Critics Say EBay Needs to Increase Safeguards

Like any bustling megalopolis, EBay’s self-styled online trading community must contend with seamy back alleys where con artists gather to manipulate prices and unload bogus merchandise.

Just about everyone agrees that some mischief is inevitable in a forum frequented by more than 12 million registered users. But there’s a growing debate about how best to protect upstanding citizens at the world’s most popular auction site.

EBay mostly depends on the online equivalent of a neighborhood watch program to weed out the riffraff, but a growing number of fraud victims want the company to be required to patrol its auction site more vigilantly.

The latest call for stronger safeguards comes in a San Diego lawsuit alleging that San Jose-based EBay broke California law by not authenticating sports memorabilia. The plaintiffs say fake merchandise on the site, bearing forged signatures of sports legends such as Joe DiMaggio and Ty Cobb, fetched $10 million from unwitting buyers in thousands of transactions.

The civil complaint, which seeks to become a class action representing buyers across the country, is filed under a little-known 8-year-old law requiring dealers to provide a certificate verifying the authenticity of autographs on sports memorabilia. It seeks more than $100 million in damages.

Although it targets just one of the more than 3,000 sales categories on EBay, the complaint strikes at the heart of the company’s business model.

EBay has positioned itself as a neutral party that collects listing fees and sales commissions from buyers and sellers who use its site as a trading venue.

The suit seeks to establish that EBay is an auctioneer, much like Christie’s, that should be held responsible for ensuring that buyers aren’t duped by underhanded sellers.

“This is not just a listing service. It’s clearly an auctioneer profiting from sales at its site,” said James Krause, a San Diego lawyer leading the suit against EBay. “This company wants all the rights and none of the responsibilities of conducting a business.”

EBay declined to comment about the sports memorabilia suit, but company officials believe most of its visitors would be unhappy if the site’s administration became more policeman than middleman.

“Our users don’t want us to become involved in checking off each and every item before it gets listed on the site,” EBay spokesman Kevin Pursglove said. “The great majority of our visitors experience satisfactory transactions. It’s just a few critics that seem to want us to abandon the model for what has been a tremendously successful marketplace.”

Like many Internet companies--and hundreds of other sites that do auctions--EBay suggests that its business will be badly hurt, or even destroyed, if laws meant to regulate bricks-and-mortar companies are applied to its fast-emerging industry where the old rules don’t necessarily apply.

Since it began in 1995 as Auction Web, EBay has evolved into a powerhouse.

The number of registered EBay users has increased from about 2 million at the end of 1998 to more than 12 million today. The number of items for sale at EBay has climbed from a monthly average of 4.5 million listings in late 1998 to a monthly average of 17.5 million during the first quarter of this year.

EBay also is fielding more complaints alleging fraud and other misconduct, although the grievances still represent a trickle of the total traffic at the site.

EBay received more than 1,300 complaints during the first three months of 2000, up from 700 in 1999’s first quarter. The ratio of complaints has decreased, though, dropping from 30 per 1 million listings to 25 per 1 million listings this year.

In the alleged sports memorabilia scam that spurred the San Diego lawsuit, a forgery ring is accused of using EBay to sell counterfeit merchandise for several years. The alleged swindlers have been indicted by the federal government as part of a bust known as “Operation Bullpen.”

The suit alleges that sports memorabilia dealers across the country repeatedly told EBay about suspect merchandise being sold on the site, but the company never took action to protect bidders.

The complaint contends that EBay is reluctant to delist items from its site because it doesn’t want to lose any possible sales commissions.

EBay officials said the company pulls items off the site only if the complaining party can prove that the merchandise is fake.

“You have to be very careful in these situations because you want to be fair to both the buyer and seller in every transaction,” Pursglove said.

EBay’s hands-off policy infuriated Richard Simon, a New York sports memorabilia dealer who said he repeatedly warned the company about the sale of forged autographs.

“They could have cleared this problem up in a month,” Simon said. “Instead, EBay was the enabler of a multimillion-dollar theft.”

Diane Cabell, a fellow at Harvard’s Berkman Center for Internet & Society, thinks EBay has gone to great lengths to warn prospective buyers about the risks at its site. EBay also says it provides a range of resources for buyers to learn more about an item--and its seller--before making a purchase.

“If there isn’t much fraud going on, we need to ask if this is something that needs to regulated,” Cabell said.