes or
regulatory inquiries that arise in the ordinary course of
business. The number and significance of these disputes and
inquiries are increasing as our business expands and our company
grows larger. Any claims or regulatory actions against us,
whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management
time, and result in the diversion of significant operational
resources.
Table of Contents
This excerpt taken from the EBAY 10-Q filed Jul 24, 2008. PART II:
OTHER INFORMATION
In April 2001, two of our European subsidiaries, eBay GmbH and
eBay International AG, were sued by Montres Rolex S.A. and
certain of its affiliates. Rolex alleged that our subsidiaries
were infringing Rolex’s trademarks as a result of users
selling counterfeit Rolex watches through our German website.
The suit also alleged unfair competition. Rolex sought an order
enjoining the sale of Rolex-branded watches on the website as
well as damages. In December 2002, a trial was held in the
matter, and the court in Düsseldorf ruled in favor of eBay
on all causes of action. Rolex appealed the ruling to the Higher
Regional Court of Düsseldorf, and the appeal was heard in
October 2003. In February 2004, the court rejected Rolex’s
appeal and ruled in our favor. Rolex appealed the ruling to the
German Federal Supreme Court, a hearing took place before that
court in December 2006, and a written decision was issued in
June 2007. Following a 2004 precedent in the matter of Rolex
v Ricardo, the court’s decision found that eBay
must take reasonable measures to prevent recurrence once it is
informed of clearly identified infringement, and that eBay may
in certain circumstances be liable upon first notice of
infringement. The court referred the case back to the Higher
Regional Court to determine whether, in some circumstances, a
low starting listing price was sufficient to indicate that a
listing was infringing. In July 2007, the German Federal Supreme
Court extended the reach of the Rolex decision in
IVD v. eBay. The court held that (i) in certain
circumstances, a duty of care could be found to exist to
competitors requiring eBay to take reasonable measures to
prevent illegal items from being listed (even where the
competitors were not directly harmed) and (ii) such duty
would extend to listings by the same seller in the same category
(not just identical listings). We expect that this ruling will
likely result in increased costs and litigation against us in
Germany although we do not currently believe that it will
require a major change in our business practices.
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 alleges 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. The plaintiffs
seek approximately EUR 37 million in damages. 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 alleges that we have 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. The plaintiffs in this suit seek
approximately EUR 9 million in damages and injunctive
relief. We filed our initial briefs responding to the first
complaint in February 2007, and initial briefs in response to
the second complaint were filed in April 2007. On April 14,
2008, the Court held a hearing regarding the first complaint. 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 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 have taken measures to
comply with the injunction and we intend to appeal these
rulings. 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 luxury brand owners have also filed suit against us or
have threatened to do so, seeking to hold us liable for, among
other things, alleged counterfeit items listed on our websites
by third parties, for “tester” and other not for
resale consumer products listed on our websites by third
parties, for the alleged misuse of trademarks in listings, for
alleged violations of selective distribution channel laws, for
alleged non-compliance of consumer protection laws or in
connection with paid search advertisements. We continue to
believe that we have meritorious defenses to these suits and
intend to defend ourselves vigorously.
In June 2006, Net2Phone, Inc. filed a lawsuit in the
U.S. District Court for the District of New Jersey
(No. 06-2469)
alleging that eBay Inc., Skype Technologies S.A., and Skype Inc.
infringed five patents owned by Net2Phone relating to
point-to-point Internet protocol. The suit seeks an injunction
against continuing infringement, unspecified damages, including
treble damages for willful infringement, and interest, costs,
and fees. We
Table of Contents
have filed an answer and counterclaims asserting that the
patents are invalid, unenforceable, and were not infringed. The
parties have completed fact discovery and claim construction
briefing and are conducting expert discovery. The pretrial
conference is scheduled for November 2008, and we expect a trial
date to be scheduled for November or December 2008. We believe
that we have meritorious defenses and intend to defend ourselves
vigorously.
In March 2007, a plaintiff filed a purported antitrust class
action lawsuit against eBay in the Western District of Texas
alleging that eBay and its wholly owned subsidiary PayPal
“monopolized” markets through various anticompetitive
acts and tying arrangements. The plaintiff alleges claims under
sections 1 and 2 of the Sherman Act, as well as related
state law claims. The complaint seeks treble damages and an
injunction. In April 2007, the plaintiff re-filed the complaint
in the U.S. District Court for the Northern District of
California
(No. 07-CV-01882-RS),
and dismissed the Texas action. In May 2007, the case was
consolidated with other similar lawsuits
(No. 07-CV-01882JF).
In June 2007, we filed a motion to dismiss the class action
complaint. In March 2008, the court granted the motion to
dismiss the tying claims with leave to amend and denied the
motion with respect to the monopolization claims. Plaintiffs
subsequently decided not to refile the tying claims. We believe
that we have meritorious defenses and intend to defend ourselves
vigorously.
In May 2007, Netcraft Corporation filed a lawsuit in the Western
District of Wisconsin
(No. 07-C-0254C)
alleging that eBay and PayPal infringed two of its patents
entitled “Internet billing methods.” The suit seeks an
injunction against continuing infringement, unspecified damages,
and interest, costs, and fees. In September 2007, we filed a
motion for summary judgment of noninfringement on both patents.
