Copyrights
There have been a number of cases involving eBay and copyright infringement. Two of the most influential cases are discussed below. In Stoner v. eBay, the Communications Decency Act (CDA) is applied, and the Digital Millennium Copyright Act (DMCA) is applied in Hendrickson v. eBay.

Case Study: Stoner v. eBay Inc. (Calif. Super. Ct., San Francisco, No. 305666, 11/7/00)

Facts
Attorney Randall Stoner filed suit against eBay, claiming that they had infringed on a copyright by knowingly allowing the sale of "bootleg" recordings. Stoner claimed that, "eBay actually sells, or at least advertises the sale of, illegal recordings, a violation of California Penal Code Section 653, and hence also a violation of the Business and Professions Code." He also claimed that, eBay itself -- as opposed to its users -- actively promotes such illegal auctions and takes a commission on each sale, " and that "eBay facilitates auctions of infringing sound recordings knowing that many buyers do not realize they are purchasing items with no resale value."

Legal Issue
Is eBay granted immunity from liability from copyright infringement claims under the Communications Decency Act (CDA)?

Decision
Judge Stuart Pollak ruled that eBay is immune from liability from such claims under the Communications Decency Act (CDA).

Discussion
Stoner claimed that this sale constituted unfair business practices was in violation of Business and Professions Code 17200 because

“(1) eBay actually sells, or at minimum, advertises and offers for sale, and causes the sale of, various bootleg and other infringing sound recording, in direct violation of several applicable Penal Code Provisions (Pen. Code, ßß653h, 653s, 653w);

(2) eBay, independent of its users, engages in unfair business practices in that knowing full well that infringing sound recording auctions are prevalent of its site, eBay actively promotes and enables those auctions and takes a commission on each sale, even though it could eliminate said infringing auction if it wanted to; and

(3) eBay itself engages in conduct likely to deceive the public in that it knows about and actively facilitates infringing sound recording auctions even though, as it also knows, many of the ultimate purchasers of the recordings truly do not realize they are buying illegal items with no resale value. (Plaintiff's P&A, p. 11-12, citing Second Amended Complaint 8-25.)”

eBay argued Stoner’s claim, stating that the Communications Decency Act (CDA) contains two provisions that provide complete immunity from liability. These two provisions are:

"(1) 47 U.S.C. §230 (e)(1) that states, [n]o provider or users of interactive computer service shall be treated as the publisher or speaker of any information content provider,

(2) and Section 230(e)(3) which provides in part that "[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section."

In order to be granted that immunity, eBay had to meet three requirements:

"(1) that eBay is an interactive computer services provider;

(2) that eBay is not an information content provider with respect to the disputed activity; and

(3) that plaintiff seeks to hold eBay liable for information originating with a third-party user of its service.”

Judge Pollak agreed that eBay met all three requirements for immunity. He stressed the third requirement, stating that at any given time, eBay has millions of listings on its site, and while it is possible that many of the products may be contraband, "Congress intended to remove any legal obligation of interactive computer service providers to attempt to identify or monitor the sale of such products." This means that the law specifically states that the provider of an interactive computer service cannot be treated as the publisher of information provided by another content provider. If eBay were to be held liable for the sale of bootleg recordings, there is no reason why the liability would not transfer to other types of unauthorized or contraband goods. In addition, he said, the legislation creates "a federal immunity to any state law cause of action that would hold computer service providers liable for information originating with a third party." This case was the first to apply the CDA immunity provision to a company such as eBay.

Case Study: Hendrickson v eBay, Inc

Facts
eBay had a DVD offered for sale on its site entitled “Manson”, which was a documentary on Charles Manson. The copyright owner of “Manson”, Robert Hendrickson, believed that the copies eBay had listed were bootleg copies and were infringing on his rights. Hendrickson first sent eBay a cease and desist letter, demanding they stop the sale of “Manson”. eBay responded with a letter asking for more information and advising Hendrickson to join their Verified Rights Owner program (VeRO). VeRO is designed to assist copyright owners in defending against infringement. eBay also encouraged Hendrickson to submit proper notice under the Digital Millennium Copyright Act (DMCA), specifying the exact items he believed to be infringing and giving proper documentation of his copyright ownership. Hendrickson fulfilled none of the requests of eBay before he filed three suits.

