21

-1-

II

Tristram T_ Buckley [SBN 187754] LA W OFFICES OF TRISTRAM BUCKL F'{ 2

426 S. Rexford Drive, Suite 12 J BevcrlyHiJls,CA 90210 Telephone: J I 0-980-] 842

4 Facsimile: 888-315-9188 \rvww_EbayLawstl it. com

5

6 Attorney for Plaintiffs

'>\

~ \

ORIGINAL ~~

~I

-, ? ....

7 8

VY HOANG,

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN orSTR.ICT OF CALIFORNIA I~GK

Asg¥:10 8207' -

CLASS ACTION COMPL~INT FOR:

9

PLAINTIFFS,

10

vs.

II

EBAY, INC., MARGARET C.WHlTMAN

12 PIERRE M. OM1DYAR, JEFFREY SKOLL, AND DOES 1-] 00, INCLUSIVE

13 14 15 16 17 18 19

DEFENDANTS.

20

22

·Ll~23

24

d-.\

25

26

27

28

(1) RACKETEERTNG (RICO) (2) LARCENY

(3) EMBEZZU'MENT (4) FRAliD & DEC[TT (5) CONV[':RS[ON

((») ILLEGAL MONOPOUZA T[ON Or: THE CONSUMER To CONSUMER J NTLRNr·T MAR[Gm'l.ACE.

(7) ILLEGAL MONOPOLIZATION Or THE ('()NSUMI.]~ To SMALL BUSINESS INTERNET MARKETPLACE (8) MONOPOLIZATION Or-THE rNTERNETPAYMENT

SYSfEM

(9) IN'n]{FI:RFNC[; WI'1"[1 CON'!RACT

(10) INFUCll0N Or EMcrnoNAL Drsrurss (11) VIOLATION OF THE SHERMAN

ANumUSTAcT

(12) VIOLATION OF TilE CARTWR1Glrr ACT

(13) UNFAIR COMPETITION (STAnJTORY AND COMMON LAW)

(14) V[OTAIIONOFTm:CoNsuMFRS U;GAL

Rl.·:MJ:])Jr:s Acr(CLRA)

(15) NFGtlC;r,NT MISREPR.FSFNIATION (16) NEGLIGENCE

(17) BREACH Or CONTRACT

(18) QUANTUM MERtJJT! UNJ1JST ENRICHMENT ( 19) FALSE ADVERTIS[NG

JURY TRIAL DEMANDED

COMPLAINT

2 3 4 5 6 7 8 9

10 11 12 13

I.

ALLEGATIONS

"Class members may log into ',!/\I,IY'L:E.L!l!yLawsuit,~c_o!ll tor case information and updates.

1. Ebay and the Ebay Defendants have, by scheme and design, become the archetypal

monopoly Sir Thomas Moore warned of when he wrote: "Suffer not these rich men to buy up all, to engross and forestall, and w ith their rna no po Iy to keep the market alone as they p lease."

2. Ifnot for Ebay's predatory and illegal conduct, Ebay would not have become the

monopoly it is today nor would Defendants Omidyar, Whitman and Sko ll have become the greatest overnight mult i-billiouaircs in history nor Ebay the fastest growing company in history. (E.g., Whitman acquired her billion plus dollars within a year of joining Ebay.)

3. IfEbay were a country, its quarter billion registered users would have Ebay

competing with Indonesia for the fourth most populated country on earth behind China, India and the Unite'(j States.

21

COMPLAINT

14

15 16 17 18 19 20

4. Defendants Ornidyar, Skoll and Whitman generated the largest and fastest

accumulation of wealth in U.S. history and with the least amount ofeffort and actual achievement. Almost overnight, these three Defendants pocketed some $14,000,000,000.00 (fourteen-billion doJJan;).

5. To put this figure in perspective, with this same money 2,000,000 (two million)

students could have their full college tuition paid for tour years; or alternatively, 312,000 firemen, policeman and school teachers could be hired (a significant number as there arc currently in the

23

24 25 26 27 28

(creating BASIC, DOS and Windows and years thereafter becoming a billionaire) took Meg Whitman just one year to financially achieve. In fact, Whitman, Ornidyar and Skolls overnight rise to unimaginable riches make Bill Gates' rise look long and arduous by comparison.

7. Where there is smoke there is fire. Evidencing abuse, exploitation of the

"Community" and corruption, the Defendants amassed fortunes at a faster and greater rate than

-2-

anyone else in modem history while Ebay, a company that neither designs nor manufacturers any product whatsoever, became the fastest growing "company" in history.

8. Plaintiffs seck the disgorgernent of more than 14 billion dollars from the individually

named Defendants and forty-billion dollars from Ebay, lnc. This sum represents monies wrongfully converted and extorted by these Defendants from the Ebay Community, as shown hereinbelow. These funds should be distributed amongst the Ebay Community that was and remains responsible for the creation, operation and prolifcrat ion of Ebay, as the Defendants have already admitted.

9. The exploitation of the internet has benefits as well as disadvantages not fully

understood nor appreciated by our society. Without question, the internet causes substantial collateral damage. For instance, in moving from traditional "brick and mortar" business establishments to the internet, no longer arc businesses renting the same commercial properties, but also, the industries associated with that traditional brick and mortar enterprise are impacted as well, including the people who maintain, design and build those properties, including electricians, plumbers, construction workers, the people who maintain the premises such as janitors and painters, as well as sign makers, local newspapers that no longer Garry the once local merchants classified advertisements, as well as the local cafes, restaurants and shops that would provide meals and shopping opportunities for the "brick and mortar" employees. Instead, as evidenced herein, hundreds of billions of dollars have gone to enterprises, most notably Ebay (but also, e.g., Amazon, etc.) who don't manufacture anything or add real value to the economy while paying their executives literally hundreds ofmillions to billions of dollars a year, effectively siphoning countless billions from the mainstream American economy.

10. For the protection and welfare of the American public, as will be shown hereinbelow,

the monopolistic Ebay Defendants must go the way of AT &T and Standard Oil, for their threat to our evolving economy is unprecedented in American history and far greater than was AT&T or Standard Oil.

2 3 4 5 6 7 R 9

10 11 12 13 14 J 5 16 17 J 8 19 20 21 22 23 24 25 26

11.

The editors of Business Week noted "Unlike most traditional companies, cBay

27 presides over an expanding ecosystem -- onc whose limits arc still unknown." 28

-3-

COMPLAINT

12. Defendant Whitman was the architect ofEbays illegal and inequitable actions while

2 other Defendants, most notably Omidyar and Sko ll. endorsed and profited from Whitman's

3 schemes. Schemes which included, in Defendants' own words "buying" countries linfi·a),

4 "conquering" the United States and "dominating" the global market.

S 13. Ebay is the unhappy Consumer to Consumer ("C2C') monopoly it is today as a direct

6 result of Defendant Meg Whitman' (Ebay's CEO' from 1998-2(08) predatory schemes and actions 7 and market-abusive tactics. The Ebay Defendants, with Whitman ClS their leader, intentionally acted 8 in a malicious and predatory manner with the design and intent to thwart and either acquire or

9 destroy all competition in order to fully and unfairly exploit the national and ultimately international 10 consumer to consumer sales and auction marketplace.

1 I 14. Whitman, Ebay's CEO during its illegal rise to power as a monopoly and architect of

12 the illegal actions undertaken and strategies employed, admits that Ebay is an "indispensable"

13 "marketplace" (as opposed to a business), stating:

14 "Everyday the eBay marketplace becomes indispensable to more people and

15 small businesses around the world."

16 15. Whitman is correct in that Ebay is not a business but a "marketplace" and the internet

17 18 19 20 21 22 23 24 25 26 27 28

marketplace is indeed "indispcnsiblc' to people and business around the world. As something that is indispensible, like water, electricity, etc" Ebay, that is, the internet "marketplace", must be recognized for what it is, a public utility.

16. Business week Magazine noted that Ebay is not a business but "a nexus of economic

activity, a new and vibrant hub for global commerce."

17. That Ebay is n01 a business but rather a marketplace explains why Ebay was the

fastes .. t growing company ill history. When one considers all the companies in the world, including powerhouses such as Microsoft, lBM, Walmart, or Exxon, the meteoric and indeed exponential growth of Ebay, a company that neither designs, manufactures nor builds anything, is only astonishing until one realizes the fact that Ebay is not a business but a marketplace: A marketplace that grew not because of Ebay was a business with an amazing product but because the internet and the number of people using it was growing exponentially from its infancy.

-4-

COMPLAInT

1

COMPLAINT

18.

Ebay was created over Memorial Day weekend in 1995. At the time ofEbay's

2 inception, the internet had barelyjust begun to reach the public. In tact, there were only 14 million 3 people in all of North America using the internet. Of those 14 million users, a third (1/3) of those 4 persons (nearly 5 million people) had been using the internet tor less than six months while more

5 than half the 14 million users had been using the internet tor less them a year, showing the

6 internet's limited utilization in 1995. Today, approximately two billion people make use ofthe

7 internet.

8

19.

"Ebay was created by a community of people based on the notion that since they were

9 a community, they would labor on behalf ofthe community and all benefit from the success of Ebay. 10 Instead, Ebay exploited the community, and turned it into a commodity, to be slaughtered like sheep II as Ebay saw tit. The concept the community held, was of a global marketplace where every player, 12 rich or poor, advantaged or disadvantaged, able bodied or not, regardless of any of the factors that act

13 as discriminators in society, would get to play on a level playing field. It was created. 11M by Pierre

14 Omyidar and not by Ebay, but by the community that built Ebay, one person at a time. Ebay is a 15 travesty ofthat community ideal, a company whose only goal is to make as much money possible in 16 the shortest amount of time to make a few people obscenely wealthy. It chatters about the community

17 in order to keep its stock price artificially tempting, all the while destroying the lives and livelihood 18 of any who dare to expose the rot behind the shiny facade." (Rosalinda Baldwin, the Auction Guild

19 (TAG).)

20.

The Ebay Defendants' "obscene wealth" came at the direct expense of the community.

20 21 22

Consumers, buyers and sellers, are not stupid. They realize that such services arc typically free to

use all the internet as they generate income from advertising revenues. For instance, Yahoo provides free email addresses, accounts and unlimited email storage. Facebook offers its networking services for free. Likewise, search engines such as Google and Bing will scour the

24 25

electronic universe, all tor free. Youtube offers free video uploading and viewing. HuLu lets you watch your favorite television programs for free while Mapqucst will provide travel directions and

26

27

more, There arc even language trans Jatar serv ices on the internet operating free 0 f charge. InC hina,

28

one of the largest auction wcbsites is profitable and its service is free to users. While Plaintiffs are

-5-

not stating Ebay should be free, Plaintiffs are charging Ebay with exploiting a captive market

2 through its monopoly of the C2C and e2SB (Consumer to Small Business) internet marketplace.

3 21. As the internet's defacto C2C marketplace, it is necessary for the public welfare, just

4 as would be the case for any other utility, that Ebay be regulated as a public utility in order to

5 prevent the illegal and disproportionate profiteering and unjust and arbitrary abuse of those who 6 participate in the 21'1 Century's marketplace.

7 22. The tact that Whitman's own supporters recognize Ebay's public utility function, and

g correspondingly, that Ebay's success was inevitable and not the result of Whitman's leadership, \""3S 9 aptly put by one Ebay employee who stated "A monkey could run this thing."

10

Whitman was also correct when she noted most of the best ideas for Ebay's

23.

11 development carne from the community and "I n essence, customers are Ebay's de facto product- 12 development team, sales and marketing force, merchandising department, and security detail 13 all rolled into one."

14 24. Whitman admits that she did not build Ebay but that Ebay, excluding the monopolistic

15 predatory tactics, was built and fostered by the Ebay Community itself ·'It's our Customers who

16 have built Ebay" admits Whitman.

17

Whitman described Ebay as a "self-regulating marketplace" and an "economy that

25.

1 8 manages itself."

19 26. Whitman admits, time and again, that the ideas that made Ebay successful came not

20 from management but from the Community. "Our users arc on ('0 the next idea, the next hot

21 thing faster than we could ever be as a company. '" They have built this small economy" and 22 ''we have a partner in building this business, and that partner is the community of users:' Of 23 course. the Ebay Defendants have never shared the profits with those that actually buill Ebay but 24 instead, converted the Community's interests as their own while excessively charging the

25 Community for the services the Community created.

26 27. Harvard Business School professor David B. Yoffie noted the benefits to the

27 Defendants from the Ebay Community'S contributions: "You get the incredible leverage of other 28 people doing all you r work for you."

-6-

COMPL1\JNT

e

28. Despite the Ebay Community's contributions, contributions that literally "built" Ebay

2 into the successful and goodwill generating company it was originally and before Whitman's tenure 3 as CEO, Whitman exploited the Community to her own personal advantage, as outlined hereinbelow.

4 2<). Even Whitman's supporters have stated Ebay's success was inevitable and not the

5 result of Whitman's business or leadership skills. "A monkey could run this thing!" commented 6 one Ebay employee with an MBA directly to Whitman.

7 30. Intuit founder and then Ebay Board member Scott Cook stated Whitman found "a

R parade and ran in front of if'.

9 31. Fortune Magazine noted before jo ining Ebay, Whitman "was hardly a superstar."

10 32. Making a profit, even an exceptional one, is encouraged and respected in our capitalist

1 I society. For example, after several years of software development (e.g., BASlC and DOS), Bill

12 Gates co-founded Microsoft in 1977 and nearly a decade later he become a billionaire thanks to his 13 developing the operating system that would run most of the computers on the planet.

14

33.

On the other hand, people instinctively realize that an overnight unprecedented

15 generation of unimaginable riches carries with it the implied assumption 01" ill-gotten gain. Ebay's 16 Whitman, Omidyar and Skoll, provide history's case in point.

17 34. Omidyar did little more than found Ebay as a simple, single-page website. Ironically,

18 and unlike Bill Gales, Ornidyar didn't write the code for this single page website. Instead he used

19 freeware, software created by others with the expectation of payment if the software is put to a

20 commercial usc. Omidyar never paid tor usc of this freeware that would become Ebay. (Before

21 becoming "Ebay", the website was called AuctionWcb which was later changed to Echo8ay.

22 However, the name Echo Bay was already taken and so it simply became known as Ebay.)

2J

35.

Ornidyar repeatedly informed members of the new "Ebay Community" that he "didn't

24 want to get involved" and that users ofthe bulletin board would have to "work out their own

25 problems." According to a Time Magazine interview: "Omidyar's routine when he received an e- 26 mail with a complaint about another user was to tell them both, 'You guys work it out'."