In December 2007, the U.S. District Court for the Western
District of Wisconsin entered a judgment granting our motion for
summary judgment of
non-infringement
on both of the patents that Netcraft asserted against eBay and
PayPal. Netcraft Corporation has appealed the judgment. Both
sides have filed their appeal briefs.
In October 2007, PartsRiver filed a lawsuit in the Eastern
District of Texas
(No. 2-07CV-440-DF)
alleging that eBay, Microsoft, Yahoo!, Shopzilla, PriceGrabber
and PriceRunner infringed its patent relating to search methods.
The suit seeks an injunction against continuing infringement,
unspecified damages, and interest, costs, and fees. The
defendants have moved to transfer venue and the parties are
conducting discovery. Fact discovery cutoff is scheduled for
July 2009, and trial is tentatively scheduled for October 2009.
We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
eBay’s Korean subsidiary, IAC, has notified a majority of
its approximately 20 million users of a 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 135,000 users have sued
IAC over this breach in several lawsuits and we expect more to
do so in the future. 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. IAC intends to vigorously defend itself in this
lawsuit.
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 additional
patent disputes, and expect that we will increasingly be subject
to patent infringement claims as our services expand in scope
and complexity. In particular, we expect that we may face
additional patent infringement claims involving various aspects
of our Marketplaces, Payments and Communications businesses. 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 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 copyright or trademark laws will be filed against
us. Intellectual property claims, whether meritorious or not,
are time consuming and costly to resolve, could require
expensive changes in our methods of doing business, or could
require us to enter into costly royalty or licensing agreements.
From time to time, we are involved in other disputes or
regulatory inquiries that arise in the ordinary course of
business. The number and significance of these disputes and
inquiries are increasing as our business expands and our company
grows larger. Any claims or regulatory actions against us,
whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management
time, and result in the diversion of significant operational
resources.
Table of Contents
This excerpt taken from the EBAY 10-Q filed Apr 24, 2008. PART II:
OTHER INFORMATION
In April 2001, two of our European subsidiaries, eBay GmbH and
eBay International AG, were sued by Montres Rolex S.A. and
certain of its affiliates in the regional court of Cologne,
Germany. The suit subsequently was transferred to the regional
court in Düsseldorf, Germany. Rolex alleged that our
subsidiaries were infringing Rolex’s trademarks as a result
of users selling counterfeit Rolex watches through our German
website. The suit also alleged unfair competition. Rolex sought
an order enjoining the sale of Rolex-branded watches on the
website as well as damages. In December 2002, a trial was held
in the matter, and the court ruled in favor of eBay on all
causes of action. Rolex appealed the ruling to the Higher
Regional Court of Düsseldorf, and the appeal was heard in
October 2003. In February 2004, the court rejected Rolex’s
appeal and ruled in our favor. Rolex appealed the ruling to the
German Federal Supreme Court, a hearing took place before that
court in December 2006, and a written decision was issued in
June 2007. The court’s decision found that eBay must take
reasonable measures to prevent recurrence once it is informed of
clearly identified infringement, and that eBay may in certain
circumstances be liable upon first notice of infringement. The
court referred the case back to the Higher Regional Court to
determine whether, in some circumstances, a low starting listing
price was sufficient to indicate that a listing was infringing.
In July 2007, the German Federal Supreme Court extended the
reach of the Rolex decision in IVD v. eBay.
The court held that (i) in certain circumstances, a duty of
care could be found to exist to competitors requiring eBay to
take reasonable measures to prevent illegal items from being
listed (even where the competitors were not directly harmed) and
(ii) such duty would extend to listings by the same seller
in the same category (not just identical listings). We expect
that this ruling will likely result in increased costs and
litigation against us in Germany although we do not currently
believe that it will require a major change in our business
practices.
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 alleges 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. The plaintiffs
seek approximately EUR 37 million in damages. 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 alleges that we have 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. The plaintiffs in this suit seek
approximately EUR 9 million in damages and injunctive
relief. We filed our initial briefs responding to the first
complaint in February 2007, and initial briefs in response to
Table of Contents
the second complaint were filed in April 2007. On April 14,
2008, the Court held a hearing regarding the first complaint. A
decision is expected by June 30, 2008. We believe that we
have meritorious defenses to these suits and intend to defend
ourselves vigorously. Other luxury brand owners have also filed
suit against us or have threatened to do so, seeking to hold us
liable for, among other things, counterfeit items listed on our
websites by third parties, for “tester” and other not
for resale consumer products listed on our websites by third
parties, for the misuse of trademarks in listings, for alleged
violations of selective distribution channel laws, for
non-compliance of consumer protection laws or in connection with
paid search advertisements.