The first suit, filed on January 17 2001, alleged eBay was responsible for the copyright infringement because of the sale of the bootleg copies. The second suit added the CEO of eBay as a defendant and said that both parties were liable for allowing the continued sale of “Manson” after the first suit was filed. The third suit added even more defendants and held them all liable for allowing the infringement to occur after the second suit had been filed.

Legal Issue
The main legal issue in this case is whether eBay can be held secondarily liable for the sale of bootleg, or counterfeit copies of “Manson” on their site because they providing the means for third-parties.

Decision
According to the ruling by a federal district court, eBay was not liable for the sale of counterfeit goods when the owner did not comply with the VeRO program’s requirements. The court held that eBay had a “safe harbor” against legal claims under the DMCA. Without proper notice from the copyright holder, eBay did not have the power to control the infringement.

Discussion
The first question answered in the case was whether or not eBay was an “Internet Service Provider” that is eligible for protection under the DMCA. The court decided the eBay is undisputedly an Internet Service Proider. The DMCA states, "the term 'service provider' means a provider of online services or network access, or the operator of facilities therefore."

Next, the court needed to determine whether or not eBay qualified for one of the safe harbor provisions of the DMCA. To do this eBay had to prove that their activities at issue in this case involved of the four functions described in subsections (a) through (d) of Section 512. In this case, the court devoted its attention to section 512(c). Section 512(c) would provide eBay with a safe harbor from liability if eBay satisfied the three conditions set forth in the Section.

1) eBay had to show that it did not have actual knowledge that an activity using the material on its website was infringing nor an awareness of "facts or circumstances from which infringing activity is apparent." Or, eBay must demonstrate that it expeditiously removed or disabled access to the problematic material upon obtaining knowledge or awareness of infringing activity.

2) eBay must prove it "does not receive a financial benefit directly attributable to the infringing activity" if the service provider has "the right and ability to control such activity."

3) eBay must show that it responded expeditiously to remove the material that is the subject of infringing activity on receiving notification of the claimed infringement.

In order to comply with this third condition, Hendrickson, the copyright owner, must have provided proper notice. The notification must include six elements:

i. A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed;

ii. Identification of the copyrighted work claimed to have been infringed;

iii. Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed . . . and information reasonably sufficient to permit the service provider to locate the material;

iv. Information reasonably sufficient to permit the service provider to contact the complaining party;

v. A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner or the law; and

vi. A statement that the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the copyright owner.

The court held that Hendrickson's cease-and-desist letters sent to eBay do not comply with the notice requirements of the DMCA because they are missing a number of key elements.

The court also added that Hendrickson refused to give eBay sufficient information about the listings he believed were infringing on his rights when asked for them. Along with that, Hendrickson never fully validated the claim that the copies of "Manson" were pirated.

The court determined that eBay did not have knowledge of the infringing copies of "Manson", thus satisfying the first requirement for the safe harbor provisions under Section 512(c). Nor did they have the "right and ability" to control the infringement. The court also brought up the fact that case law has determined that when a service provider has programs and activities in place to monitor for infringing material, they do not have the "right and ability" to control the infringement. eBay's VeRO program is such an activity. Finally, since the copies of "Manson" were sold and distributed offline, eBay again did not have the "right and ability" to control the infringement. Based on these determinations, eBay met the safe harbor provisions under Section 512(c).

Case Study: eBay v. Bidder's Edge

In eBay v. Bidder's Edge, eBay was the party filing suit on Bidder's Edge. The case involves many issues such as Trespass to Personal Property, Unfair Business Practices, misappropriation, and federal trademark dilution.

Bidder's Edge was considered an "aggregtor" site, along with others such as Auction Watch and Auction Rover. These aggregtor sites worked by using software called "bots" or "spiders" that searched existing auction sites for particular items. They would store this information in their own databases until it was queried by a user. This allowed users to enter a search term, and be provided with the various auctions and closing times for a particular item. This made "comparison shoping" possible for users, without having to visit all the various online auction sites.