27 36. Omidyar 's lack of involvement is what led to the self-sufficient "Community." For

28 instance, the Feedback System originated with the Community as a means by which the Community

-7-

COMPLAINT

could effectively police itself by rating the reliability of Community members. This most

2 fundamental Ebay idea, the Feedback system, came from the community, not the profiteering 3 Defendants. Moreover, it was implemented by the Community directly. Unfortunately for the 4 Community, the more Ebay's management sought to boost their profits by manipulating the

5 Feedback system, the more inefficient the system became, hurting buyers and sellers alike.

6 37. Likewise, the Community provided its own "Customer Service" via a message board,

7 called the "Bulletin Board." Ebay Users provided ideas and suggestions on how to develop the

S Ebay website as well as answering Ebay Users questions. Like the Feedback Forum, the Bulletin

9 Board was intended by Defendants to limit their actual involvement with Ebay and to place Ebay's 10 administration in the hands of the community.

11 38. Omidyars investment of time and energy was relatively minimal and his success

12 fortuitous, Omidyar 's singular objective was to create a simple website where his girlfriend could 13 find PEZ Dispensers, which she collected. Omidyar was neither planning nor investing, time nor

14 resources, into creating some great website, much less did he create a manufacturing enterprise, find 15 a cure for cancer or even write software that the world would come to rely upon. Ornidyar is no Bill 16 Gates or Steve Jobs. Rather, his investment was commensurate with what his girlfriend was looking 17 for: PEZ dispensers that typically cost a dollar or less.

18 ]9. Yet, within a few years of starting the bulletin board that was Auction Web and later

] 9 renamed Ebay, Ornidyar was the youngest, richest billionaire in American history. For instance, in 20 1999, Fortune Magazine listed J 1 year old Omidyar 's wealth at $7.8 billion, making Bill Gates a

21 pauper by comparison at that age. It would take Bill Gates more than 13 years to accumulate $2.5

22 billion at the age of3S. To put this in perspective, Ornidyars wealth was greater than Steve Jobs 23 (founder and CEO of Apple Computers), Donald Trump (age 57) and Steven Spielberg (56) ...

24 combined! Even Faccbock's founder is worth roughly half what Omidyar was worth back in lc)lJ8 25 when a billion dollars wa .. 1;) really a billion dollars. (One billion dollars in 1998 had the purchasing 26 power 01'$1.32 billion dollars today.) In today's money, Omidyars wealth was over 2.5 times

27 greater than the already phenomenal, made fill' a Hollywood movie, wealth ofthe founder of'

28 Faccbook.

-8-

COMPLAINT

40. Ebay's first president, then 34 year old Defendant Sko!l, saw his wealth rocket to $4.8

2 billion in 1999. The only younger-richer billionaire than Skoll was co-Defendant Omidyar.

41.

Defendant Whitman, the mastermind behind Ebays predatory conduct and

3

4 monopolistic misdeeds and ultimate monopolistic success, joined Omidyar and Skoll's party 5 whereupon she became an overnight billionaire as well.

I

6 42. According to SEC documents, Whitman received $1.2 billion while Ebay's CEO tor

7 less than a year. Put another way, in less than a year Whitman pocketed roughly half ofwhat it

8 would take Bill Gates a decade to achieve, ten years after he co-founded Microsoft and more than a 9 dozen years after he began working on the DOS operating system.

10 43. Plaintiffs' research fails to reveal another CEO in history, who did not found the

11 company but whom took home more than a billion dollars in their year with a company. Like feudal

12 lords (Tom the medieval period, Whitman and the Defendants earned their phenomenal riches from 13 the modern day serfs: lndividual sellers and buyers participating in and bound to the internet's new 14 marketplace.

15 44. This obscene and unjust accumulation ofwealth, taken at the direct expense of

16 millions of Ebay users (i.c., the "Community"), catapulted Whitman from relative obscurity to

17 Fortune Magazine's "Most Powerful Woman in America." With her billionaire status and fame, the 18 previously unknown Whitman is now a breath away from securing the Governor's office in the sixth 19 largest economy in the World. She's able to spend a million dollars a day of her own money (which 20 is nothing compared to the approximately $1.5 billion dollars she made while at Ebay) on campaign 21 advertising for the Governor's Office. From there Whitman could reasonably have her sights set on 22 the Whitehouse. And it all began with massive unjust enrichment premised upon illegal and

23 unethical practices.

24 45. As the CEO ofEbay, Defendant Whitman's agenda was to maximize her share values.

25 Whitman achieved this by repeatedly raising the lees charged to the Ebay community in order to

26 further boost Ebay's PE ratio, thereby increasing the stock value which in tum directly enhanced the 27 personal wealth of each Defendant.

28

-9-

COMPLAINT

46. 111 addition, as CEO. Whitman engaged in predatory conduct designed and intended to

2 thwart all competition in order to maintain Ebays monopoly status. By maintaining Ebay's

3 monopoly status over the Consumer to Consumer auction marketplace, Whitman could force the

4 Ebay community to pay fees that were substantially higher than would be charged in a free market S economy.

6 47.

Not content with just dominating the global internet marketplace, Whitman sought to

7 .ontro! and monopolize the Consumer to Consumer and Consumer to Business online payment

8 ndustry by purchasing Billpo int and just five months later Paypal (for $l.5 billion dollars) while 9 andating that Ebay Community members use Paypal and at the same time blocking the usc of

ornpetitors' online payment services.

II 48. Whitman schemed and effected the monopolization of the online payment methods

J 2 which could he used by Ebay by (I) acquiring the competition, (2) mandating the usc of Paypal as a 13 payment option while (3) forbidding members of the Ebay community from using other services such 14 as those from Citibank 's (,2iT, Yahoo's Payfrirect, Western Union's BidPay, Googles Checkout,

15 etc. Monopolization of the online payment system would prove Ebay's one-two punch, as set forth 16 hereinbelow in paragraphs 332 through 371.

17 49. Among the people using Ebay, that is, the "Community", it is common and

18 indisputable knowledge that Ebay is a monopoly. Says Dwayne Rogers, who sells vintage fruit crate 19 labels on Ebay from his home in Chico, California: "They just don't have any competition."

20 50. Ebay is a predatory and illegal monopoly and the individually named Defendants have

21 been unjustly enriched at the expense of the Ebay Community, the American Consumer and to the

22 detriment of the American taxpayer.

23

All of which begs the question: How was this unprecedented accumulation of wealth

51.

24 possible? The simple answer has two components.

25 52. The first component is inherent in what Ebay actually is and what it 1S not: Ebay is

26 not a business so much as it is modem day digital marketplace.

27

28

-10-

COMPLAINT

53. In fact, Ebay originally called itselfvThc World's Personal Trading Community"

2 before calling itself "The World's Online Marketplace." A marketplace is a place where people do 3 business, not a business per SC, in and of itself

4 54. That Defendants arc unjustly profiting from Ebay is irrefutable. Ebay was conceived

5 by a "Community" and the Ehay website was largely created and refined by the Ebay Community. 6 The Ebay Community itself policed the community, provided customer support, marketing, created 7 the listings of items for sale, and provided the d irection and ideas tor the website's evolution that

g made Ebay originally the venue that led to its success.

9 55. In her current advertisements for the Governor's office.Whitman falsely represents

I ° she was responsible for creating Ebay's success. In fact, Whitman's self-promoting profiteering

11 motivated policies have lead to the downfall of Ebay's goodwill and posit ive public sentiment

12 thanks to her exploitation of the Ebay Community. The Community that provided the ideas that 13 made Ebay great would be the Community that Whitman would exploit, both for its ideas and 14 money, charging ever higher fees to the Community for use of the website literally built by the 15 Community.

16 56. To boost the stock values to the benefit of the Defendants and to the direct detriment

17 of the community, fees charged to the Community were routinely and unjustifiably increased, so 18 much so, that the Community members began calling the marketplace under Whitman's control

19 "Feefsay" and its payment service "Prcyl'al." A quick Googlc search of the world "Fecfsay" yields 20 some 16,000 hits, evidencing the profiteering views ofEbay are anything but unique.

21 57. A typically reoccurring news headline reads: "Two days after posting record earnings

22 and revenue, Ebay said Thursday that it is raising fees and will charge for a popular free feature." 23 Ebays spokesman, Ken Pursglove acknowledged that Ebay doesn't have any real competition but 24 denied that fact plays into the never ending fcc increases.

25 58. Profit even motivated Whitman's Ebay 10 acquiesce to rampant fraud on the website.

26 Ebay intentionally failed to crackdown on fraud for years while Ebay built its war chest and boosted 27 its stock values (most of which were held by the Defendants themselves, holding 98.1 % at one

28 point) because Ebay profits from fraud! A fraudulent seller would falsely advertise as real a fake

-11-

COMPLAINT

Rolex watch or Gucci purse and sell it through Ebay. Ebay would earn profit from the seller's listing 2 of the item and a commission from the illegal sale. When the Ebay Community and its victims

3 complained Ebay and its army of attorneys and lobbyists argued successfu lly in court and before

4 legislators that Ebay wasn't really an auction and thus could have no liability as would other auction 5 companies, giving Ebay yet another unfair advantage, Absolved from any and all responsibility,

6 Ebay was free to profit from fraud, which it did freely.

7

Not only docs Ebay prot-it from its fraudulent listings but it also profits from illegal

59.

8

shill bidd ing while suspending whistleblowers (shill bidding is when bids are placed by people

9

familiar with the seller in an effort to artificially raise the price of an item), as this Ebayer explains

10

in his own words:

11

"The FBI did an investigation, using the same data Ebay has, brought charges and

convictions, while ebay's own "investigation" iound nothing wrong! Why didn't eBay's own internal "investigation" stop this? Because ebay profits from shill bidders and bidding rings! Ebay is incapable of policing itself, and if you buy on ebay, you could be paying way too mueh on some auctions due to shill bidding. This is finally one case making national headlines. But we know of others from our users here, and they have been reported to ebay, but just like in this case, ebay has done nothing. They have not solved the shilling problems. They have made concerted efforts to cover them up, attack and suspend the whistle-blowers, lie to the "ebay community" regarding outages and policy, ignore even the most basic fundamental rights of their users, all the while. they just keep finding new ways to raise the fees. Oh, and the TERRIBLE way they handle these types of complaints! You get ignored. You get canned email replies. You get suspended. That's what happens to you when you try to warn others about scams and frauds on cfsay. That's also what happens to you when you arc critical of eBay publicly, even if it's on another website, or even your own home page!

12

13 14 15

16

17 18 19 20 21 22 23

60. While Ebay falsely advertised its site as being virtually fraud-free, that lip-service was

designed to boost the Defendants' share values. Allowing the fraud increased Ebay's Price/Earuings ratio which directly boosted the Defendants' wealth.

24

25

AI. Failing to implement then readily available safety and security measures saved Ebay

even more money, thereby further boosting its bottom line. However, these costs were then passed

26

on to the taxpayers as law enforcement agencies around the country were called into investigate the

27 28

now completed fraudulent acts.

-12-

COMPLAIN'!,

2

02. In addition, consumers paid for the rampant Ebay fraud as Ebay would tell its Users to

"contact your credit card company" about the fraud. The credit card companies were then forced to absorb millions of dollars in fraudulent charges, the costs of which were passed onto all consumers.

63. Ebay defrauded sellers as well as buyers. For instance, if a seller sold an item and the

buyer's payment tailed to materialize, tor whatever rca son (bounced check, falsely deposited counterfeit cashiers' check, etc.) Ebay would refund the commission (the "final value tee") but Ebay would keep all the other tees paid by the defrauded seller (listing fees, photo fees, gallery fees, "buy it now" listing fees, etc.), thereby profiting from Seller's misfortunes.

3

4 5 6 7 8 9

10

64. 65.

Thus, whether the sale was legal or not, completed or not, the Defendants' profited. Fortune Magazine (J 0-18-2004) noted Lbay's revenues were nearly all profit as Ebay

I I "has no factories or inventory, but also because its customers do all/he work."

12 66. Whitman's Ebay used its war-chest to lobby for Jaws that would benefit Ebay while

13 harming the community. In one day, Whitman with her supporters had 36 meetings with politicians

14 in their ongoing lobbying effort. "We need to make sure the government understands and supports 15 what we're doing" said Tad Cohen, Ebay' head of "Government Relations."

16 67. Ebay not only spends millions of dollars lobbying politicians to advance its own

) 7 interests while also having its own permanent lobbying office in Washington D.C., but Whitman

18 uses the unsuspecting community to advance Ebays interests to their own detriment, as reported by ] 9 the New York Times ill a story cntit led How cSa)' M_;ll<:~S Regulations Disappear. "Lbay

20 combines it:.: po lit icx-ax-usua] approach with more creative grass-roots tactics. II keeps its

21 membership informed about regulatory issues as soon as they crop lip, using mass e-mail messages

22 and a year-old Weh-hascd initiat ivc called ~c13ilY Main Street.' which sends out 'legislative alerts' 23 and provides letters that USl.TS can send to government officials. Buwing (0 t11C traditions ofward 24 po lit [COS adept ai t U ITl ing Ii LIt t he vote, clsay 1'0 utincly summo 1\$ its S(;~J I ers and sends them on

25 personal visits to slakho uses around the count ry to meet with legislators." 'The author I hen noted 26 120.000 million people voted in (he bSI presidential election ,md that (currently) [bay has nearly 27 2:'0,000 [cgi:-;lcrcd users The cmails the Ebay community members received are written in a

28 slanted manner "1 Ebay« lavor in order ill gcncrutc support. Lb.iys lobbying efforts, including

-13-

COMPLAINT

maintenance of its monopoly. "lckstepping I~l\\" ih;ll would make it accountable for counterfeit

2 goods like any other auction COll1jXll1_V. etc .. ultimately hurt the Community while benefiting Ebays 3 pro lirccri ng management.

68. An example of Ebay's lobbying efforts that directly benefited Ebay's bottom line but

hurt the community was Ebays successful lobbying efforts that all hut made scalping event tickets legal. Ebay lobbied to have States revise their laws regarding licensing requirements so Ebay could compete with licensed ticket brokers (who arc regulated and pay fees to the States) by allowing internet sellers to charge over face value ("scalping") for event tickets online. Prior to these lobbying efforts, the Community could buy tickets from other consumers paying face value or less for the tickets. After Ebays efforts, the overcharging for tickets (scalping) industry mushroomed. No longer would shady sellers who purchased blocks of tickets have to hide in the shadows outside events where States such as California and New York make selling tickets above face value at

events illegal. Now these opportunists were free to buy up event tickets and then resell them at much higher prices on the internet, bypassing Stale license and scalping Jaws. Overnight scalping tickets became a major business for those who didn '( want to stand outside venues slyly selling tickets. Now this shady business could be conducted over Ebay from the privacy of their own home in Eastern Europe, Asia, Africa, elC. Perhaps Ebay relates to the scalpers as they too make their money hy virtue of their being first and at the expense of others. This scalping practice which results in artificially inflated ticket prices and needless middlemen, is condemned in European societies where access to cultural and entertainment events for low-income groups is still considered an important aspect of society.

