EBay Gets Buffeted in Europe

(page 2 of 2)

A legal expert draws a parallel with Napster, which in 2001 shut down after a court ordered it to prevent file-sharing through its site. "This case has a distinct analogy to the case that brought down Napster in the United States," says Thomas Hemnes, a Boston-based intellectual-property lawyer. "You can't escape the conclusion that they are not merely a passive host."

Restrictions Apply

The prospect of more lawsuits is dangerous for eBay, which could see its costs for policing the site and fending off lawsuits rise. "They'll have greater costs and fewer sales, there's no way to escape that," says Hemnes. The decisions also undermine eBay's efforts to court higher-end, brand-name merchandise. The company signed a partnership in May with Buy.com (BusinessWeek.com, 6/3/08) to bring more of the online retailer's brand-name electronic merchandise and other items to its site.

In recent years it has also aggressively expanded its Verified Rights Owners (VeRO) Program, which provides tools enabling brands to search the site for counterfeit merchandise and request immediate removal. EBay has 18,000 companies involved in the program, including Apple (AAPL), Coach (COH), and Oakley. In November, eBay placed restrictions on sellers of items that are often counterfeited, including limiting the number of items that could be sold and requiring the item to be auctioned for seven days. Items could, however, be purchased outright with the "buy it now" option, effectively ending the auction early. Since applying the new restrictions, 2.2 million counterfeit listings were removed across all eBay sites and 50,000 sellers were suspended, according to the company.

But the lawsuit by Tiffany, which is a VeRO member, demonstrates that not all participants believe eBay is doing enough to combat fraud. And the June 30 French court decision could very well force eBay to do a lot more.

Holahan is a writer for BusinessWeek.com in New York. Matlack is BusinessWeek's Paris bureau chief.