In September 2001, MercExchange LLC filed a complaint against
us, our Half.com subsidiary and ReturnBuy, Inc. in the
U.S. District Court for the Eastern District of Virginia
(No. 2:01-CV-736)
alleging infringement of three patents (relating to online
consignment auction technology, multiple database searching and
electronic consignment systems) and seeking a permanent
injunction and damages (including treble damages for willful
infringement). In February 2008, the parties agreed to settle to
dismiss all claims and appeals stemming from the lawsuit. As a
part of the settlement, eBay purchased all three patents
involved in the lawsuit, and related technology and inventions,
as well as a license to another search-related patent portfolio
that was not asserted in the lawsuit. These assets will allow
eBay to further enhance its operations and trust and safety
effort on its ecommerce sites.
In June 2006, Net2Phone, Inc. filed a lawsuit in the
U.S. District Court for the District of New Jersey
(No. 06-2469)
alleging that eBay Inc., Skype Technologies S.A., and Skype Inc.
infringed five patents owned by Net2Phone relating to
point-to-point Internet protocol. The suit seeks an injunction
against continuing infringement, unspecified damages, including
treble damages for willful infringement, and interest, costs,
and fees. We have filed an answer and counterclaims asserting
that the patents are invalid, unenforceable, and were not
infringed. The parties have completed fact discovery and claim
construction briefing and are conducting expert discovery. The
pretrial conference is scheduled for November 2008, and we
expect a trial date to be scheduled for November or December
2008. We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
In February 2007, our StubHub subsidiary was sued in the
U.S. District Court for the Central District of California
(No. CV-07-1328)
in a purported class action lawsuit alleging that StubHub
violated the Fair and Accurate Credit Transaction Act by
allegedly printing receipts containing more than the last five
digits of a credit card number or the expiration date of a
credit card by showing the same on an on-screen receipt. The
complaint seeks compensatory and punitive damages and attorneys
fees. In March 2008, the court issued a motion denying class
certification, and the parties have agreed to settle to dismiss
all claims and appeals stemming from the lawsuit.
In March 2007, a plaintiff filed a purported antitrust class
action lawsuit against eBay in the Western District of Texas
alleging that eBay and its wholly owned subsidiary PayPal
“monopolized” markets through various anticompetitive
acts and tying arrangements. The plaintiff alleges claims under
sections 1 and 2 of the Sherman Act, as well as related
state law claims. The complaint seeks treble damages and an
injunction. In April 2007, the plaintiff re-filed the complaint
in the U.S. District Court for the Northern District of
California
(No. 07-CV-01882-RS),
and dismissed the Texas action. In May 2007, the case was
consolidated with other similar lawsuits
(No. 07-CV-01882JF).
In June 2007, we filed a motion to dismiss the class action
complaint. In March 2008, the court granted the motion to
dismiss the tying claims with leave to amend and denied the
motion with respect to the monopolization claims. Plaintiffs
subsequently decided not to refile the tying claims. We believe
that we have meritorious defenses and intend to defend ourselves
vigorously.
In May 2007, Netcraft Corporation filed a lawsuit in the Western
District of Wisconsin
(No. 07-C-0254C)
alleging that eBay and PayPal infringed two of its patents
entitled “Internet billing methods.” The suit seeks an
injunction against continuing infringement, unspecified damages,
and interest, costs, and fees. In September 2007, we filed a
motion for summary judgment of noninfringement on both patents.
In December 2007, the U.S. District Court for the Western
District of Wisconsin entered a judgment granting our motion for
summary judgment of non-infringement on both of the patents that
Netcraft asserted against eBay and PayPal. Netcraft Corporation
has appealed the judgment. Both sides are preparing their appeal
briefs, but no date has been set for argument in connection with
these appeals.
In October 2007, PartsRiver filed a lawsuit in the Eastern
District of Texas
(No. 2-07CV-440-DF)
alleging that eBay, Microsoft, Yahoo!, Shopzilla, PriceGrabber
and PriceRunner infringed its patent relating to search methods.
The suit seeks an injunction against continuing infringement,
unspecified damages, interest, costs, and fees. The
Table of Contents
defendants have moved to transfer venue and the parties are
conducting discovery. Fact discovery cutoff is scheduled for
July 2009, and trial is tentatively scheduled for October 2009.
We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
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 additional
patent disputes, and expect that we will increasingly be subject
to patent infringement claims as our services expand in scope
and complexity. In particular, we expect that we may face
additional patent infringement claims involving various aspects
of our Marketplaces, Payments and Communications businesses. 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 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 copyright or trademark laws will be filed against
us. Intellectual property claims, whether meritorious or not,
are time consuming and costly to resolve, could require
expensive changes in our methods of doing business, or could
require us to enter into costly royalty or licensing agreements.
From time to time, we are involved in other disputes or
regulatory inquiries that arise in the ordinary course of
business. The number and significance of these disputes and
inquiries are increasing as our business expands and our company
grows larger. Any claims or regulatory actions against us,
whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management
time, and result in the diversion of significant operational
resources.