69. Despite raking in billions, Defendants tailed to implement basic security measures

and, if a problem arose, the Defendants failed to provide telephone support. How many multibillion dollar corporations don't have a way for their customers to contact the company for support or customer service? For nearly all of Ebay's existence, Ebay has never provided a phone number for contacting Ebay. Of course, not having to employ any customer service telephone agents saves Ebay even more money and yet again boosts Ebays Price to Earnings ratios and the Defendants' wealth.

4
5
6
7
R
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
i
!
26
27
28 - J 4-

--------------~~-~--.---------------------

COMPI.AINT

70. To boost its Wall Street value, Whitman schemed to sanitize Ebay's public image,

2 Toing so far as to suspend users tor posting comments complaining about Ebay. Ebay claims the

3 .ensoring is done strictly to "maintain decorum". On one occasion, the Ebay website was off line for

.everal hours after a major server crashed. When Ebay finally came back on-line, outraged Ebaycrs

5 osted messages on the support board. Whitman's Ebay responded first by suspending the customers 6 or 24 hours, then by killing the live board completely, freezing access to instant customer support.

7 71. While Ebay's Customers "do all the work" and while Whitman admits the Community

8 built Ebay and that all the great ideas that made Ebay what it is came from the Community,

9 Whitman and the Defendants have bilked tens ofbilfiolls of dollars from the Community "built" 10 I Ebay and "Does all the work": A community the Defendants effectively ho ld captive and exploit. II 72. Plaintiffs, that is, members of the Ebay Community, seek the return of S J 4 bil1ion ill 12 damages frorn the individually named Defendants as monetary damages to compensate the

13 Community and disgorge the unjust enrichment enjoyed by the Defendant Whitman, Omidyar, SkolJ 14 and others unjust ly enriched at [bay.

15 73. Plaintiffs seck damages in excess of$40 billion from Ebay, a sum which compensates

16 the Ebay community for excessive tees charged by Ebay since] 998, Plaintiffs believe Ebays

17 revenues greatly exceed $40 billion and this sum constitutes a return of unjust exploitation of the 18 community.

19 74. Plaintiffs seek a judicial determination that, no! only is Ebay a monopoly, but one that

20 must he regulated as a public utility.

21 75. As explained herein, the very premise that Ebay is a "business" is itself: false, and in

22 large measure, explains why Ebay and the Defendants have enjoyed unimaginable and unjustifiable 23 riches.

24 76.

Reporter Daniel Roth wrote, "[IJI1 Whitman's drive to make Ebay a conduit tor

25 merchants, some of Ebay's old clientele is finding that doing business on the site has become a

26 trying. unhappy experience. A two-year veteran, who requested anonymity, persuaded her husband 27 to give up his job to help her sell full-time over Ebay. As the company grew, she grew with it. She 28 grosses $120,000 a year on the site and says she pays Ebay $1,000 a month in listing fees [plus

-15-

COMPLA1NT

commissions]. But now, she says, Ebay is ignoring her in favor ofa fancier breed of client. Even

2 though she has been enlisted in the Power Seller customer-service program tor big-ticket sellers, her 3 e-mail and phone calls regularly go unanswered. Is she being taken for granted? 'J feel like I'm in a 4 co-dependent relationship,' she says. 'I write to them, J get no response. 1 e-mail them, nothing. I'm

5 being abused.' So why 1101 go to Amazon? Because she still gets the highest price tor her auctions at 6 Ebay-va function of the 'network effect' that Defendant Whitman herself says creates a kind of

7 snowball phenomenon as both sellers and buyers seek out the largest market under one roof

77.

'This might be one of those businesses where the big actually get bigger through the

8 .

9 natural benefit of a larger market: says Whitman. 111 other word s, Ebay got there Jir .... ·t. and there's 10 JIO stopping it now",

1 I

78.

And so it did: The marketplace known as EBAY now has nearly a quarter billion

12 registered users and this number is increasing daily.

13

79.

Having amassed a vast fortune from exploiting the Community, the Defendants

14 would, in their worlds "buy" countries. In fact, Ebay and its managers talked of "buying countries" 15 as an Ebay strategy. For instance, when Ebay wanted to extend its reach into India, Whitman and 16 her staff would say "let's buy India," whereafter Whitman's Ebay purchased Baazce.corn, India's 17 largest on line trading company fC)I" $50 million.

18

80.

Like a fictional villain from a James Bond film, Ebay's Chairman, Defendant

19 Omidyar. proclaimed Ebay's goal was to "conquer the American market" with his ultimate goal 20 being the domination of the global market.

21 81. Effectively admitting Ebay was not a business, Whitman and Ebay proclaimed Ebay

22 was "the world's personal trading community." Which begs the question, who appointed Ebay as the 23 despot over the community? Which begs the answer, a trading community is a service that is for the 24 "community's" (i.e., the public's) benefit and must be regulated as such.

25 82. Defendants further stated "cBay has created a new market: an efficient. one-to-one

26 trading site in an auction format." This statement is false. Ebay did not create a new market.

27 Rather, the creation ofthe internet, funded by the U.S. taxpayer, created a new means, a new venue, 28 by which people could conduct business in an electronic marketplace.

-16-

COMPLAINT

83. Like our interstate highways of asphalt and concrete, the United States Government

2 (i.e., the U.S. taxpayer) funded the creation of the interneLHowever, once this newly created digital 3 superhighway was ready fin public usc, Ebay claimed the "marketplace" as its own, posting its

4 tollbooths on what is essentially the public domain and claiming the superhighway's marketplace as 5 its domain.

6

But Ebay did not create this marketplace. 1t would have developed with or without

84.

7 Ebay. While Windows might never have developed without Bill Gates, auctions on the internet were 8 a certainty. Trading places and auctions have been part of human commerce for thousands of years, 9 even pre-dating human history. The only new development to the equation was the birth of the

10 internet, the information super highway. which Ebay had nothing to do with. Had the Defendants

II invented this technology (i.e., the internet) or mode of trade (i.e., auctions), perhaps they could claim

12 rights to the control of this marketplace that exists via this technology. However, Ebay had

13 abso lutely nothing to do with the creation of this techno logy (the internet) and can make no claim 0 f 14 right thereon.

15 16 17 18 19 20 21 22 23 24 25

Despite Ebay's not having constructed the internet and the resulting internet

85.

marketplace, Ebay now holds the "Community," that is the public. captive. If a consumer wants to sell an item or if a consumer wants to purchase an item from another consumer and they want to tap into the internet and participate in the primary CJC marketplace they must go through Ebay.

S6. Throughout and even before recorded history, people would meet to exchange their

goods in the village square. In this age of the internet. the village square's market has been replaced by the internet and Ebay is the portal through which consumers must pass to access the marketplace.

87. Whitman may have put it best. that Ebay is not a business but rather simply a

marketplace where people meet, when she declared:

"Ebay is by the people for the people."

88.

Notwithstanding this fact. that "Ebay is by the people for the people", Whitman. Skoll

26 and Ornidyar unjustly and unfairly exploited the marketplace and the Community, directly pocketing 27 more than $J4,OOO,OOO,OOO.OO (fourteen billion dollars) from "the people", that's, nearly half the

28 market value ofthe entire Ebay company. With approximately 100 million Americans paying

- 1 7-

COMPLAINT

Federal income taxes, the fourteen billion dollars these three Defendants have pocketed amounts to 2 $1,400.00 for every single taxpayer in the United States and thousands from every registered Ebay

3 user.

4

89.

Unlike a traditional marketplace, or even a modern shopping mall, Ebay makes money

5 on every item listed for sale on the website, whether it sells or not! For example, listing a motor 6 vehicle for sale on Ehay for a few weeks typically costs $85 or more, whether it sells or not.

7 However, approximately 96% of the vehicles listed 011 Ebay arc not selling. Thus, for every] 000

8 vehicles listed on Ebay, approximately 40 sell while Ebay pockets more than $85,000 or roughly 9 $2,200.00 per each vehicle sold.

10 J 1 12 13 14 15

90.

To put this in context, if a merchant was selling in a market or shopping mall, this

would he akin to the Landlord not only charging a fee for being present, but then also charging a fee tor every single item offered for sale then taking a percentage for each item actually sold as well. If this happened in "the rcal world", sellers would leave those premises and relocate to a more competitive location. But with Ebay being the only "personal" or C2C marketplace, consumers can't just leave if they want to offer their items for sale to a national (internet) marketplace. The reality o fthis situation is reflected by this Community member:

16

17

October 20th] 999 - "Welcome to my story. You arc about to read a story that started over 3 years ago. You sec, 1 was one ofthe early "ebayers" as they arc now called. Back then there was no such thing as ebayers, NARU, DNF, or other terms that have now become household words associated with on line auction site known as "elsay." What 1 learned 3 years ago [1996], finally the rest of the online community is learning now. That eBay is managed by people who only care about one thing: the all mighty dollar. That's it. Fairplay, honesty, integrity, and "doing the right thing," are all alien to these people. I have been waiting for 3 yearsfor someone, ANYONE, to come along and topple these people. Instead of anyone coming along and giving eBay some real competition, eBay went public, their stock went thru the roof thru the clouds, past the moon, and on it's way 10 Mars. With this bottle rocket of an initial public offering came even more attention and even more money for cBay. l'm sure Pierre, Jeff and the rest arc rolling around naked in $] 00 hills toasting themselves, But as greed usually docs, it continues to !:,'TOW and grow without limit and finally it can no longer contain itself and its ugly lace is seen. The events of the past year have exposed cbay for what it is; e-evil. Finally, after arbitrary, hard-handed, and goon-like killing of auctions in the name of "copyright infringement", hard outages and "unscheduled maintenance" outages for hours

18

19 20 2] 22 23 24

25

26

27 28

-18-

COMPLAIN'I'

21

2

at a time, and most recently the "it's only a dollar" response to complaints about the $1 surcharge tor reserve auctions, people now see the monster behind the curtain, "Hallelujah!" '''' what cBay doesn't get, and you don't know, is that the people that make up the trading

3 community on eBav are, (or the mm1 part, led up wleBav beyolld words. and are just

4 waiting, looking, (or all alternative. Once someone comes up with a site that mimics cBay, but w/o the problems, you'll sec the greatest max exodus since the Israelites left Egypt."

5 6

91.

Sadly, the Community's salvation never materialized thanks to Ebay's predatory

7 conduct,

8

92,

Ebay's heavy handed-handed tactics have lead to censorship of communications even

9 down to the most basic of levels, For instance, it is "illegal" in the Ebay ruled marketplace to

10 advertise that an item is "like" another item. For instance, listing an item for sale by stating "MVR

11 brand wheels tor BMWs, they arc like the BBS brand" will result in Ebay's cancelling the auction.

12 suspending the User until the take a "tutorial" and, if such "violations" arc repeated, Ebay may

13 permanently suspend the user. The "tutorial" is a series of online instructions followed by a

14 multiple choice test. The Community member must pass the test in order to be pennittcd access to

15 the marketplace, Ebay also warns it may suspend the Community member while still keeping or

22 item can be misleading and make it harder for buyers to find items they're looking for. That's

23 why we don't allow sellers to use any brand names that aren't directly related to the item being listed. H ere's more information about this pol icy: http.z/pages.ebay.corn/help/po I icies/search-

16

17 18 19 20

24

25

26

27

28

"forfeiting" the fees he paid to Ebay tor the listing! Here's an actual email from once such incident following the usc ofthe world "like",

Dear Mr. Smith: [Not actual name]

You recently listed the following listing:

170474264716 - FERRARI SEATS LIKE RECARO SEATS

Unfortunately, we had to remove your listing because the following information violates our policy: In Title: LIKE RECARO

including a brand name used by a company other than the manufacturer or producer of an

manipulat ion.htrnl

You need to take a tutoriaJ. The next time you sell, you may be asked to take the tutorial, if it's required, Once you've completed the tutorial successfully, please review your account status Lor any other possible concerns. I f there arc no other issues, you should he able to sell again.

-19-

COMPLAIN'r

Please note: violation of this or other cBay policies may result in forfeit of eBav fees on cancelled listings, limits on account privileges and account suspension.

2 3 4

93.

Ebay even has the audacity to unilaterally control and censor how often members of

5

the Ebay Community communicate with each other. If a person communicates by email too many

6

times in one day Ebay will jump in and block the sender's communication and provide the following

7

message:

J() 11 J 2 13 14 15

We are unable to submit your question. You have reached the daily limit of emails you can send

using the Contact e8ay Member function.

\ ,

q I

94.

The second reason tor the Defendants' outlandish profiteering is the illegal conduct

16

engaged in by Ebay, spearheaded and formulated by Defendant Whitman. Rather than letting the marketplace evolve naturally, Ebay engaged in predatory conduct with the specific intent to eliminate all potential competition, domestic and international, while Ebay moved to solidify its

17 J 8 19

place as the internet's person to person auction marketplace.

20

95.

The Defendants control over the marketplace is akin to the feudal system where the

21 22 23 24 25 26

serfs worked upon the land lord's domain. A portion of everything the serfs earned would go to the Landlord. The serfs didn't want to give the landlord a portion of their earnings but had no choice tor they were traPPL'CI within the Landlord's domain.

96.

As a result of Ebays predatory actions, consumers, like the serfs, realize they arc

effectively trapped.

97.

So too it is With the Ebay community. Most will state they have a "love hate"

27

relationship with Ebay, They "love" the internet and the idea of a global marketplace thanks to the

information superhighway. No longer do they have to trek to a flea market or swap meet or

-20-

COMPI.AINT

advertise in their local newspapers classifieds. Instead, they can simply go to the internet's version 2 ofa swapmeat/flea market/classifieds with hundreds of mill ions ofpeople from around the world.

3 98. However, they hate Ebays heavy-handed and arbitrary over the marketplace and

4 Ebay's taking more than 15% ofall their earnings and substantial profiteering.

5 99. Users of Ebay are literally at Ebays mercy. Do something Ebay doesn't approve of

6 and a consumer, without any due process protections, can be banned from participating in the

7 "world's market place."

8 J 00. Companies generating hundreds of millions of dol lars in revenue offer their services

9 to consumers for tree because the reality is providing software driven, internet services have very

10 little overhead. These online companies make literal fortunes through advertising and other related

11 revenue generators. For instance, Yahoo provides free email addresses, accounts and unlimited

12 email storage. Facebook offers its networking services for free. Likewise, search engines such as

13 Google and Bing will scour the electronic universe, all for free. Youtube offers free video uploading 14 and viewing. l-l uLu lets you watch your favorite television programs for free while Mapqucst will

15 provide travel directions and more, while language translator services on the internet translate

16 dozens oflanguages free 0 f charge.

17 101. In China. a new and emerging marketplace where Ebay has not yet tully conquered

18 the market, a competing website offers its auctions tor free while turning a profit.

