EBay Tactics Subject of Antitrust Investigation
The Department of Justice has opened an investigation into possible anti-competitive behavior by EBay, the largest Internet auction site.
The inquiry, which began in December, involves an escalating dispute between EBay and a handful of Web sites that search and display summary information from many auction sites to enable comparison shopping.
EBay already sued one such site, Bidder’s Edge in Burlington, Mass., and has used technical means to temporarily block another, AuctionWatch.com, from gathering and displaying EBay auction data.
Industry and legal experts say that the investigation and related lawsuits touch on the broader issue of who controls intellectual property. One of the key issues concerns the ownership and control of user-generated online content, such as auction listings.
“The ability of an Internet site owner to control information put on the site by others is an open legal question, and [the EBay situation] is going to have far-reaching implications for the Internet that go into e-commerce, individual privacy, free speech, contractual rights and intellectual property rights,” said Morgan Chu, an intellectual property specialist with the Los Angeles-based law firm Irell & Manella.
EBay, based in San Jose, hosts some 70% of all Web-based auctions for consumers, according to industry analysts. But its critics and some legal experts say that its actions could unfairly use that effective monopoly to constrain competition.
“If you can enlist some aggregators as allies and squeeze the others out, you can control the marketplace yourself,” said Jefferson Scher, an intellectual property lawyer with Carr & Ferrell in Palo Alto.
Scher was referring to a recent agreement between EBay and Morrisville, N.C.-based AuctionRover.com, allowing that site to display EBay listings separately from the search results from other online auctioneers. Rival auction aggregators rejected such an arrangement as less effective for users than a single, comprehensive list of relevant auctions.
The auction aggregators are small firms that believe that their viability depends on being able to display comprehensive data.
EBay is one of the handful of Web companies that earn money, posting a profit of $4.9 million on sales of $73.9 million in its latest quarter.
EBay is trying to erect walls around electronic-shopping comparison tools, said Rodrigo Sales, chief executive of San Bruno, Calif.-based Auctionwatch.com. If successful, the move could be used by other large sites to restrict a range of search methods well beyond auctions, he said.
“Effectively, one of the possible outcomes is that only a few very large players would control the Internet,” Sales said. “The people most hurt would be consumers.”
Jay Monahan, an EBay lawyer, issued a statement welcoming the opportunity “to express our serious concerns regarding the practices of some of the aggregators” to the Justice Department.
Monahan described the Bidders Edge service as “unauthorized trespassing” that “confuses and misleads EBay” buyers.
Bidder’s Edge and Auctionwatch.com said they were contacted by the Justice Department and did not seek government intervention. A department spokeswoman declined to comment.
Legal experts are divided on the strength of EBay’s position when it comes to copyright, intellectual property and antitrust law.
EBay sellers sign an agreement granting EBay nonexclusive copyright on auction listings, but that contractual clause would hold little water in court, according to Pamela Samuelson, law professor at UC Berkeley. She has previously said that EBay would hold a weak position in claiming a “compilation copyright,” which typically involves the editing or reformatting of content created by others.
“I think that EBay can use any technical means they want to block the aggregators,” said Scher. “But by entering into agreements with the aggregators about what they can and can’t do with data from the EBay site” the company risks antitrust action because agreements could favor some competitors over others, he added.
But Scott Stempel, an antitrust attorney at Morgan, Lewis & Bockius in Washington, predicted that the Justice Department would ultimately drop its investigation. E-commerce changes so quickly that the antitrust inquiry could be irrelevant before it gets off the ground, he said.
“EBay is in a very strong position,” Stempel added. “They are trying to prevent free riding on a market that they created.”