This excerpt taken from the EBAY 10-Q filed Apr 24, 2008. PART II:
OTHER INFORMATION
In April 2001, two of our European subsidiaries, eBay GmbH and
eBay International AG, were sued by Montres Rolex S.A. and
certain of its affiliates in the regional court of Cologne,
Germany. The suit subsequently was transferred to the regional
court in Düsseldorf, Germany. Rolex alleged that our
subsidiaries were infringing Rolex’s trademarks as a result
of users selling counterfeit Rolex watches through our German
website. The suit also alleged unfair competition. Rolex sought
an order enjoining the sale of Rolex-branded watches on the
website as well as damages. In December 2002, a trial was held
in the matter, and the court ruled in favor of eBay on all
causes of action. Rolex appealed the ruling to the Higher
Regional Court of Düsseldorf, and the appeal was heard in
October 2003. In February 2004, the court rejected Rolex’s
appeal and ruled in our favor. Rolex appealed the ruling to the
German Federal Supreme Court, a hearing took place before that
court in December 2006, and a written decision was issued in
June 2007. The court’s decision found that eBay must take
reasonable measures to prevent recurrence once it is informed of
clearly identified infringement, and that eBay may in certain
circumstances be liable upon first notice of infringement. The
court referred the case back to the Higher Regional Court to
determine whether, in some circumstances, a low starting listing
price was sufficient to indicate that a listing was infringing.
In July 2007, the German Federal Supreme Court extended the
reach of the Rolex decision in IVD v. eBay.
The court held that (i) in certain circumstances, a duty of
care could be found to exist to competitors requiring eBay to
take reasonable measures to prevent illegal items from being
listed (even where the competitors were not directly harmed) and
(ii) such duty would extend to listings by the same seller
in the same category (not just identical listings). We expect
that this ruling will likely result in increased costs and
litigation against us in Germany although we do not currently
believe that it will require a major change in our business
practices.
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 alleges 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. The plaintiffs
seek approximately EUR 37 million in damages. 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 alleges that we have 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. The plaintiffs in this suit seek
approximately EUR 9 million in damages and injunctive
relief. We filed our initial briefs responding to the first
complaint in February 2007, and initial briefs in response to
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the second complaint were filed in April 2007. On April 14,
2008, the Court held a hearing regarding the first complaint. A
decision is expected by June 30, 2008. We believe that we
have meritorious defenses to these suits and intend to defend
ourselves vigorously. Other luxury brand owners have also filed
suit against us or have threatened to do so, seeking to hold us
liable for, among other things, counterfeit items listed on our
websites by third parties, for “tester” and other not
for resale consumer products listed on our websites by third
parties, for the misuse of trademarks in listings, for alleged
violations of selective distribution channel laws, for
non-compliance of consumer protection laws or in connection with
paid search advertisements.
In September 2001, MercExchange LLC filed a complaint against
us, our Half.com subsidiary and ReturnBuy, Inc. in the
U.S. District Court for the Eastern District of Virginia
(No. 2:01-CV-736)
alleging infringement of three patents (relating to online
consignment auction technology, multiple database searching and
electronic consignment systems) and seeking a permanent
injunction and damages (including treble damages for willful
infringement). In February 2008, the parties agreed to settle to
dismiss all claims and appeals stemming from the lawsuit. As a
part of the settlement, eBay purchased all three patents
involved in the lawsuit, and related technology and inventions,
as well as a license to another search-related patent portfolio
that was not asserted in the lawsuit. These assets will allow
eBay to further enhance its operations and trust and safety
effort on its ecommerce sites.
In June 2006, Net2Phone, Inc. filed a lawsuit in the
U.S. District Court for the District of New Jersey
(No. 06-2469)
alleging that eBay Inc., Skype Technologies S.A., and Skype Inc.
infringed five patents owned by Net2Phone relating to
point-to-point Internet protocol. The suit seeks an injunction
against continuing infringement, unspecified damages, including
treble damages for willful infringement, and interest, costs,
and fees. We have filed an answer and counterclaims asserting
that the patents are invalid, unenforceable, and were not
infringed. The parties have completed fact discovery and claim
construction briefing and are conducting expert discovery. The
pretrial conference is scheduled for November 2008, and we
expect a trial date to be scheduled for November or December
2008. We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
In February 2007, our StubHub subsidiary was sued in the
U.S. District Court for the Central District of California
(No. CV-07-1328)
in a purported class action lawsuit alleging that StubHub
violated the Fair and Accurate Credit Transaction Act by
allegedly printing receipts containing more than the last five
digits of a credit card number or the expiration date of a
credit card by showing the same on an on-screen receipt. The
complaint seeks compensatory and punitive damages and attorneys
fees. In March 2008, the court issued a motion denying class
certification, and the parties have agreed to settle to dismiss
all claims and appeals stemming from the lawsuit.
In March 2007, a plaintiff filed a purported antitrust class
action lawsuit against eBay in the Western District of Texas
alleging that eBay and its wholly owned subsidiary PayPal
“monopolized” markets through various anticompetitive
acts and tying arrangements. The plaintiff alleges claims under
sections 1 and 2 of the Sherman Act, as well as related
state law claims. The complaint seeks treble damages and an
injunction. In April 2007, the plaintiff re-filed the complaint
in the U.S. District Court for the Northern District of
California
(No. 07-CV-01882-RS),
and dismissed the Texas action. In May 2007, the case was
consolidated with other similar lawsuits
(No. 07-CV-01882JF).