] 9 102. Ebays real overhead is di mittimus like most internet-based operations.

20 103. However, unlike nearly all other internet companies, Ebay charges substantial fees for

21 those who wish to participate in the "personal marketplace" that was created when tile U.S.

22 government (i.e., the American Taxpayer) created the information superhighway.

23 104. Unlike Yahoo, Google, Youtube, Hulu, ctc., Ebay effectively charges substantial tolls

24 to use the public's superhighway.

25 105. Auction websites have tried to compete with Ebay, offering their services for free as

26 well.

27 t06. For instance, Up4Salc.com was an auction website that didn't charge sellers to list

2.8 their items nor did it charge for items that actually sold. What happened to Up4Sale.com? At the

-21-

COMPLAINT

infancy ofthe internet auction market development, when Ebay had well under a million users. Meg 2 Whitman and Ebay bought Up4Saic and its parent company Jump. The days of "free" consumer

3 listings were nearing an end.

4 1 07. At the time of the acquisition, Whitman stated "The founders and employees of

5 Up4Saie share cBay's vision of what it takes to be the world's personal trading community. We

6 believe that the long-term relationship between efsay and Jump will ultimately bring a great deal of 7 value to our communities."

8 108. The story ofUp4Sale.com would he repeated time and time again as Ebay sought to

9 dominate and control the "Community."

I 0 I 09. The only "value" boasted by Whitman was brought to the Defendants' pocketbooks.

11 The "Community" would now face ever increasing fees to participate in the "world '5 personal

12 trading community."

13 110. Ebay's wealth and riches were not the result of some genius invention or unique

14 software development. Instead, Ebay reaped its extreme profits by charging for a basic service that 15 would have evolved naturally on its own, with or without Ebay, Whitman, Skoll or Ornidyar.

16 I 11. The Defendants themselves admit Ebays ideas and fundamental operations are the

17 direct result of the Community itself A Community that currently consists of approximately (J 18 quarter ofa billion registered users.

19 1 J 2. While Whitman profited to the tunc 01'$1.2 billion dollars in her first year with Ebay

20 and paid herself $ 120,000,000 in her last year with the company (despite a dip in company

21 revenues) Whitman has admitted that the best ideas for Ebay came not from her nor her co-

22 defendants but from the Ebay Community itself: stating "I would say between 75% and 85% of 23 ideas germinate within the user community. Sometimes we veer offfrorn that, and it's

24 usually not as successful as we thought ... What we have is millions of entrepreneurs who make

25 small changes to the marketplace. That adds up to an optimized marketplace. It isfar better to have 26 all army of a million than a command-and-control system that trie .... to make the decisions. "

27 113. While the Defendants credit the "Community" for the ideas that made Ebay

28 successful, these Defendants have excessively and unjustly profited at the direct expense and

-22-

COMPLAINT

exploitation of this same Community while extorting the Community it now holds hostage through 2 its monopolization of the national and even international consumer to consumer marketplace.

3 J 14. Ebay's profits mushroomed at record shattering rates, frequently doubling or even

4 tripling the previous quarter's revenues,

5 I] 5, Ebay's profit as a percentage of revenues has dramatically exceeded some of

6 America's most profitable corporations. (E.g., Ebay's profit ratio has been approximately seven 7 times greater than Walmart (ranked the largest or ncar largest and most profitable corporation in 8 America) with a greater PE ratio than even Exxonlvlobile (the World's largest corporation).

9 116. What these Defendants did do, without the Community's consent, while lead by

10 Whitman, was to shunt and extinguish the natural evolution ofthe community's marketplace,

11 thereby ensuring Defendants' unjust profiteering, A perfect case in point is Ebays history with 12 Bidder's Edge.

13 117. That Ebay is not a "business" was recognized years ago by financial analysts which

14 noted Ebay was a "no risk" operation with a "monstrous" market. "Ebay simply acts as a broker 15 between buyers and sellers, taking a [percentage [cut of merchand isc sales. Net revenues are almost 16 pure profit - Ebay's gross margin was 85% in the first quarter of 1999. Plus, Ebay is growing

17 incredibly fast. Its net revenue climbed to $34 million in the recent quarter compared to $19.5

18 million in the fourth quarter, and $6 million a year ago -- a 74% quarterly increase quarter-to-quarter 19 and a 469% gain over first quarter 1991:L ... We believe the market opportunity is monstrous. The

20 business model is much more profitable than almost any other 011 the Web. And the stock may each

21 unprecedented levels."

22 1 18. Ebay has become the monopoly it is today tor two simple reasons. The first reason

23 arises from Defendant Whitman's orchestration of an illegal monopoly which arose from predatory 24 and abusive practices which were intentionally and strategically designe .. -d to thwart all competition 25 from the marketplace. The second reason for Ebay's success is not clue to any great management

26 leadership or innovation. Rather, the success is inherent in an internet based auction website: By its 27 very nature and what's described by economists as the "Network Effect", an auction site such as

28 Ebay can become a monopoly simply by virtue of being the first auction website in the marketplace.

-23-

COMP1.A1NT

2 3

In fact, Ebay's original name reflected the then relative smallness of the internet. Ebay was simply called AuctionWcb. Meaning, this was the auction website for the newborn internet. The Network Effect works as follows as explained by a leading economist:

"Ebay's size and popularity make it a perfect example of what [we] call a 'network effect.' That is, the value of the Web site to each individual buyer and seller increases as more people usc the Web site. That's because buyers are more likely to find what they want as the number of sellers increases. And sellers arc more Likely to find a high bidder as the number of buyers increases. And so on. But "network effects" also givc sites like Ebay a type of monopoly power-which will only increa ... .e as the site becomes more popular. That is, it is very hard tor a competing site to displace the original. This of course describes any Web business-take Amazon.corn, which has gotten a lot of mileage out of being first. But it's doubly true for a site like Ebay, since Ebay benefits not just from brand recognition but also from its very size. On I y Ebay can promise sellers [225] million registered buyers. And it can retain those [225] million buyers, because it attracts the best sellers. To take one example, Yahoo! offer.' .. all almost identical service for free-yet seller ... , stil! choose Ebay. So Ebay's monopoly power would, in theory, allow it to raise sellers' tees to the point where much of the Web's cost-savings are erased.

/11 the case of Ebay, this "network effect" is taken to the extreme. "I magine that each of your five best friends has a party on the same night. Assuming you like each equally well and have invitations to all five events, how do you decide which to attend? If you're like most people, the answer is you'd probably head for the party everyone else is going to."

This sort of scenario underlies what economists call a network effect or a winner-lake-all effect. it is a feedback phenomenon that says whenever it is in people's best interests to be where everyone else is, then that's where they'll be. So far, we have seen simple examples: Amazon.corn gets oodles uf visitors because people hear about it more than other online booksellers. E-Tradc, too, gets big traffic because it is better known than many of its competitors, And because both are widely recognized, the process feeds back on itself But these are subtle effects, what we might call first-order feedback. Why? Because I get no direct benefit from buying at Am azon or trading at E- Trade just because other people do. The feedback effect, in other words, doesn't really feed on itself tor very long.

There are, however, instance", in which the feedback effect operates 011 another plane altogether. COil sider, for example. Ebay. There is a fundamental reason for Ebay's popularity: Consumers are not rubes. We like 10 buy and sell things where we think we can get the best prices. And we know, at least intuitively, that we call get the best prices, whether buying or selling, where there are the most

4

5

6 7 8 9

10 1 I 12

13

14 IS 16

17 18 19 20 21

22

23 24

25 26 27 28

-24-

COMPLAINT

2

buyers and seller s. The result is a classic feedback effect: We all go to Ebay because that's where everyone else is, We avoid other auctions because we call see right 011 Ebay's front page, which IlOW boasts nearly 10,000,000 items for sale ill 1,627 categories, that it is far more popular than also-ran auctioneers like Amazon and Yahoo.

3

4

5

This is wonderful, quintessential second-order feedback that is great for Ebay's share price. But the phenomenon has a dark side. When the feedback effect gets strong enough, there is IW stopping more people from coming, whether to a party or a Web site."

6

7 8

119. It is impossible for any player or potential player to compete with Ebay. Put simply,

9

sellers will list their items for sale where they know they will have the largest market of buyers

10 11

which in turn will generate payment of the highest prices due to tile heightened competition.

120. Likewise, buyers will tum to the marketplace with the greatest number of items tor

sale and hence greatest likelihood of finding what they are looking tor.

121. Support tor the "natural monopoly" and its effects is found in a news report

J 3 14 15 16 17 18 19 20 21

concerning Ebay's January 2002 Fcc increases: "This second increase in as many years reaffirms Ebay's strength in the marketplace. Sellers once again will grumble and threaten to leave (one message board headline screamed "MASS PROTEST BY EBAY SELLERS!") but in the end most

will stay because it has far and away more potential buyers than all other sires combined."

122. Further evidencing the determinative power of the "network effect' is Ebay's

experience in Japan, the only market Ebay does not control. Instead, the Japanese marketplace is

dominated by Yahoo. In fact. Ebay gave up even trying to compete with Yahoo and closed its

operations in Japan in 2002. But why would Yahoo dominate the Japanese market and fail to even challenge Ebay in the world's other marketplaces" For the same reason Ebay has a monopoly in the United States and much of the rest of the world; simply because Yahoo was first to establish its

22 23 24

auction sitein Japan.

25

123. Yahoo's site was up only a few short months prior to Ebay's launch of its site. Yet,

notwithstanding Ebays unlimited resources, Ebay was effectively shut out of the Japanese market.

26 27 2&

-25-

('OMPLAINT

124. According to Yahoo's founder and President, "[we] understood it was critical to be

2 first. We knew catching up with a front-runner is hard, because in auctions, more buyers bring more 3 sellers." Masayoshi Son, CEO of So ftbank Corp., which owns 51 % of Yahoo Japan, drove home

4 the message. "lfauctions are not a success, that's O.K. But if they arc, and we're late, we'll be too

5 late."

6 125. Ebays head of Japanese operations, Ms. Okawara, herself attributed Ebays failure to

7 impact the Japanese market was their late launch, stating: "When we arrived last year, the 800-

8 pound gorilla was already positioned."

9 126. Prior to her current election claims, where Whitman now proclaims she was

10 responsible for the success of the internet auction website, Whitman acknowledged, as she must,

11 that she became a billionaire in 109R as a direct consequence of her exploitation "Ebay

12 Community".

13 127. Whitman's greatest "contribution" was her strategy to engage in predatory and illegal

14 commercial practices in order to thwart and exterminate all potential competitors from the

15 marketplace in order to fully exploit and take advantage of a captive Ebay Community.

] 6 128. Financial analysts agree that Ebay's success was self-assured. When speaking of

17 Ebays management and Ebays success, experts note "the company's Internet-friendly business

18 model has played perhaps the largest role. In the simplest terms, EBay's success depends directly on 19 the proliferation of a community of buyers and sellers, and the J ntcrnct has become the most

20 efficient and ubiquitous community-building medium ever conceived. What is more, EBay has used

21 its first-mover advantage to build a critical mJSS of global buyer."

22 129. While Whitman, prior to running for the Governor's office, admitted it was the

23 Community who provided the ideas and participation that made Ebay successful, that

24 acknowledgement didn't stop Whitman from financially exploiting the Community. Defendants 25 Ornidyar, Skoll and Whitman kept [or themselves more than 98% of Ebays shares of stock, For

26 instance, in one year alone Whitman was given the option to buy 14.4 million split adjusted shares at 27 $03,5 cents each while the public was paying $60-$80 per share. By comparison, Ebays total initial 28 public offering (IPO) of stock on the Nasdaq Market was only 4.025 million shares. Thus,

-26-

~-------.-.- ..... - ... - .. '-'-'- .....

COMPIJ\TNT

Whitman's options alone were nearly four times the total interest offered to the entire public. This is 2 how Meg Whitman went from being just another executive to being one of the richest and most

3 powerful women in the world.

4 130. Other Ebay insiders directly profited at the expense ofthe Ebay Community as well,

5 albeit not to the surreal extent of Whitman, Ornidyar and Skoll. Defendant Jacobsen was perhaps the 6 highest paid in-house attorney in America. Not including his six figure salary, in short order

7 Jacobsen redeemed substantially more than $33 million of Ebay stock given to him by his co-

8 Defendants. Likewise, Defendant Bannick, exclusive of his salary, has cashed in more than $15

9 million of Ebay shares while Defendant Rajiv liquidated more than $14 million.

10 131. With these kinds of profits and rewards, one might presume these Defendants found a

I) cure for aging, aids, cancer or world hunger. Instead, Defendants reaped unjust profits from

12 exploiting a naturally arising marketplace; a marketplace that was developed and refined not by the 13 profiteering Defendants, but by the very users of the marketplace itself, the Ebay Community. A 14 community held hostage by the Defendants illegal predatory actions designed to keep the

15 Community captive by eliminating all other real competition.

16 132. Plaintiffs seek the disgorgcmcnl of the billions of dollars taken by the Defendants, and

17 each of them. These funds should be rebated to the Ebay Community and sellers."

18 133. AuctionWeb (Ebay) is by definition a utility. a "privately owned business entity

1 C) subject to government regulation that provides an essential commodity or service. The law must 20 keep pace with technology and its societal advancements.

2 t 134. As a utility providing the essential service of the consumer to consumer national

22 auction marketplace, Ebay should be regulated.

23 135. A regulated Ebay would reduce the cost to consumers for access to the marketplace by

24 approximately 80%, thereby greatly increasing commerce, fostering greater marketplace

25 competition while simultaneously boosting revenues.

26 136. A regulated Ebay would provide consumers with due process protections, thereby

27 shielding consumers from Ebays history of unjust and arbitrary actions, of which there are tens of 28 thousands of Ebay victims.

-27-

COMPLAINT

2 3 4 5 6 7 8 9

10 II 12 J 3 14 15 16 17 J 8 19 20 21 22

137. First, Ebay became the C2C monopoly it is today as a result ofEbays illegal actions.

Were it not for these actions, planned and orchestrated by Defendant Whitman, the marketplace would have developed substantially different from what it has become,

138. The true story of Bidder's Edge (in/i'a) is but one example of how Whitman's tactics

forever changed the internet auction arena and solidified Ebay's position as the monopoly it is today. Bidders Edge ultimately collapsed under the war of attrition waged by Ebay. But before it did, the Federal Judge, in denying Ebay's Motion to Dismiss the anti-trust claims made by Bidder's Edge, suggested that Ebay's measures may well be evidence of anti-trust activities.

139. Bidder's Edge ,FUS an auction aggregation site designed to allow bidders to search for items across numerous online auctions without having to search each host site individually.

Bidder's Edge was like Google for auction websites. You'd simply go to the Bidder's Edge website and type ill whatever item you may be looking for and Bidder's Edge would search all auction websites and display all the results simultaneously.