In August 1999, eBay asked many of these aggregators to stop searching their site while an agreement was reached. eBay established a license agreement that sought fees and other demands, such as listing auctions by site, not closing time, and the display of eBay listings seperate from other auction sites. Some other sites signed the agreement, but Bidder's Edge did not, and continued to crawl and index eBay's site.

eBay sent a cease and desist letter, filed suit on December 10, 1999, and requested an injunction to stop Bidder's Edge from accessing its site. In the suit eBay alleged the following nine causes of action:

1) Trespass to Personal Property
2) Unfair Business Practices
3) Copryight Infringement
4) Misappropriation
5) False Advertising
6) Trademark Dilution
7) Injury to Business Reputation
8) Interference with Prospective Economic Advantage
9) Unjust Enrichment

eBay voluntarily dismissed the Copyright Infringement claim however. This is probably based on the ruling of the landmark Feist Publications, Inc. v. Rural Telephone Service Co, where it was ruled that copyright protection does not cover data or facts compiled in an unoriginal fashion. Under this ruling, eBay's information and data would not be copyrightable, as it is the property of the sellers, and not specifically eBay's property.

Bidder's Edge denied that it was liable for any of the above claims. They then charged eBay with monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, unfair business practices and interference with contractual relations.

On May 24, 2000, U.S. District Court Judge Ronald M. Whyte issued a preliminary injuction, effective June 10, 2000, ordering Bidder's Edge to stop spidering auction data from eBay and posting it on its site. The judge ruled that the spidering deprived eBay of the use of its personal property on the grounds that such activity is likely to constitute a prohibited trespass to chattels.

Judge Whyte's ruling states, "In order to prevail on a claim for trespass based on accessing a computer system, the plaintiff must establish:
(1) defendant intentionally and without authorization interfered with plaintiff's possessory interest in the computer system; and
(2) defendant's unauthorized use proximately resulted in damage to plaintiff."

While Bidder's Edge did not deny that it was acting intentially and without authorization, they defended their actions stating that eBay's site was publically accessible. Howeve, Judge Whyte rejected this defense on the grounds that eBay's servers are public property and they provide conditional access.

Next, Judge Whyte found that it was likely that eBay could prove that Bidder's Edge's actions resulted in damage because their activities use at some of the bandwidth and server capacity.

Bidder's Edge appealed to the U.S. Court of Appeals for the Ninth Circuit, but the case was never completed. A settlement between Bidder's Edge and eBay was announced, to which the details were not released, on March 1, 2001. Bidder's Edge had shut its site down just one week before the settlement came.

What this case brings up is the expansion of the Trespass to Chattels claim to the world of the Internet. In a previous case that was cited by Judge Whyte (Thrifty-Tel v. Bezenek), it was found that the unauthorized use of telephone lines was a trespass to chattels. With the increasing expansion of the Internet, it will be interesting to see where the lines become drawn.

Online Auction Fraud
The leading category for online scams is in web auctions, comprising 64% of all scams. (National Consumers League, 2001)

The growth in popularity of online auctions has also led to the increase in fraud surrounding these auctions. In 2000, online fraud was the number one fraud complaint received by the Internet Fraud Watch, operated by the National Consumers League. Since 2000 the complaints decreased gradually until the first half of 2002. The complaints about online auctions have suddenly skyrocketed, accounting for 87 percent of the Internet fraud reports made to the IFW in the first six months of 2002, compared to 70 percent in 2001. While the reasons for this increase are not clear, the remedies are – auction buyers should check sellers out carefully and pay attention to how they pay for their purchases. (See "Online Auction Fraud Skyrocketing in 2002")

Two types of online auction fraud that occur on the auction site are known as shills, used by sellers and shields, used by buyers. A shill is when the seller uses another email address or a friend to increase the bid for an item in order to force the buyer’s bid higher. In some cases this causes a bidding war. A shield is used by a potential buyer who obtains another email address or a friend to force the bid through the roof and discourage other buyers from buying the item that they want. When the auction is just about over the shield retracts their bid allowing the scamming buyer to purchase the item at a low price. Most auction sites do not let users retract bids but the shield will use the exceptions to that rule to get out of their bid.