In June 2007, we filed a motion to dismiss the class action
complaint. In March 2008, the court granted the motion to
dismiss the tying claims with leave to amend and denied the
motion with respect to the monopolization claims. Plaintiffs
subsequently decided not to refile the tying claims. We believe
that we have meritorious defenses and intend to defend ourselves
vigorously.
In May 2007, Netcraft Corporation filed a lawsuit in the Western
District of Wisconsin
(No. 07-C-0254C)
alleging that eBay and PayPal infringed two of its patents
entitled “Internet billing methods.” The suit seeks an
injunction against continuing infringement, unspecified damages,
and interest, costs, and fees. In September 2007, we filed a
motion for summary judgment of noninfringement on both patents.
In December 2007, the U.S. District Court for the Western
District of Wisconsin entered a judgment granting our motion for
summary judgment of non-infringement on both of the patents that
Netcraft asserted against eBay and PayPal. Netcraft Corporation
has appealed the judgment. Both sides are preparing their appeal
briefs, but no date has been set for argument in connection with
these appeals.
In October 2007, PartsRiver filed a lawsuit in the Eastern
District of Texas
(No. 2-07CV-440-DF)
alleging that eBay, Microsoft, Yahoo!, Shopzilla, PriceGrabber
and PriceRunner infringed its patent relating to search methods.
The suit seeks an injunction against continuing infringement,
unspecified damages, interest, costs, and fees. The
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defendants have moved to transfer venue and the parties are
conducting discovery. Fact discovery cutoff is scheduled for
July 2009, and trial is tentatively scheduled for October 2009.
We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
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 additional
patent disputes, and expect that we will increasingly be subject
to patent infringement claims as our services expand in scope
and complexity. In particular, we expect that we may face
additional patent infringement claims involving various aspects
of our Marketplaces, Payments and Communications businesses. 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 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 copyright or trademark laws will be filed against
us. Intellectual property claims, whether meritorious or not,
are time consuming and costly to resolve, could require
expensive changes in our methods of doing business, or could
require us to enter into costly royalty or licensing agreements.
From time to time, we are involved in other disputes or
regulatory inquiries that arise in the ordinary course of
business. The number and significance of these disputes and
inquiries are increasing as our business expands and our company
grows larger. Any claims or regulatory actions against us,
whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management
time, and result in the diversion of significant operational
resources.
This excerpt taken from the EBAY 10-Q filed Oct 29, 2007. PART II:
OTHER INFORMATION
In April 2001, two of our European subsidiaries, eBay GmbH and
eBay International AG, were sued by Montres Rolex S.A. and
certain of its affiliates in the regional court of Cologne,
Germany. The suit subsequently was transferred to the regional
court in Düsseldorf, Germany. Rolex alleged that our
subsidiaries were infringing Rolex’s trademarks as a result
of users selling counterfeit Rolex watches through our German
website. The suit also alleged unfair competition. Rolex sought
an order enjoining the sale of Rolex-branded watches on the
website as well as damages. In December 2002, a trial was held
in the matter, and the court ruled in favor of eBay on all
causes of action. Rolex appealed the ruling to the Higher
Regional Court of Düsseldorf, and the appeal was heard in
October 2003. In February 2004, the court rejected Rolex’s
appeal and ruled in our favor. Rolex appealed the ruling to the
German Federal Supreme Court, a hearing took place before that
court in December 2006, and a written decision was issued in
June 2007. The court’s decision found that eBay must take
reasonable measures to prevent recurrence once it is informed of
clearly identified infringement, and that eBay may in certain
circumstances be liable upon first notice of infringement. The
court referred the case back to the Higher Regional Court to
determine (i) whether, in some circumstances, a low
starting listing price was sufficient to indicate that a listing
was infringing and (ii) under what circumstances online
sellers are “commercial dealers” within the meaning of
the German intellectual property laws. In July 2007, the German
Federal Supreme Court extended the reach of the Rolex
decision in IVD v. eBay. The court held that
(i) in certain circumstances, a duty of care could be found
to exist to competitors requiring eBay to take reasonable
measures to prevent illegal items from being listed (even where
the competitors were not directly harmed) and (ii) such
duty would extend to listings by the same seller in the same
category (not just identical listings). Prior to these
decisions, we had implemented proactive measures to find and
remove illegal listings from our sites; these decisions may
require us to undertake further efforts and will subject us to
liability if our efforts are deemed to be insufficient. We
expect that this ruling will likely result in increased costs
and litigation against us in Germany although we do not
currently believe that it will require a major change in our
business practices.
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. The complaint
alleges 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. The plaintiffs seek
approximately €35 million in damages. 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 alleges that we have 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 sites.
The plaintiffs in this suit seek approximately
€9 million in damages and injunctive relief. We filed
our initial briefs responding to the first complaint in February
2007, and initial briefs in response to the second complaint
were filed in April 2007.