] 40. This efficiency and convenience threatened Ebay's planned monopoly and so Ebay,

headed by Whitman, took action to kill Bidder's Edge, and in the process, eliminate consumers' opportunity for choice and alternative options to Ebay.

141. "l f you are in an almost monopolistic position, you prefer not to let anybody know

about any other site other than your own," James Carney, Bidder's Edge's president said. "They obviously think a dumb consumer is the best one."

J 42. "At Bidder's Edge our strategy is to offer an auction portal site that makes it quick and easy for users to simultaneously search hundreds of auction sites .... This approach not only benefits users but also auction site owners. Consider how difficult it would be tor the owner of a

23

small auction site to compete with eBay ... Through Bidder's their goods arc exposed to potential 24

customers who otherwise might not ever have discovered them .... Almost anyone can establish an

2S

26 27 28

auction site."

143. Whitman correctly realized Bidder's Edge would foster a free market economy and

competition, thereby defeating Ebay's monopoly and monopolistic strategies. Whitman would not

-28-

COMPI.AINT

permit this threat to Ebay's monopoly. Whitman set a course to destroy Bidder's Edge and all 2 others who might follow in Bidder's Edge's footsteps.

3 144. The marketplace was about to spread like wild fire. Software was being developed and

4 marketed that allowed anyone desirous ofestablishing their own internet-based auction website to

5 do so while Bidder's Edge level the playing field.

6 145. In response to this about to rapidly expand market, Whitman proclaimed Ebay would

7 not allow Bidder's Edge or other similar search engines to search its auctions. She claimed these

8 search engines were "trespassing" on Ebays website. This was perhaps Whitman's greatest threat to 9 her monopolistic ambitions and she would not let the free marketplace sidetrack plans.

10 146. The very foundation of the internet was premised upon the spread of information,

II Ebay's actions restricting access was tantamount to an outright rejection of the open information

12 environment upon which the Web was created.'

13 ]47. "We're a $9 million company, they're a multibillion dollar company," explained

14 Bidders Edge Vice President of Marketing George Reinhart. "We think we would ultimately win a 15 court battle, but in the meantime they would probably do all sorts of nasty legal things and we don't J 6 have the resources to fight them"

17 l4R. Although successful in court, the legal fees were mounting to insurmountable levels

18 and Reinhart's prophetic words became facts of history. Unable to afford the litigation, Bidder's 19 Edge folded, taking with it the potential for a truly free and open marketplace while setting a scary 20 example for all those that might think of following in its footsteps. Lessons were learned: Tangle 21 with Ebay, the 800 pound gorilla, and suffer the consequences. With the road to Ebay's continued 22 monopoly cleared, Ebay solidified its market position.

23

24 'The Internet, was started by the U.S. Department ofDefense in the 19605 and developed through

25 the 1970s and 1980s as an open network known as Advanced Research Projects Agency Network (ARPANET). The users of the ARPANET nurtured it by allowing a free exchange of intormation, As 26 ARPANET matured, the government a 110 wed the commercia I explo itation of its federally funded research project. As businesses began to utilize the technology developed for ARPANET, the Internet 27 was hom. Thus, the very development of the internet was founded upon the free flow ofinformation.

28

-29-

COMPLAINT

II

149. Just before running out of necessary resources to battle Ebay in Court, the federal

2 court judge (Judge White) issued a ruling in Bidder's Edge's favor and indicated Ebay may well

:1 have been guilty o tanti-competitive behavior, slating: "If (Bidder's Edge's) automated crawling of 4 Ebay's website is determined to be lawful, Ebay's alleged blockage of (Bidder's Edge's) search

5 activity may also provide a basis tor an antitrust violation,"

6 150. Tom Johnson, co-founder of Rubyl.ane.corn, a small niche auction site focusing on

7 antiques and collectibles, told a similar story. According to Johnson, eBay refused to re-new its

8 contract with RubyLanc allowing the site to search its database. Johnson acknowledged this was 9 Ebays way to defeat competition.

10 J 51. "They [efsay] feel that ifthey can successfully stop every search engine frorn taking

11 their data, they will have to go to cBay to find elsay items," Johnson speculated. "We feel they have

12 no legal grounds to say you can't put public content on another site. That's the whole purpose of a 13 search engine. II

14 152. G. Pat Hughes, marketer tor a now forgotten eBay competitor, Auction Universe.corn,

15 stated: "elsay is pretty predatory in their marketing, and their efforts arc a way of forcing buyers to 16 come to their site and a way of maximizing in terms of their product selection,"

J 7 ] 53. Auction Universe was just the sort of company, a smaller-than-Ebay auction website,

18 that would have benefited [Tom auction search engines. Hughes explained "Auction Universe is

] 9 generally appreciative and understanding ofthe benefits global search provides the consumer. They 20 have a value in this marketplace." Auction Universe was just one of many such companies that

21 perished along with and in the wake of Bidder's Edge.

22 154. Another auction search engine attempting to list Ebay auctions in its search results

23 was AuctionWatch.com. They too were effectively driven out of business by Ehay.

24 155. Had Bidder's Edge survived Ebay's attack, Ebays control over the marketplace via 25 "network effect" would have been minimized and possibly even eliminated. r f Ebay buyers could 26 have searched all auctions via a third party website /secondary aggregator, Ebay's stranglehold over 27 the market would have ended at its infancy and before Eh3Y became the war chest-rich powerhouse 28 it is today.

-30-

------------_ ..... _--------------------

COMPLAINT

156. With a third party website search engine, the Network Effect motivation weakens or

2 disappears entirely as it no longer matters nearly whether a seller lists their item for sale on Ebay or 3 a mom and pop auction site. Buyers and sellers would find items for sale, no matter where listed, as 4 they'd be equally exposed and available to the marketplace via Bidder's Edge and similar search

5 engines.

6 157. Of course, this eventuality would be most unwelcome to elsay as cBay's revenue

7 comes from the transaction fees it charges its sellers. A significant decrease in the number of sellers, 8 which would certainly happen if search engines would serve as the portals to all auction websites,

9 would result in a significant decrease in cBay's income. I f buyers were to search through one or

10 more secondary aggregators, sellers would no longer tee! compelled to list their items on Ebay.

11 instead, they could list" their items on any number of auction websites that were coming into

12 existence at the time.

13 158. Whitman recognized the threat and was determined 1"0 prevent such marketplace

14 access. Whitman's strategy was to extinguish any potential threats posed by competitors while

15 acquiring all or nearly all significant and potentially competitive auction companies in foreign and 1 6 domestic territories.

17 159. With strategic foresight, Whitman also recognized that the traditional consumer to 18 consumer marketplace had been the "classifieds", To further solidify Ebay's stranglehold on the

19 C2C marketplace on the ever emerging internet, and in add it ion to acquiring other auction websites, 20 Whitman's Ebay acquired numerous internet classified ad listing services around the globe.

2] 160. Ebay even took a substantial interest in Craig's List with the intent of acquiring it

22 completely. Had Ebay acquired Craig's List (an internet system that provides classified listings by 23 city and is thus not searchable in a national format) Ebay would substantially control not only the 24 national C2C marketplace as a whole, and arguably the international marketplace as well, but Ebay 25 would have also controlled the majority of all local classified services in the C2C market.

26 161. Thankfully for consumers, the founders of Craig 's List could not be bought by Ebay 27 and refused to sell-out to Ebay. If they had, the C2C marketplace (classifieds and auctions) would 28 have been effectively under the control of Ebay.

-31-

COMPLJ\jN'j'

2 3 4 5 6 7 S 9

10 1 1 12 13 14 15 16 17 18 19 20 21 22 23

162. No! surprisingly, Ebays alleged misdealing with Craig's List led Craig's List to sue

Ebay in Federal Court.

163. Whitman's plan was for Ebay to destroy their competitors or other service providers

(such as Bidder's Edge) that might weaken their monopoly intentions while purchasing companies that had a relevant market share in a location that preceded Ebay's presence. Rather than compete, Ebay would simply buy its potential regional and international competitors. Once Ebay controlled the relevant market Ebay would begin its typical tee escalations and arbitrary abuses of the "Community" and its members.

164. Whitman aptly recognized that there was nothing particularly new or unique about

Ebay 's formula that attracted users who would participate in the Community.

165. Success was simply by virtue of being first in a region where the naturally occurring

C2C marketplace was developing in the online community.

166. At the relative infancy ofthe internet and while competitors were still young and

vulnerable, Whitman moved to gobble-up and purchase potential competitors or threats to her Ebay monopoly ambitions.

167. Ebay's success was directly attributable to the snowball effect that was the ever

emerging widespread usc of the internet. The more people that started using the internet, the more users Ebay would have it was just that simple.

168. The more users Ebay bad, the more money it made. The more money from the

world's largest marketplace, the greater Ebay's war-chest from which it could acquire all potential domestic and international competitors. Ebay was now "buying countries".

169. Whitman's killing off the young before they matured proved an effective strategy fur

conquering competitors and enslaving the internet community.

24 170. A non-exhaustive list ofEbays acquisitions includes the following:

25

26

27

28

-32-

--- ... ---~.

.----------------------------~.-.- ..

COMPLAlNT

Acquisition Company Business Country Value (USO)
2 date
Online auction site that
j offered free listings for
4 sellers and charged no fees
July 16, Up4Sale.com tor successfully completed ~ United States
5 1998 auctions: Merged into Ebay
whereupon Ebay charged for
6 listing and sales
7 comrrussto ns.
A 135 year old Auction
8 house that had begun online
<) April 27, Butterfield & auction services just before .!!j@ United States $260,000,000
]999 Butterfield they were acquired by Ebay
10 and their operations merged
into Ebay.
1 1 Evcommerce payment
12 systems and Paypal
May 18, Competitor. Ebay would g United States $275,000,000
13 Billpo int purchase Paypal to ensure it
1999 controlled the financial
14 aspect of all or nearly all
]5 transactions on Ebay.
[6 June 22, Auction house the largest .... Germany $43,000,000
Alando on line-auction house in
1999 Europe
17
October Listing Tool called Auction ..... United States
18 Blackthornc Assistant then renamed
1999 Sellers Assistant.
]9
Online marketplace Ebay
20 June 13, acquired to capture their M. United States $318,000,000
Half.corn
21 2000 market share and their
formatting techno logy.
22 E-commeree payment
23 Precision system and. said to be the
December Buying first fu 11- fea t urcd bu yer' s ~ United States
24 12,2000 Scrvice[') portal that searched
comparatively multiple
25 websites.
26 January 8, Internet Korea's largest internet ~.; South Korea $120,000.000
200! Auction Cu. auction company
27 March 5, One of Europe's largest II France $66,000,000
iBazar
28 2001 online auction sites with
-33-
COMPlj\INr business in eight European
2 countries
July 8, PayPal E-commcrce payment g United States
3 2002 systems $1,500,000,000
4 January. 23 Mobile.de Largest classified listings for. Germany
2004 motor vehicles in Europe $152,000,000
5 January 31,
2003 CARad.com Online auct ion M United States
6
July J 1, EachNct Electronic commerce • China
7 2003 $150,000,000
8 June 22. Baazee.com :::E: India
2004 0111 inc auction $50,000,000
9 August 14,
10 2004 Craigslistl' C lassi tied advertising _ United States $J 3,500,000
1 1 Classi fied ad vertising: An
onl ine classi fied
12 business in the
13 November Marktplaats. nl Netherlands wi 80% mkt - N tl I d
10,2004 _ e ier an s $290,000,000
share. Marketplatz
]4 banched out into Spain,
15 Turkey, Germany and
16 Canada.
December
]7 16,2004 Rent.corn Classified advertising _ United States $415,000,000
18 May 18, Loquo Classified advertising ;or- Spain
2005
19 Classified advertising
20 Gumtree which offered
May 19, classified listing services in !S1iC United
21 Britain, irclalwl, Poland,
2005 Gumtrce Jj~211£ KOllg, South i\tl19Jl,
Kingdom
22 Auslxa1ia and New Zealand
- -- ...... _ .. - ... ,_ ...... _-,
23 as well as the Spanish
company LoQUo.
24 June 2,
2005 Shopping.corn Onl inc shopping ~ United States $620,000,000
25
26 June 30, OpusForum.org Classified advertising in liliiii Germany
2005 Germany, Austria and
27 Switzerland.
September Skype Voice over Internet Protocol -
28 13,2005 Limitcdf31 _ Luxembourg $ 2,600,000,000 -34-

COMPLAINT

March 9, Mectup.com'f' Social network service *M United States $IO,OOO,O()O
2006
2
Aprir 24, Traders Online auction I'i_ S i
3 200{~ _. WL't en $48,000,000
4 JarliJary 10, StubHub Electronic commerce g United States $310,000,000
200!,7
5 May 3,
1:Q07 GittiGidiyor Electronic commerce II Turkey
6
"May 30, Stumblel.lpon'<' Browser plugin ••• Canada $75,000,000
;/ 2007
October 6, Bill Me Later Paypal Competitor Acquired As United States
p / 2008 By Ebay I Paypal for $J.2 $1,200,000,000
9Jf- Billion.
¥ $390.000,000
October 6, dba.elk & ••
~ I-I 2008 bilbasen.dk Classified advertising •• Denmark
j 2 Gmarket: Korea's leading
13 cCommcrcc, to be combined
with efsay's existing,
14 previously acquired, online
marketplace in Korea, the
15 Internet Auction Company.
16 "The combination of
Gmarkct and lAC
17 establishes an exceptionally
2009 Gmarket strong leadership position :.; South Korea $1,200,000.00
18 tor cBay in one of the
19 world's largest, most
dynamic and innovative c-
20 commerce markets" says
21 Ehay's current CEO Mark
Donahue. Donahue was
22 hand picked by Whitman to
take over Ebay when
23 Whitman departed.
24 Taiwan's leading operator of
auction-style web sites. This
25 NeoCom acquisition establishes
2005 Technology Co .. eBay's presence in Taiwan, _aw31n
26 Ltd the third largest e-comrnercc
27 market in Asia, and the ninth
in the world
28 -35-

--- ---------_ ..... _----------_. ---------

COMPI.AIN-r

10

11

12 13 14

J 5 16 17 18 19

2

3 4

2001

Mercadol.ibrc

Mercudol.ivrc in Portuguese (Brazil) is a website dedicated to e-commerce and online auctions. Mcrcadolibrc is J .atin America's number-one c;commerce site. It is currently

present in Argentina, Brazil. Latin America

Chile, Colombia, Costa Rica,

Dominica n Republ ic, Mexico,

Ecuador, Peru, Portugal,

Panama, Uruguay and

Venezuela. Ebay is a primary

interest holder in MereadoLibra

Homcsfrircct is the Wcbs leading provider of' horne foreclosure-related auction services.