Online auction fraud that is even more irritating is when the buyer or seller sends their part of the exchange but doesn’t receive either the goods or the money in return. This fraud can be extremely hard to remedy because of a lack of communication between buyer and seller and the distance between the two parties. Some online auction sites are beginning to reimburse people who are scammed in this way up to $250. MyLawyer.com provides 10 tips to Avoid Auctions Scams. Some of the tips include educate yourself, check retail prices before buying, watch for shills and shields, and record every step of the purchase or sale.

Jurisdiction
The major issue in online auction fraud cases jurisdiction, where the case will be tried. There are two questions of jurisdiction that have to be answered before an online auction fraud case can go to court. 1) Does the court have the authority to hear your case? This is called subject matter jurisdiction. Subject matter jurisdiction is determined by the subject of the case and whether it should be tried in a state or federal court. Most often in online auction fraud cases the plaintiff and defendant will reside in different states. This is referred to as a ‘diversity’ case and it can be filed in either the federal or state court level. However, in order to file in a federal court you the plaintiff must prove personal jurisdiction, which leads to the second question. 2) Does the court have the authority over the parties involved in the dispute? This now becomes a question of personal jurisdiction which asks if the court has the constitutional right to make a binding decision over the plaintiff and the defendant. Proving personal jurisdiction over the plaintiff is easy because they will almost always use the home court advantage and file in their home state. Problems arise when personal jurisdiction has to be claimed over a defendant from another state. Only if they have a meaningful connection to the state through property ownership or business operations, can that state claim personal jurisdiction over the defendant. Most likely the plaintiff will have to file their lawsuit in the state where the defendant resides or does business.

There are three exceptions to the rules of personal jurisdiction known as the long arm statutes. These statutes describe how personal jurisdiction can be extended beyond state lines.

"Gotcha" Jurisdiction
Personal jurisdiction can be obtained from a person who lives outside the plaintiff’s state if they visit that state and are served a summons and complaint that explains the lawsuit.

Example- Sam, a Nevada disc jockey who operates a rock memorabilia site, defrauded Alice, a resident of Buffalo, New York. She learns that Sam is visiting New York City for an Internet convention, so she sues Sam in New York's state court. She hires a process server who hands Sam the summons and complaint while he is standing at his sales booth at the convention (See "Cyber Squabbles: Where Do You Sue?")

Causing an Injury within the State
If an internet business purposefully causes harm in the state personal jurisdiction can be claimed over the business. This rule came out of cases in the 1930’s when courts began claiming personal jurisdiction over motorists who caused accidents in one state and then left to return to their home state. This same principle applies to the internet superhighway.

Example- a software company located in New Mexico sent defamatory email and made defamatory web posting about another software company in Arizona. The Arizona company claimed personal jurisdiction because the defamatory statements caused injury within the state and were intentionally made at the Arizona business. EDIAS Software Intern. v. BASIS Intern., Ltd., 947 F. Supp. 412 (D. Ariz. 1996)

Minimum Contacts
This refers to a business or person that maintains ample contacts within a particular state can be hauled into court there even if they don’t live in that state or base their business there. Any substantial presence in a state by a business such as soliciting or deriving revenue from a state will justify personal jurisdiction in that state.

Example- a Pennsylvania court was able to claim personal jurisdiction over a California internet service provider that included 3,000 Pennsylvania subscribers. Processing the applications and assigning passwords was enough to prove minimum contacts to claim personal jurisdiction. Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa 1997)

The idea of “minimum contacts” can get a little tricky when it is applied to the Internet. These possible problems have been anticipated and a sliding scale has been developed to determine the amount how much contact is sufficient to claim personal jurisdiction to the plaintiff’s state. At one end of this sliding scale are sites that merely post information without contact information or an effort to do business with the reader. These are called “passive sites” and they are least likely to have personal jurisdiction because they have minimal contact with other states. At the other end we find “interactive sites” which conduct business through credit card sales or any type of active business.