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We believe that we have meritorious defenses to these suits and
intend to defend ourselves vigorously. Other luxury brand owners
have also filed suit against us or have threatened to do so,
seeking to hold us liable for counterfeit items listed on our
sites by third parties, for “tester” and other not for
resale consumer products listed on our sites by third parties,
for the misuse of trademarks in listings, for alleged violations
of selective distribution channel laws, for non-compliance of
consumer protection laws or in connection with paid search
advertisements.
In September 2001, MercExchange LLC filed a complaint against
us, our Half.com subsidiary and ReturnBuy, Inc. in the
U.S. District Court for the Eastern District of Virginia
(No. 2:01-CV-736)
alleging infringement of three patents (relating to online
consignment auction technology, multiple database searching and
electronic consignment systems) and seeking a permanent
injunction and damages (including treble damages for willful
infringement). Following a trial in 2003, the jury returned a
verdict finding that we had willfully infringed the patents
relating to multiple database searching and electronic
consignment systems, and the court entered judgment for
MercExchange in the amount of approximately $30 million,
plus pre-judgment interest and post-judgment interest. The
U.S. Court of Appeals for the Federal Circuit later reduced
the award to $25.5 million. In May 2006, following appeals
to the U.S. Court of Appeals for the Federal Circuit and
the U.S. Supreme Court, the Supreme Court remanded the case
back to the district court for further action. In parallel with
the federal court proceedings, at our request, the
U.S. Patent and Trademark Office agreed to reexamine each
of the patents in suit, finding that substantial questions
existed regarding the validity of the claims contained in them.
In separate actions in 2005, the Patent and Trademark Office
initially rejected all of the claims contained in the three
patents in suit. The Patent and Trademark Office has given
notice of approval of some claims (and rejection of others)
under the patent relating to online consignment auction
technology and in September 2007, it tentatively approved some
of the claims and rejected others contained in the patent that
underlies the jury verdict, which relates to electronic
consignment systems. In July 2007, the court denied
MercExchange’s request for an injunction and ruled that the
proceedings related to one of the patents will be stayed and
another of the patents will not be stayed pending action by the
Patent and Trademark Office. MercExchange is appealing the
court’s order denying the injunction, and we have filed a
motion seeking that the court find the non-stayed patent
invalid. Even if successful, our litigation of these matters
will continue to be costly. As a precautionary measure, we have
modified certain functionality of our websites and business
practices in a manner which we believe avoids any infringement
of the consignment patent. For this reason, we believe that any
injunction that might ultimately be issued will not have any
impact on our business. We also believe we have appropriate
reserves for this litigation. Nonetheless, if the modifications
to the functionality of our websites and business practices are
not sufficient to make them non-infringing, we would likely be
forced to pay significant additional damages and licensing fees
and/or
modify our business practices in an adverse manner.
In June 2006, Net2Phone, Inc. filed a lawsuit in the
U.S. District Court for the District of New Jersey
(No. 06-2469)
alleging that eBay Inc., Skype Technologies S.A., and Skype Inc.
infringed five patents owned by Net2Phone relating to
point-to-point Internet protocol. The suit seeks an injunction
against continuing infringement, unspecified damages, including
treble damages for willful infringement, and interest, costs,
and fees. We have filed an answer and counterclaims asserting
that the patents are invalid, unenforceable, and were not
infringed. The parties are in the process of conducting
discovery and claim construction briefing, and we expect a trial
date to be scheduled for the second half of 2008. We believe
that we have meritorious defenses and intend to defend ourselves
vigorously.
In August 2006, Peer Communications Corporation filed a lawsuit
in the U.S. District Court for the Eastern District of
Texas
(No. 6-06CV-370)
alleging that eBay Inc., Skype Technologies S.A., and Skype Inc.
infringed two patents owned by Peer Communications relating to
uniform network access. The suit seeks an injunction against
continuing infringement, unspecified damages, and interest,
costs, and fees. The parties are in the process of conducting
discovery, and a trial date has been scheduled for October 2008.
We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
In September 2006, Mangosoft Intellectual Property, Inc. filed a
lawsuit in the U.S. District Court for the Eastern District
of Texas
(No. 2-06CV-390)
alleging that eBay Inc., Skype Technologies S.A., and Skype
Software S.a.r.l. infringed a patent owned by Mangosoft relating
to dynamic directory services. The suit seeks an injunction
against continuing infringement, unspecified damages, and
interest, costs, and fees. We have filed an answer and
counterclaims asserting that the patents are invalid,
unenforceable, and not infringed. We received an initial
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scheduling order from the court that sets some discovery
deadlines, but not a trial date. We believe that we have
meritorious defenses and intend to defend ourselves vigorously.
In February 2007, our StubHub subsidiary was sued in the
U.S. District Court for the Central District of California
(No. CV-07-1328)
in a purported class action lawsuit alleging that StubHub
violated the Fair and Accurate Credit Transaction Act by
allegedly printing receipts containing more than the last five
digits of a credit card number or the expiration date. The
complaint seeks compensatory and punitive damages and attorneys
fees. We believe that we have meritorious defenses and intend to
defend ourselves vigorously.