~ United States

5

6 7 R

9

2001

HomcsDircct

Indiana-based .Kruse, which claims [0 sell more vintage cars

than all other firms combined, - United States

conducts 40 rca l-wor ld auctions

a year.

275,000,000

(w/Bi llpo int)

2001

Kruse Auctions

Ebay acquired an equity interest in Auro'I'rader.com, in 2000,

the world's largest used car marketplace, a title Ebay now holds for itself

~ United States

2000

Auto'I'rader

20 171. The Ebay defendants have exploited the internet marketplace in an illegal manner for

21 their own personal gain and have created and continue to maintain this market through predatory 22 conduct, as evidenced by their recent $1.2 billion purchase of Korea's largest C2C internet

23 marketplace.

24 J 72. With Ebay's acquisition of Pay pal, while also acquiring Paypal's competitors or

25 blocking Paypal's competitors from access to the market (such as Citibanks C2iT and Google

26 Checkout) and with Ebay's forced usc 0 f Paypal ten payments of purchases made and items sold on 27 Ebay, Ebay effectively controls the sales and payments of the C2C marketplace.

28

-.1(i-

COMPLATNT

173. With Ebay being the largest C2C marketplace in the world and with a quarter b11110n

2 registered users, and with Ebay's forced use of Pay pal by that internet using C2C community,

3 countless other merchants joining the internet marketplace recognize the position Ebay's Paypal

4 holds and thus make taking Paypal a method of payment on their sites as well, thereby furthering the 5 snowball effect of the Ebay-Paypal monopoly.

6 174. The Ebay-Paypal combination results in Ebay effectively taking a whopping IM1l

7 interest, or more, in hundreds of millions ofpeople's property.

8 175. Absent this monopolistic control ofthe marketplace, the fees charged would be

9 comparatively nominal or perhaps even without charge, as alleged immediately hereinbelow.

10 J 76. Ebay's control over the C2C marketplace is so complete that when Citibank, then the

11 world's largest bank, created C2iT, a better-tban-Paypal competitor, even Citibank couldn't make 12 inroads through Ebay's blockade to its captive C2C marketplace.

13 177. Citibank was effectively forced to shutdown its onJine payment service when Ebay

14 blocked the use of C2iT in the marketplace (Ebay),

15 17R. The excessive fees charged by Ebay of its captive market evidence the monopoly

16 Ebay holds. This tact is acknowledged time and time again in posts on the internet where users of

] 7 Ebay lament their "trapped" and "captive" status, samples of which arc attached hereto as Exhibits.

18 179. In an effort to compete with Ebay, Yahoo otferc'<.l./i"ee listings on its Auction website.

19 Thanks to the inherent nature of the "network effect", described more fully herein (the idea that

20 buyers all go where they know the sellers arc and the setters list their items where they know the

21 buyers are, Yahoo would be unable to compete with Ebay despite its offering its auction services for 22 free.

23 180. Amazon Auctions suffered a similar tate as well.

24 18J. Recognizing the captivity of its market and the consequences of the Network Effect,

25 the Defendants had two options. Steward this marketplace or exploit its captive consumers through 26 overcharges and arbitrary actions. Whitman, Omidyar and Skoll chose the ladder.

27 182. Like shooting fish in a barrel, the Defendants, lead by Whitman, have wrongfully

28 taken advantage of this captive market.

