eBay - New York Times article

SAN FRANCISCO, Jan. 28 — A year ago Jacqui Rogers, a retiree in southern Oregon who dabbles in vintage costume jewelry, went on eBay and bought 10 butterfly brooches made by Weiss, a well-known maker of high-quality costume jewelry in the 1950's and 1960's.

At first, Ms. Rogers thought she had snagged a great deal. But when the jewelry arrived from a seller in Rhode Island, her well-trained eye told her that all of the pieces were knockoffs.

Even though Ms. Rogers received a refund after she confronted the seller, eBay refused to remove hundreds of listings for identical "Weiss" pieces. It said it had no responsibility for the fakes because it was nothing more than a marketplace that links buyers and sellers.

That very stance — the heart of eBay's business model — is now being challenged by eBay users like Ms. Rogers who notify other unsuspecting buyers of fakes on the site. And it is being tested by a jewelry seller with far greater resources than Ms. Rogers: Tiffany & Company, which has sued eBay for facilitating the trade of counterfeit Tiffany items on the site.

If Tiffany wins its case, not only would other lawsuits follow, but eBay's very business model would be threatened because it would be nearly impossible for the company to police a site that now has 180 million members and 60 million items for sale at any one time.

Of course, fakes are sold everywhere, but the anonymity and reach of the Internet makes it perfect for selling knockoffs. And eBay, the biggest online marketplace, is the center of a new universe of counterfeit with virtually no policing.

EBay, based in San Jose, Calif., argues that it has no obligation to investigate counterfeiting claims unless the complaint comes from a "rights owner," a party holding a trademark or copyright. A mere buyer who believes an item is a fake has almost no recourse.

"We never take possession of the goods sold through eBay, and we don't have any expertise," said Hani Durzy, an eBay spokesman. "We're not clothing experts. We're not car experts, and we're not jewelry experts. We're experts at building a marketplace and bringing buyers and sellers together."

Company officials say they do everything they can to stop fraud. The company says only a minute share of the items being sold at any given time — 6,000 or so — are fraudulent. But that estimate reflects only cases that are determined by eBay to be confirmed cases of fraud, like when an item is never delivered.

Experienced eBay users say that the fraud goes well beyond eBay's official numbers, and that counterfeiters easily pass off fakes in hundreds of categories.

"EBay makes a lot of money from a lot of small unhappy transactions," said Ina Steiner, the editor and publisher of AuctionBytes.com, an online newsletter. "If you've lost a few thousand dollars, you might go the extra mile to recover it. But if you've lost $50 or $20 you may never be able to prove your case, and in the meantime eBay has gotten the listing fee and the closing fee on that transaction."

The Tiffany lawsuit, in addition to accusing eBay of facilitating counterfeiting, also contends that it "charges hundreds of thousands of dollars in fees" for counterfeit sales.

In 2004, Tiffany secretly purchased about 200 items from eBay in its investigation of how the company was dealing with the thousands of pieces of counterfeit Tiffany jewelry. The jeweler found that three out of four pieces were fakes.

The case will go to trial by the end of this year, said James B. Swire, an attorney with Arnold & Porter, a law firm representing Tiffany. The legal question — whether eBay is a facilitator of fraud — is a critical issue that could affect not only eBay's future but Internet commerce generally, said Thomas Hemnes, a lawyer in Boston who specializes in intellectual property.

"If eBay lost, or even if they settled and word got out that they settled, it would mean they would have to begin policing things sold over eBay, which would directly affect their business model," Mr. Hemnes said. "The cost implied is tremendous."