In March 2007, a plaintiff filed a purported antitrust class
action lawsuit against eBay in the Western District of Texas
alleging that eBay, through its wholly owned subsidiary PayPal,
used illegal tie-in and steering practices to improperly
“monopolize” the forms of payment that sellers can use
on eBay. The plaintiff alleges claims under sections 1 and
2 of the Sherman Act, as well as related state law claims. The
complaint seeks treble damages and an injunction. In April 2007,
the plaintiff re-filed the complaint in the U.S. District
Court for the Northern District of California
(No. 07-CV-01882-RS),
and dismissed the Texas action. In June 2007, we filed a motion
to dismiss the class action complaint. We believe that we have
meritorious defenses and intend to defend ourselves vigorously.
In May 2007, Netcraft Corporation filed a lawsuit in the Western
District of Wisconsin
(No. 07-C-0254C)
alleging that eBay and PayPal infringed two of its patents
entitled “Internet billing methods.” The suit seeks an
injunction against continuing infringement, unspecified damages,
and interest, costs, and fees. The parties are in the process of
conducting discovery. We have filed a motion for summary
judgment of noninfringement on both patents. The claim
construction hearing is currently scheduled for November 2007.
The trial is expected to be scheduled for June or July 2008. We
believe that we have meritorious defenses and intend to defend
ourselves vigorously.
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 additional
patent disputes, and expect that we will increasingly be subject
to patent infringement claims as our services expand in scope
and complexity. In particular, we expect that we may face
additional patent infringement claims involving various aspects
of our Marketplaces, Payments and Communications businesses. 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 become subject to 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
copyright or trademark laws will be filed against us, especially
in Europe. Intellectual property claims, whether meritorious or
not, are time consuming and costly to resolve, could require
expensive changes in our methods of doing business, or could
require us to enter into costly royalty or licensing agreements.
From time to time, we are involved in other disputes or
regulatory inquiries that arise in the ordinary course of
business. The number and significance of these disputes and
inquiries are increasing as our business expands and our company
grows larger. Any claims or regulatory actions against us,
whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management
time, and result in the diversion of significant operational
resources.
This excerpt taken from the EBAY 10-Q filed Jul 28, 2006. PART II: OTHER
INFORMATION
In April 2001, two of our European subsidiaries, eBay GmbH and
eBay International AG, were sued by Montres Rolex S.A. and
certain of its affiliates in the regional court of Cologne,
Germany. The suit subsequently was transferred to the regional
court in Düsseldorf, Germany. Rolex alleged that our
subsidiaries were infringing Rolex’s trademarks as a result
of users selling counterfeit Rolex watches through our German
website. The suit also alleged unfair competition. Rolex sought
an order enjoining the sale of Rolex-branded watches on the
website as well as damages. In December 2002, a trial was held
in the matter and the court ruled in favor of eBay on all causes
of action. Rolex appealed the ruling to the Higher Regional
Court of Düsseldorf, and the appeal was heard in October
2003. In February 2004, the court rejected Rolex’s appeal
and ruled in our favor. Rolex has appealed the ruling to the
German Federal Supreme Court, and a hearing is expected in
December 2006. In September 2004, the German Federal Supreme
Court issued its written opinion in favor of Rolex in a case
involving an unrelated company, ricardo.de AG, but somewhat
comparable legal theories. Although it is not yet clear what the
ultimate effect of the reasoning of the German Federal Supreme
Court’s ricardo.de decision will have when applied to eBay,
we believe the Court’s decision has resulted in an increase
in similar litigation against us in Germany, although we do not
currently believe that it will require a significant change in
our business practices.
In September 2001, MercExchange LLC filed a complaint against
us, our Half.com subsidiary and ReturnBuy, Inc. in the
U.S. District Court for the Eastern District of Virginia
(No. 2:01-CV-736)
alleging infringement of three patents (relating to online
consignment auction technology, multiple database searching and
electronic consignment systems) and seeking a permanent
injunction and damages (including treble damages for willful
infringement). In October 2002, the court granted in part our
summary judgment motion, effectively invalidating the patent
related to online auction technology and rendering it
unenforceable. This ruling left only two patents in the case.
Following a trial, in May 2003 the jury returned a verdict
finding that eBay had willfully infringed one and Half.com had
willfully infringed both of the patents in the suit, awarding
$35 million in compensatory damages. Both parties filed
post-trial motions, and in August 2003, the court entered
judgment for MercExchange in the amount of approximately
$30 million plus pre-judgment interest and post-judgment
interest in an amount to be determined, while denying
MercExchange’s request for an injunction and
attorneys’ fees. We appealed the verdict and judgment in
favor of MercExchange and MercExchange filed a cross-appeal of
the granting in part of our summary judgment motion and the
denial of its request for an injunction and attorneys’ fees.