-37-

~~~ ........ _--------- -------------------

COMP1.ATNT

183. The Defendants could have taken unprecedented profits by charging exorbitant fees.

2 184. The services Ebay offers could easily have been offered for a nominal charge or even

3 for free.

4 185. Yahoo provides millions of people with email accounts and unlimited data storage for

5 free.
6
7
8
9
10
11 free.
12
13 186. Facebook provides its social networking services for free.

187. Google will search the electronic universe for its users for free.

188. Youtube provides a library of video content for its users to upload and view for free.

189. Hulu let's people watch their favorite television programs for free.

190. GoogfeTranslate will translate languages from one of many languages into another

191. Mapquest will provide directions and route information for free.

192. The leading auction site in China actually offers its auction services for free as well, 14 proving such services can be offered for free.

15 193. Each and everyone ofthe foregoing companies, despite their offering "free" services

16 for their users, makes substantial profits through advertising, etc.

17 194. Like Facebook, Yahoo, Googlc, Youtubc, Ebay has paid advertising on its pages as

18 well, thereby generating the more "typical" internet revenues as well as charging those who usc the 19 website, something Yahoo, Facebook, Hulu, You'Tube, et c., don't do.

20 195. Reflecting this profit generating imbalance, Ebay's net profits have neared 90%

21 thanks to Ebay's minimal overhead, minimal investment and failure to provide adequate service.

22 196. Ebay uses its monopolistic control over the consumer to consumer market to take a

23 shocking J 5-J8% or more of the value of items sold on its website in addition to its advertising

24 revenues.

25 197. For example, if a woman ill Dallas Texas sold her watch On Ebay lor $500 Ebay

26 would get $2 tor the listing fee and 9% 0 tthe $500 sale price ($45). J f she listed her watch with a

27 reserve price, a smart thing to do unless she wants to give her watch away, Ebay will charge her an 28 additional 1 % of that $500 for another $5. Ifshe added a "buy it now" option that's another $0.25. If

-38-

COMPLAINT

her listing had the bo lei (ext option that's another $4 and if she posted additional photos that's another 2 $2 tor the "value pack". So, if our Texan just sold her watch for $500 Ebay would take $58.25. But 3 Ebay's not done with her yet. Ebay effectively mandates your only option to "checkout" on Ebay,

4 that is, to pay for your item directly, is to pay with Lbay's Paypal service, which provides through

5 direct links and placement on the auction pages themselves.

6 198. Paypal, acquired and owned 100% by Ebay, will take 2.9% ofthe total sale price plus

7 $0.30. In our example, that's $ t 7.19 just for the Paypal fee.

8 199. Thus, to sell a $500 item on Ebay using their auction format it could easily cost the

9 Seller $75.44! That's a Whopping 15% of the items value.

10 200. If there are approximately 250 p Ius mill ion registered users on Ebay, and if the

It internet continues its evolution as the primary means by which these users sell their existing property, 12 this ultimately means Ebay owns 15% oral! their tangible assets!

13 201. However, if the Seller uses the "Fixed Price" selling option, Ebay would own an even

14 greater share, taking upwards of 18% or more ofpeople's property.

15 202. Ebays automobile listings are also massively disproportionately overpriced.

16 203. To list a vehicle for sale Ebay charges $50 plus $32 for the 21 day listing plus $7 for a

17 reserve plus $2 for the "picture pack." Thus, to run a no-frills 21 day listing on Ebay the cost is $91. t8 By comparison, Craig's List is free. Carsdirect.com charges $29 to list a vehicle for sale on their

19 website in perpetuity until the vehicle sells. Cars.corn charges $85 until the car sells. Autotrader

20 charges $69 and lists the vehicle for sale until it sells.

21 204. Ebay's profits snowball given the tact that given the world's recessionary marketplace

22 where approximately 95-96% of the listings costing $91 (or more) are not ending in sales.

23 205. Sellers keep paying Ebay to list their vehicles, week after week, month after month,

24 without seeing results yet knowing Ebay is the "world's marketplace" and as a consequence, the 25 largest and most widespread automobile market in the world. After all, this is the electronic C2C 26 marketplace.

27 206. While the lack of sales may well be the result ofthe recession and recessionary

28 pressures, Ebay is nevertheless charging more than 15 times, to literally infinitely greater tees then

-39-

COMPLAINT

what other services charge. Sellers pay these outlandish fees because they realize the giant market 2 Ebay ho Ids captive. Simply put, if they want a real shot at reaching the consumer marketplace they 3 have to run through Ebay and pay Ebay's cxtortionary rates,

4 207. For the protection and welfare of the American public, the monopolistic Ebay

.5 Defendants must go the way of AT&T and Standard Oil; Companies' whose control over their

6 respective markets was tar less pervasive than Ebays control of the C2C or "consumer to consumer" 7 internet "auction" marketplace.

8 208. With the creation and evolution of the internet, a new public utility has emerged, the

9 on-line C2C marketplace.

10 209. Like any utility that is I1CCCSS<lry and essential for the public benefit, Ebay must be

11 regulated for the benefit of the community and to protect community members from arbitrary actions, 12 actions that would be deemed unconstitutional and/or violative of public policy if Ebay was

13 appropriately categorized and regulated.

14 210. Ebay controls the internet marketplace for national and even international consumer to

L 5 consumer transactions. This tact was recognized long ago by the publ ic and the media.

16 21]. For purposes of this action, Plaintiffs distinguish themselves from commercial

17 enterprises, those entities or individuals that operate businesses separate and apart from listing items 18 on Ebay and where Ebay is just another avenue for their products. (E.g., Dell or Apple computers: 19 Consumers can purchase their products online at various websites, including Amazon.corn,

20 Dell.corn, Apple.corn, etc. as well as Ebay.)

21 212. Notwithstanding the foregoing, all users of the marketplace, consumers and

22 commercial enterprises alike, arc victims of Ebay's monopoly and their illegal actions.

23 213. The issues presented herein are with respect to Ebay as an illegal monopoly pertains 24 specifically to individual sellers looking to sell (auction) their property via the internet to a national 25 and even international marketplace: The Consumer to Consumer market, regular people or mom and 26 pop businesses selling their wares and personal items.

27 214. Operating the internet marketplace should be no different than other analogous

28 markets or utilities. Federal, State and local governments regulate television-cable-radio services,

-40-

COMPLAINT

broadcast companies, airports, transportation, rail, trucking, telephone companies, electric and gas

2 companies, and other essential service providers. With the evolution of techno logy and society so too 3 must our notions evolve as to what constitutes an essential service.

4 215. Defendant Whitman, Ebay's CEO during its illegal rise to power as a monopoly,

5 admits that Ebay is an "ill dispensable" marketplace (as opposed to a business), slating:

6 "Everyday the cBay marketplace becomes indispensable to more people and small businesses 7 around the world."

8 216. Proofof Ebays monopolization of the entire "public", that is, consumer to consumer 9 internet marketplace lies in the numbers, set forth hereinbelow, numbers that don't lie, as well as the

JO countless acquisitions as well as the improper litigation tactics employed by Whitman's Ehay, all of 11 which was designed and intended to illegally secure Ebay's monopoly status which it now enjoys

12 today. A status Ebay has used and continues to use to grossly overcharge the Community.

13 217. Plaintiffs will show that Ebay is a utility and necessary for the general public good and

14 that the Defendants have misused and abused their control and domination of this market to the

15 severe disadvantage ofthe public while reaping unsurpassed profits tor themselves.

16 218. While it's often noted that technology advances faster than the law that may apply to

17 it, it's time the law caught-up with the plight of the people. Hundreds of thousands of people

18 publicly lament their being "stuck" with Ebay and without any real alternative choices while tens of 19 minions suffer in silence behind closed doors while facing their computer screens.

20 219. Our Founding Father's understood the value ofthe First Amendment and the necessity

2J of free speech, There has never been a better medium ofexpression than the internet and, arguably, 22 no better expression is lound than on sites like Youtubc, where there are literally countless

23 individually created videos lamenting the monopoly that is Ebay. The very existence ofthese videos 24 shows people arc taking the time to "revolt" and "protest". Why? Because they are trapped. If a

25 consumer doesn't like {I Sharp brand television they most likely will simply buy another brand,

26 perhaps a Sony, the next time around. They WOIl 't be compelled to "revolt", "protest", "boycott" or 27 start internet "epet itions". See, e.g., http://www.youtubc.com/watch?v=29vORvXLTu8

28

-41-

('OMPLA[NI

223.

Res ipsa loquitur: That there needs to be a "revolt" afortiori indicates a total control

•

22~·, There are literally thousands of complaints voiced over the internet, including videos

'2 on Youtube going so far as to compare Ebay with the fascist-like control of Hitler and the Nazis.

3 httpj\\.' w.youtube.com/watch?v=OqpKncc_fck

~21. Journalists and the public alike, matter offactly, refer to Ebay as a monopoly. In the

view ofthe public, Ebay's status as a monopoly is conclusive and beyond question.

222. Ebay's monopolistic control of this auction-style marketplace is in pari evidenced by

p~lic movements to "boycott" Ebay and calls for an Ebay "revolt".

4
5
I ()
7 8 I

/'

9' ~ithollt alternatives. Otherwise, wherefore the need for a revolt? The primary definition of the word /

ie' "revolt" is an uprising against the state, that is, the government. The implication is the people have

1 I 110 choice as there is but one government so their only option is to revolt. Likewise, ordinary people

12 and mom and pop businesses have no real alternatives to Ebay if they arc looking to sell and/or 13 "auction" their properties on the national/international marketplace. The "Network Effect", 14 discussed further hereinbelow, assures this.

15 224. If Ebay was not a monopoly and people really had other viable choices they would not

16 waste their time nor energies revolting. For example, ifGrey Poupon mustard were to raise its prices J 7 so it cost substantially more than it docs now. people wouldn't "revolt" because they have other

18 viable choices for mustard, even Dijcn mustards.

J 9 225. People "revolt" against Ebay not because they arc somehow politically or

20 commercially active citizens, but because their lives arc being a fleet ed and they have no other real or 21 adequate options tor relief.

22 226, While citizens and peoples have rights and protections against arbitrary acts against 23 them with respect to governmental agencies that may suspend their rights 10 do business, as well 3..') 24 public utilities, Ebay acts unilaterally and arbitrarily, suspending auctions and members of the

25 community without, due process, equitable procedures, legal justification, oversight or public review. 26 Attached hereto arc Ebay users comments voicing their outrage and frustration. (Exhibit "xxxx".)

27 28

-42-

C'OMPLAIN'I'

227. Members of the Community use EbClY because it is the only real option,

2 notwithstanding Ebay's well-known for its arbitrary actions, excessive lees and terrible to 3 nonexistent sen/ice.

4 228. Community members lament their plight and note, over and over again, how they arc

5 stuck with the monopoly that is Ebay.

6 229. While larger businesses may create their own websites or list their merchandise on 7 sites such as Amazon.corn .. ordinary people, like the homemaker in Peoria, looking to get the best

8 price she can for that wedding dress she never intends to wear again has only one real option: Ebay. 9 To ignore this fact is to ignore reality. She may list her dress for sale on Craig's list, but such

10 websitcs do not have the national or even international reach that Ebay has, and due to the Network 11 Effect, they simply can't generate the true market value that listing an item on Ebay can.

12 230. Plaintiffs seck the disgorgemenr of more than $14 billion dollars from the individually

13 named Defendants and more than $40 billion from Ebay, Inc. These sums represent monies

14 wrongfully converted by these Defendants trorn the Ebay Community. These funds would be

15 distributed amongst the Ebay Community: Reimbursing those that were and remain responsible for 16 the creation, operation and proliferation of Ebay while compensating those who paid excessive fees.

17 231. Plaintiffs seek statutory treble damages. It is suggested that these funds be credited

18 back to Ebay members on a pro-rata basis to refund excessive fees paid over the years. This data

] 9 would be premised upon Ebay's accounting records.

20 232. Billions of dollars returned directly (0 consumers would not only be legally just but (I

21 boon tor the economy as well as money is rightfully returned to the people from those who

22 wrongfully exploited the Community.

23 233. The marketplace known as EBAY has nearly a quarter billion registered users. If

24 Ebay were a country, its registered users would have Ebay competing with indonesia for the fourth 25 most populated country on earth behind China, India and the United States.

26 234. Ebay, the workls self-professed largest marketplace, has been the fastest growing

27 "company" in history. Since its inception, Ebays profits have multiplied every quarter at astounding 2S rates, frequently doubling or tripling the previous quarter's revenues. Ebay, with a market value of

-43-

----------~----.- .. --.--------------------

COMPLAINT

$32 billion, a company that did not exist until mid-1995. is now worth more than Bloomingdale's,

2 Macy's, Sears, Kmart and Toys R Us-combined By comparison, Dell Computers, a company that 3 actually manufactures something, is worth a third less than Ebay at $23 billion. Ebay's market value 4 is comparable to Ford Motor Company's, a company that's been in business for more than [00 years. 5 235. Ebay's spectacular and unprecedented growth is the result of Ebay's monopolization 6 of an entire marketplace, not because Ebay was responsible for some great invention or innovation,

7 but because Ebay was simply there on the internet just as the internet itself gained usc and acceptance 8 by the public. Ebay then used its initial position to thwart out all potential competitors.

9 236. For example, 1996 was the first year the California State Bar used the internet to

10 release Bar examination results. Many at the time didn't even know how to use the internet to obtain 11 their scores. That same year eBay's revenues were just $372,000, Today Ebay's revenues arc

12 approximately $9 billion per year.

13 237. In a May 1997 press release, eBay President Jerry Skol1 stated that the growth "clearly

14 demonstrates the receptivity and the eagerness of the general public to participate in online

15 commerce. Our goal is to provide a fun, efficient, and reliable forum for both buyers and sellers." 16 Skoll thus admits that the "general public" was looking to participate in "online commerce".

17 Therefore, Ebay is nothing more than a place where the "general public" partakes in "online

18 commerce". As one objector from Australia puts it, "I would like to know Who Died and Made Ebay 19 God." (showcascmerchandise)

20 238. Ebay was simply a "forum' on this new superhighway Called the internet where

21 people could meet to buy and sell and engage in commerce.

22 239. Ebay was never a business per se. Rather, Ebay staked as its own the entire internet

23 auction marketplace, thereby resulting in Ebays supernormal profits and revenues.

24 240. Evidencing Ebay's monopolistic and even imperialistic intentions, the Defendants

25 have claimed a Trademark for their self-description as the "World's Online MarketplaceTtl(".

26 241. Ebays supernormal profits further underscore the inescapable fact that Ebay is not a

27 business but is in essence a modem, digital public utility. Plaintiffs estimate a staggering 87% ofall 28

-44-

COMPI.AINT

revenues generated hy Ebav were net profit. Financial reports have shown Ebay's General and 2 administrative costs run just 13% to 14% of net revenues.

3 242. Ebays PE ratio (profits as a percentage of revenues) was, at one point, nearly seven

4 times greater than Wal-Mart, America's largest and most profitable company at the time.

S 243. Ebays profits have even bucked industry trends. For instance, in 2002 when each and

6 everyone of the top twenty corporations in its sector (computer and data service providers) ali

7 reported dramatically lower revenues, Ebay was the ()1l~Y company in its sector to show all increase

8 in revenues while the rest of the Top Twenty all posted losses averaging 25% to 791-0 when compared 9 to the previous year's revenue.

10 244. Despite downturns in the economy, Ebay continues to its trend of increasing revenues

II and profits from one quarter to the next with simply phenomenal growth.

12 245. The individual Defendants' wrongful manipulation and profiteering has made them

13 overnight multi-billionaires. Defendant Ornidyar, has become the second richest man in America

14 under the age of forty with a net worth of nearly $8 billion. (Only Michael Dell had a greater wealth.)

15 246. His partner, Defendant Skoll, became the third richest man in America under forty

L6 with a net worth estimated at the time of$4.S.

17 247. Nearly immediately after joining Ebay Defendant Whitman joined the Ebay J 8 Billionaires' Club, Whitman came from relative obscurity to become a billionaire, Fortune

19 Magazine's most powerful woman in America and now stands at the steps of California's Governor's 20 mansion, thanks to her Ebay profiteering.

21 248. Defendants' vast accumulation ofriehcs has been at the expense of the American

22 consumer and at the expense of those actually responsible tor the creation ofEbay.

23 249. Despite Ebays supernormal profits, the Ebay Defendants routinely impose significant

24 fee increases on the captive members ofthe Community. These regular tee increases are made

25 without justification and without benefit to the Ebay Community.

26 250. The Defendants are unjustly profiting from their wrongful exploitation 0 f a naturally

27 OCCUlTing marketplace: A marketplace with ancient roots and a medium whose creation was

28 spearheaded not by the Defendants but by the American Taxpayer.

-45-

COMPLAINT

251. Ebay controls more than 90% of the internet consumer to consumer (C2C)

2 marketplace. Ebay's monopolization of the United States internet auction marketplace is so 3 complete that Ebay has effectively eliminated all competition.

4 252. "The term [competition] isn't usually uttered with much seriousness in connection

5 with cBay, given that online-auct ion sites run by Amazon, Yahoo and scores of others have failed to 6 make a dent on the company." (Wingfield, The Wall Street Journal, April, 2003)

7 253. This "marketplace", as the Defendants themselves declare it to be, is an accurate

8 description of Ebay. Ebay owns no warehouses, merchandise, manufacturing Facilities nor even a 9 single retail store, Ebay is nothing more than a digital medium, an electronic marketplace where

10 people and business meet via the internet.

11 254. Ebay did not create this digital world yet it exploits it as its own. In fact, much of the

12 commerce and trade conducted over the internet, once transacted in brick and mortar stores, is now 13 sold through Ebay.

14 255. Compounding matters and evidencing Ebay's intent to monopolize and in

15 contravention of Section Seven of the Clayton Act, Ebay has used its amassed wealth for anti- 16 competitive horizontal mergers and to acquire its prospective overseas competitors.

17 256. By acquiring its overseas competitors, Ebay has preemptively precluded their potential

18 entry to the United States market where these companies would have competed with Ebay with

19 consumers benefiting frorn the competition.

20 257. The intent and effect of Ebay's acquisitions has bCt,l1 to eliminate any and all existing

21 and potential competitors, both herein the United States and abroad.

22 258. EBAY'S acquisition of Pay pal, the world's largest online payment service and J

23 producer of complementary products (conglomerate merger), violates Section 7 of the Clayton Act 24 and further evidences Ebays efforts to monopolize.

25 259. Paypal was acquired by Ebay for the sum of 1.5 billion dollars. Pay-pal controls more

26 than 90% of the online payment market and itself a monopoly.

27 260. Paypal completely dominates the C2C and e2SB (Consumer to Small Business) 28 payment marketplace while Ebay completely dominates the C2C and C2SB marketplace itself

-46-

COMPI.A1NT

1 Paypal is a payment monopoly owned, exploited and controlled by Ebay. A payment service used a'5 2 Ebay's secret weapon.

3 26]. Ebay has tied Paypal to the marketplace in a further effort to eliminate competition

4 and to secure its monopolization of the internet marketplace and to create yet another impediment to 5 prevent potential competitors from entering the marketplace while unconscionably overcharging the 6 captive members of the Community.

7 262. Ebay is, and has been conducting business in direct contravention of Federal and State

8 antitrust Jaws which prohibit predatory conduct and monopolies.

9 263. Ebay is a predatory monopoly which has effectively eliminated the potential for

10 competition.

II 264. In the seminal ALCOA antitrust case, it was held that mere size alone could constitute

12 evidence of monopolization, (ALCOA's market share was substantially less than Ebay's and less

13 than Paypals respective market shares') While Plaintiffs' action is not based on sheer size alone,

14 Plaintiff's do note that Ebay's market domination is unparalleled in size and scope in antitrust

15 history.

16 265. Applying the Department ofJustice's Merger Guidelines it is clear that Ebay has no

17 real competitors. Under the Guidelines, a product market is defined by asking which products 18 would be substituted by buyers in re ... poll ... 'e to a small but sign ific all t price increase.

] 9 266. Ebay has repeatedly and substantially raised its fees charged to the consumer without

20 improving its services whilst ever increasing its registered Users. In tact, Ebay raises its tees while 21 a lso mak ing participat ing in the marketplace less enjoyable and sti 11 the number of registered Users 22 increases, proving there arc no rca I substitutes in the market.

23 267. As Ebay has no competitors, the Users o fEbay pay, albeit it grudgingly, Ebay's ever 24 increasing fees. Thus, Ebay is free to raise fees and has no fear of losing customers as the customer 25 has no real alternative but Ebay.