In March 2005, the U.S. Court of Appeals for the Federal
Circuit issued a ruling in the appeal of the MercExchange patent
litigation suit which, among other things (1) invalidated
all claims asserted against eBay and Half.com arising out of the
multiple database search patent and reduced the verdict amount
by $4.5 million; (2) upheld the electronic consignment
system patent; (3) affirmed the district court’s
refusal to award attorneys’ fees or enhanced damages
against us; (4) reversed the district court’s order
granting summary judgment in our favor regarding the auction
patent; and (5) reversed the district court’s refusal
to grant an injunction and remanded that issue to the district
court for further proceedings. The decision was stayed pending
U.S. Supreme Court review of the injunction issue. In May
2006, the U.S. Supreme Court reversed the Court of
Appeals’ decision on whether an injunction should have been
issued and remanded the case back to the district court for
further action. In parallel with the federal court proceedings,
at our request, the U.S. Patent and Trademark Office is
actively reexamining each of the patents in suit, having found
that substantial questions exist regarding the validity of the
claims contained in them. In January 2005, the Patent and
Trademark Office issued an initial ruling rejecting all of the
claims contained in the patent that related to online auctions;
in March 2005, the Patent and Trademark Office issued an initial
ruling rejecting all of the claims contained in the patent that
related to electronic consignment systems; and in May 2005, the
Patent and Trademark Office issued an initial ruling rejecting
all of the claims contained in the patent that related to
multiple database searching. In March 2006, the Patent and
Trademark Office affirmed its earlier ruling rejecting the
claims contained in the patent that related to electronic
consignment systems. Even if successful, our litigation of these
matters will continue to be costly. In addition, as a
precautionary measure, we have modified certain functionality of
our websites and business practices in a manner which we believe
would avoid any further infringement. For this reason, we
believe that any injunction that might be issued by the district
court will not have any impact on our business. We also believe
we have appropriate reserves for this litigation.
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Nonetheless, if the district court were to issue an injunction
on remand, and if the modifications to the functionality of our
websites and business practices are not sufficient to make them
non-infringing, we would likely be forced to pay significant
additional damages and licensing fees
and/or
modify our business practices in an adverse manner.
In February 2005, eBay was sued in Superior Court of the State
of California, County of Santa Clara (No. 105CV035930)
in a purported class action alleging that certain bidding
features of our site constitute “shill bidding” for
the purpose of artificially inflating bids placed by buyers on
the site. The complaint alleges violations of California’s
Auction Act, California’s Consumer Remedies Act, and unfair
competition. The complaint seeks injunctive relief, damages, and
a constructive trust. In April 2005, we filed a demurrer seeking
to dismiss the complaint, and a hearing on the demurrer was held
in February 2006. In March 2006, the parties reached tentative
agreement on the terms of a settlement. The court must approve
the terms of the settlement in order for it to become final. The
estimated settlement was accrued in our consolidated income
statement for the year ended December 31, 2005.
In March 2005, eBay, PayPal, and an eBay seller were sued in
Supreme Court of the State of New York, County of Kings
(No. 6125/05) in a purported class action alleging that
certain disclosures regarding PayPal’s Buyer Protection
Policy, users’ chargeback rights, and the effects of
users’ choice of funding mechanism are deceptive
and/or
misleading. The complaint alleged misrepresentation on the part
of eBay and PayPal, breach of contract and deceptive trade
practices by PayPal, and that PayPal and eBay have jointly
violated the civil RICO statute (18 U.S.C.
Section 1961(4)). In April 2005, eBay and PayPal removed
the case to the U.S. District Court for the Eastern
District of New York and the plaintiffs filed an amended
complaint in the U.S. District Court
(No. 05-CV-01720)
repeating the allegations of the initial complaint but dropping
the civil RICO allegations. The complaint seeks injunctive
relief, compensatory damages, and punitive damages. Following
several mediation sessions, the parties reached a tentative
settlement in December 2005 and executed a Memorandum of
Understanding in March 2006. The parties are engaged in the
process of finalizing the settlement documentation. The court
must approve the terms of the settlement in order for it to
become final. The estimated settlement was accrued in our
consolidated income statement for the year ended
December 31, 2005.
In June 2006, Net2Phone, Inc. filed a lawsuit in the
U.S. District Court for the District of New Jersey
(No. 06-2469)
alleging that eBay Inc., Skype Technologies S.A., and Skype Inc.
infringed five patents owned by Net2Phone relating to
point-to-point
internet protocol. The suit seeks an injunction against
continuing infringement, unspecified damages, including treble
damages for willful infringement, and interest, expenses, and
fees. This case is at a very early stage and we have not
received a schedule from the court, or filed any responsive
pleadings. We believe that we have meritorious defenses and
intend to defend ourselves vigorously.
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 have been notified of several
potential patent disputes, and expect that we will increasingly
be subject to patent infringement claims as our services expand
in scope and complexity. In particular, we expect to face
additional patent infringement claims involving services we
provide, including various aspects of our Payments and
Communications businesses. 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 geographically
into jurisdictions where the underlying laws with respect to the
potential liability of online intermediaries like ourselves are
either unclear or less favorable. These claims, whether
meritorious or not, could be time consuming and costly to
resolve, cause service upgrade delays, require expensive changes
in our methods of doing business, or could require us to enter
into costly royalty or licensing agreements.
From time to time, we are involved in other disputes or
regulatory inquiries that arise in the ordinary course of
business. The number and significance of these disputes and
inquiries are increasing as our business expands and our company
grows larger. Any claims or regulatory actions against us,
whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management
time, and result in the diversion of significant operational
resources.
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