26 268. A case in poinl is the owner of an independent Ferrari dealer and service center in Los

27 Angeles. In his early 40's, the Owner/Master Technician works hard to maintain his business,

28 particularly through the Recession. He notes he's billed hundreds of dollars monthly from Ebay tor

-47-

COMPLAlNT

listing cars and parts that don't sell, "Ebay used to be fun. People would put stuffup tor sale in a real 2 auction and you'd bid 10 win. But Ebay is different now. Their tees are outlandish and their policies 3 make huying and selling much more difficult." When asked why he still uses Ebay month after

4 month ifhes so unhappy with Ebay he responds "because there really arc no other options. They 5 need to start Ebay allover again. It's a market and you have to be in the market. It's that simple." 6 269. Perhaps best exemplifying this market domination and the "network effect" is the

7 failure of prospective competitors to compete with Ebay despite ofFering their servicesfor free! For 8 instance, Yahoo's efforts to compete with Ebay were unsuccessful despite Yahoo's charging $0 to

9 list items on its auction site.

10 270. Defendants' market domination is 110t due to their labors, inventions or

11 entrepreneurial skills. Ebay had no part in creating "he internet nor did Ebay invent the concept of 12 the auction or marketplace nor did Ebay create what is people's natural desire to engage in trade. 13 271. Ebay's market popularity is founded solely upon its being the first online auction-

14 marketplace to post its web page just as the internet was on the brink of reaching the general public, a 15 posit ion it solid ified through its illegal and ant i-compet it i ve measures.

16 272. As shown herein, these same naturally occurring market forces will guarantee that

17 Ebay remains a monopoly despite their abusive practices and that Ebay's domination will only

18 further solidify thanks to the network effect, and of course, Ebays anti-competitive measures.

] 9 273. The media from as tar away as Australia have recognized that Ebays success is

20 founded on its monopoly power, stating Ebay's success comes "from its domination of the domestic 21 online auction market and steady market share gains in more than two dozen countries." (Konrad, 22 The Australian IT, Eba~s Profits Skyrocket, April 2003.)

23 274. Ebay's subsequent success has not been attributable to the Defendants' innovations or

24 technical advancements.

25 275. Apart from its timing (i.e., first or nearly first on the unfolding internet scene) Ebay

26 has been successful because of the contributions made by the actual Users of Ebay; that is, the Ebay 27 Community itself as set forth herein and as repeatedly admitted by the Defendants,

28

-48-

COMPI.A1NT

Tlt». Despite the Defendants' spectacular profiteering, the fees charged to the captive Users

2 of Ebay are routinely and significantly increased without justification and without benefit to the Ebay 3 Community and without any correlation to the actual service provided to the User.

4 277. Notwithstanding this disproportionately excessive cash overflow, Defendants

5 recklessly managed Ebay and for most of Ebay's history failed to implement even the most basic of 6 security measures to protect the Ebay community from years of rampant fraud.

7 278. Ebay's failure to provide a customer support telephone number is but one glaring

R example ofEbay's facilitation of fraud. Rather than providing telephone support, Ebay's maze

9 continually diverts the User to page after page of preprinted generic information. There are literally 10 hundreds ofthese pages which effectively trap the User making it likely they will simply give lip

11 their efforts to find an email address for Ebay support.

12 279. Eventually finding an Ebay email address may be of no usc either. An Email from an 13 Ebay fraud victim shows his frustration and inability to find help frorn Ebay: "HELP, HELP, HELP. 14 r was a victim of fraud on Ebay motors and need to file a claim form. WHERE IS IT LISTED? Does J 5 anyone know? 1 have spent 3 days trying to locale it, emailed Ebay with no results. 1 would

16 appreciate any help . ." (noodlcsnana)

17 280. Ebays failure to provide telephone customer support and its efforts to hide its email

18 address, reflects the Defendants' desire to maximize profits at the expense of the Ebay User.

19 281. Ebay justifies its efforts to insulate itself fr0111 the Ebay Community hy stating:

20 "Ebay is an internet based auction venue and because of this, our member support is 21 email based as well. We do not offer phone support." (Dave S. S. of'Ebays email based

22 support.)

23 282. With the billions of dollars earned by Ebay, much of it pocked by the individual

24 Defendants, Ebay's election to not provide customer service support was intentional and contrary to 25 the Community'S interests.

26 283. As one defrauded Ebay User puts it, "Ebay'sfailure 10 post its phone number on its

27 site to permit members to alert Ebay ofirregularities is vet another irresponsible cost-saving

28 mistake."

•

COMPLAINT

284. An Ebay operated as a regulated utility, while still earning a respectable profit, could

2 effectively s 1 as 11 the tees charged to its users by an estimated seventy to eighty percent, implement 3 security measures to improve the safety and integrity of the marketplace while also providing

4 telephone support. These measures would not only protect the Ebay community hom fraud, but 5 would reduce the cases plaguing Federal and local law enforcement agencies.

6 285. Left unchecked, the Defendants will continue to bilk billions of dollars hom the

7 captive consumers.

8 286. Defendants' wrongful conduct and mismanagement ofthe Ebay site affects all

9 Americans as thousands of victims of fraud flood the FBI, FTC and local Jaw enforcement officials 10 with their complaints.

11 287. EBA Y 's reckless disregard lor necessary safety measures costs the US taxpayers

12 millions of dollars each year.

13 288. According to the FTC and FBI, Ebay internet auctionfraud produces the largest

14 number of fraud complaints. In tact, new departments have been created within the FB] and law 15 enforcement agencies across the Country to deal specifically with Ebay's victims offraud.

16 289. Tn addition, credit card companies have been forced to absorb many ofEbays

17 fraudulent transactions.

18 290. As a result, everyone pays the price tor Defendants' wrongs through higher taxes and

19 credit card charges whilst the Defendants became some of the richest individuals 011 the Planet.

20 29l. Absent intervention, the US Taxpayer, all credit card holders, and members of the

21 Ebay Community, all pay a heavy price for the Ebay Defendants' profiteering and mismanagement.

22 292. Ebay's advice to its ripped-off Users has been its instruction to victims to notify their

23 credit card companies of the fraud and request that they write-off the fraudulent charges. Every time 24 a credit card company cancels a bad debt it spreads this cost to all users of cred it cards, thereby

25 affecting each and everyone of us.

26 293. Ebay's failure to responsibly re-invest the profits earned trotn the marketplace to

27 secure the marketplace from fraud has resulted in enormous costs to all American taxpayers, credit 28

-50-

COMPLAINT

card holders and the users of Ebay itself Ebay must not be permitted to profit frorn this captive and 2 naturally occurring marketplace while shifting its financial responsibilities to the general public.

3 294. Ebay was originally advertised and represented to the public to be free with no tees to

4 be charged. Only after its inception were nominal fees charged and these tees, we were told by

5 Omidyar, were to cover the minor operating expenses such as electricity and server costs, etc.

6 295. Defendant Omidyar actively posted "no-cost" notices on the web advising of what he

7 called a "free web auction."

8 296. From its inception, Ebay's primary promotion had always been User word-of-

9 mouth/word-of-email publicity. As described by one reporter: "Computer geeks and tech-savvy

[0 bargain hunters were e-mailing one another the AuctionWeb URL, and inserting hyperlinks on their 1 J websires that took web surfers directly to the Auct ion Web home page."

12 297. Again. it was the "Community" that marketed itself to the community and that

13 marketing began with the Defendants' representations of a "tree" website.

14 298. From the outset Users accepted the risks of potential fraud as Ebay was a free service

15 supported by a self-sufficient community. AuctionWcb then known as Ebay wasn't perceived as a

16 business providing a service. Rather. it was created and promoted as a "Community". Thus, the Ebay 17 Community was responsible for devising a cosrlcss solution to the rampant fraud.

18 299. Ebay Users themselves came up with an idea to implement a no-cost mechanism

19 intended to provide at least a minimum of security. It was known as "Feedback".

20 300. This no-cost feedback system was never suggested to be the most effective means of 21 policing the market. Rather, it was proposed as an efficient zero cost system for an auction site that 22 charged zero fees,

23 30 I. However, once users were hooked, the Defendants began escalating the fees to access

24 the marketplace while failing to provide services commensurate with the vast sums of money taken 25 from the community.

26 302. An investigative reporter wrote of the Defendants' hijacking of the Community: "The

27 Average Guy and Average Girl made this behemoth what iris. This is the thanks you get, kids. You 28 made it possible for Ebay to become whatit wants to become, Increasingly, it seems, Ebay is a

-51-

COMPI.ATNT

company at war with itself The swap fest that has been endlessly touted as the Internet's happiest 2 marketplace (People go gonzo over Ebay,' declared USA Today) is fast evolving into something 3 rather different. While Whitman continues to hype Ebay's touchy-feely cornrnunitarianism, she's 4 quietly and rapidly overhauling the company in service of a goal the staunchest capitalist would

5 understand: pleasing Wall Street."

6 303. The Defendants have acted intentionally and with a clear disregard for the safety and

7 well being of the Community.

8 304. With fraud and security problems escalating, Defendants even ignored political

9 inquiries. For instance, Congressman Billy Tauzin, one of the recognized leaders in Washington on 10 matters relating to the internet and technology, Chairman of the House Commerce Committee,

11 through which just about every piece of high-tech legislation and oversight must pass, and moving

12 force behind the 1996 Telecommunications Act, expressed his concerns to Ebay in a letter dated June 13 25, 2001. "J am writing to request your assistance in assessing the prevalence of online auction fraud 14 and the steps that arc heing taken to combat this fraud. In a recent study, the Internet Fraud

15 Complaint Center reported that from May to November 2000, auction fraud accounted for 64.1 % of 16 Internet fraud complaints tiled with the Center. According to these statistics, the occurrence of

17 online auction fraud is higher than the occurrence of all other online/rout! combined. The ability 18 to disguise identity, revoke bids and maintain multiple online identities may facilitate undesirable

19 practices like shilling. 1n private auctions, bidders email addresses arc concealed both during the

20 auction and after the auction has closed. Only the seller and high bidder know who bought the item. 21 Docs this practice encourage shill bidding? Online auction participants rely on feedback ratings to 22 help protect themselves from unreliable or fraudulent sellers or buyers. Feedback "padding"

23 interferes with a participant's ability to make informed participation decisions. What is theincidence 24 of feedback "padding?" To what extent does "padding" diminish the value of feedback as a tool for 25 making informed decisions about with whom to conduct business on an auction site? Do auction

26 rules that allow for changes in identity or the maintenance of multiple identities facilitate fraudulent 27 practices? Sincerely, \V.l. "Billy" Tauzin, Chairman.

28

-52-

COMP],AINT

305. The Defendants ignored Congressman Tauzin's concerns and tailed to take corrective

2 measures in response to Congressman Tauzin's letter.

.1 306. On the contrary, Whitman actually protected criminals. When allegations of fraud 4 were made and the identity of the perpetrator sought from Ebay, Ebay would refuse to provide the 5 identification information associated with the User's ID. Ebay shielded this information on the

6 grounds of i'pr ivacy". Whitman stated: "Ebay comes from the roots of an open, sort of libertarian,

7 point of view ... , let's not get government too involved here,"

8 307. Defendants have intentionally made misrepresentations offact regarding the security

9 of Ebay and have failed to devote sufficient resources to monitoring and policing Ebay, as set forth [0 fully hereinbelow, in an effort to artificially boost the value ofEbay stock.

1 J 308. In doing the things alleged herein, Defendants have been motivated by greed.

12 309. To achieve their goal of artificially boosting the value of Ebay stock and in turn

13 increasing their own net worth, Defendants must have the Ehay Community and the general public 14 believing Ebay is a safe and relatively fraud free marketplace.

15 310. ln another effort to sanitize Ebay's appearance in order to foster stock market

1 (j confidence, Ebay closed its anti-fraud hotline. According to Ebay User Nick Farrell: [26-04-2002]

17 18 19

20

21 22

23 24 25

"Rather than addressing the rampant fraud on Ebay, Ebay decided to tenninatc its anti-fraud email hotline. The Safel+arbor service is a channel for reporting suspicious activity or specific fraud complaints, and was to be replaced with an online form. However, Ebay is not disclosing the availability of the new torrn. Instead, Ebay is only telling customers who email the safeharbor@Ebay.com address. Ebay is said to have had no plans for a wider announcement. Moreover, the safehorbor email address is no longer available."

311. Auction experts say that the form limits the way customers can report fraud on the site

id could effectively prevent clients getting in touch with Ebay.

312.

In April of2002, Ebay introduced tighter rules for the usc of its discussion boards;

ules which make it impermissible to warn other members about poor experiences with another buyer 26

27

2R

r seller.

-53-

C'OMPLAINT

313. Ebay's profit motives not only hurt the community but knowingly facilitated fraud and

2 identity theft.

3 314. For instance, unlike most e-commerce sites, Ebay didn't automatically encrypt the

4 data sent between User's computers and Ebay's servers, which means that when customers type their 5 password into Ebay's Web site, that information can be viewed by hackers. "SSL is typically a no-

6 braincr on any Web site," said John Pescatore, research director for Internet security at Gartner.

7 According to Pescatore, "They [Ebay] arc doing their users a disservice," Ebay's failure to encrypt 8 renders Users' IDs vulnerable to being "hijacked".

9 315. As a result, thousands of Ebay users have seen their accounts hijacked and used to set

10 up fraudulent auctions. The scam artists parlay the members' good reputations into bids--then take off 11 with the cash. Identity theft and Ehay auction fraud are the top two most frequently cited consumer

12 fraud complaints tiled with the Federal Trade Commission.

13 316. Unlike most secure websires, Ebay has failed to implement a Lockout system. A

14 Lockout system would prevent a person from trying to log in as a member it: for instance, after three 15 attempts they were unable to enter their correct password. After three unsuccessful attempts, the

16 person would be "locked out" and unable to attempt to enter any more passwords. Without a lockout 17 system, a hijacker is free to spend hours trying to guess a person's password.

18 31 7. "Ebay's reluctance to pili ill place a lockout system may have more to do with it

19 wanting to save money 011 customer service than any thing else", said Rosalinda Baldwin, editor of 20 The Auction Guild. a newsletter covering the online auction industry. "If the company put in place a 21 lockout system, it would have to provide people with instant customer support over the telephone so 22 they could unlock their accounts. Currently, Ebay doesn't list a customer support phone number on 23 its site. instead directing all inquiries to e-mail or to lists offrequently asked questions. Locking out 24 accounts would make sense, but they would have to hire some people to mall a phone 24-7. 25 That's not what they want 10 use our dollars/or. "

26 31 H. Jerry Auerbach, of Tenafly, N.L paid $1,725 for a nonexistent.IBM ThinkPad. "It is 27 clear to me that Ebay's current fraud policy was designed to save costs, permitting thieves sufficient 28 time to conduct multiple fraudulent auctions. The 30-day waiting period to notify Ebay of fraud 1S

-54-

COMPLAINT

wrong, and Fbay's failure to post its phone number on its site to permit members to alert Ebay of 2 irregularities is yet another irresponsible cost-saving mistake. Had Ebay acted with care, these

3 fraudulent auctions could have been monitored, permitting authorities to more easily capture the 4 perpetrators, or Ebay could have halted the auctions."

5 319. That Ebay is not taking a more active role in protecting customer accounts by

6 implementing a lockout system indicates that the company is putting business concerns ahead of

7 security concerns, said Richard Power, editorial director of the Computer Security Institute. "I think 8 Ebay's foolish," Power said. "The thing that holds back people from buying on the Internet mOTC than 9 anything is insecurity."

10 320. According to financial analyst Richard Trinker, problems with fraud can "have a

II significant effect on the way people perceive Ehay's character." Fraud could damage Ebay's

12 reputation to the point where it scares people away from the site. Not surprisingly, Ebay tends not to 13 publicize the details o fvarious frauds perpetrated on its site."

14 321. Like Arthur Anderson's creative accounting with Enron, Ebay too was cooking its

15 hooks with respect to underreporting incidents offraud.

16 322. Defendant Omydar represents that "only 30 times out of a million might a transaction

17 not he completed because of fraud." Defendant Omydar's representation is knowingly false,

18 323. Robert Posica, an FBl supervisory special agent who co-managed the IFCC, stated

19 incidents of fraud on Ebay arc "vastly undcrreported."

20 324. Ebay's claimed rate of fraud ofless than 0.1 percent ofall transactions, represents 21 only a fract ion of the prob lem. For one th ing, an unto ld number 0 f v ictirns simply do n't bother to

22 report a fraud, either out of embarrassment, a feeling that the process will be too time-consuming, or 23 a beliefthat it won't do any good. In addition, fraud can be reported variously to Ebay, the TFCC, the 24 National Consumers League, or local police, leading each to end up with low figures, The Internet 25 Fraud Complaint Center (lFCC) is a partnership between the Federal Bureau ofInvestigation (FBI) 26 and the National White Collar Crime Center (NW3C).

27 325. The National Consumers League's Internet Fraud Watch states auction fraud

28 constitutes fully 70 percent of their complaints. "We're convinced it's much bigger than numbers

-55-

COMPLAINT

indicate, because many victims don't tile complaints." says Holly Anderson, a spokeswoman for the 2 National Consumers League. "A traction of these cases arc tried in court Many escape notice

3 because the amount of money lost is often relatively low and the incidents cross state lines."

4 326. "At the very least, they're morally responsible for ensuring that their services aren't

5 used to rip people off," says Susan Grant, director of the Internet. Fraud Watch, a division ofthe

6 National Consumers League in Washington.

7 327. Ebay's purported rate () fffaud is not based on claims of fraud submitted by victims.

8 Rather, Ebay refuses to include in its figures fraud claims that its investigators can't or won't confirm; 9 in other words, it isn 't fraud until Ebay says it'sfraud.

10 328. "Ebay has clone a great job of creating a warm and fuzzy image 0 f itself as the place to J 1 swap and shop," says Ken Hall, who writes a syndicated column about antiques and co liecribles, "but J 2 it's a free-tor-all."

J 3 329. Ebay also won't say what percentage oftransactions result in claims offraud. A

14 survey conducted by the Nat ional Consumers League's Internet Fraud Watch program, however, 15 found that 41 percent of all online auction buyers claimed to have been bilked ill some way by 16 seller ... ', leading to all average 10.\:-'; of $326 per person,

17 330. In doing the things alleged herein, Defendants have been motivated by greed and

18 financial gain.

19 331. To achieve their goal of artificially boosting the value of Ebay stock and thereby

20 increasing their own net worth, Defendants have manipulated the Ebay Community and the general 21 public into believing, from the outset, that Ebay is a safe and fraud free marketplace, while

22 simultaneously not investing in measures that would ensure that Ebay had the qualities the

23 Defendants were representing, By not investing the resources necessary to adequately secure Ebay, 24 the Defendants were able to boost Ebay's Price I Earnings ratio, with as much as 90% of Ebays

25 revenue heing profit, thereby boosting Ebay's share value while the Defendants were, by far, tile

26 largest share ho lders.

27 332. The more people Defendants could convince that Ebay was sate to usc, the more

28 people would register as Users, increasing the volume of goods listed and sold on EBAY.

-56-

COMl't.AfNT

333. The greater the number of registered Users and the greater number of transactions that

2 then occur on Ebay, the more favorable Ebay stock appears to investors.

3 334. Ebay's stock value is a primary concern for the Defendants as the Defendants were the

4 largest shareholders of Ebay stock and stock options, at one point holding more than 98% ofEbays

5 outstanding shares.

6 335. The higher the market price for Ebay stock, the greater the net worth of each and

7 every Defendant.

8 336. With such significant holdings, Defendants couldn't simply dump their stock all at

9 once without adversely affecting the value of Ebay stock.

J 0 337. Thus, Defendants had to prolong the charade that all is well with Ebay while not

II investing the revenues generated back into the business long enough to keep the PIE ratio high for the 12 Defendants to sell their stocks and exercise their options.

13 338. There is clear evidence that the Defendants recognized they would not be able to keep

14 increasing fees charged to the Community without providing any corresponding service and so they 15 would have to liquidate their shares when Ebay was still at its maximum PIE ratio.

16 339. "With the stock market being manipulated recently, new information sheds light on

17 the volatile position of publicly traded Ebay stock. The President and Chief Executive Officer of the 18 Internet auction site, Ebay.com; Margaret C. Whitman has been dumping stock taster than Ken Lay 19 at Enron. Between December J 9,2001 and May 8, 2002, Ms. Whitman has sold-off 13,049,536

20 shares of stock. At $56 a share, that comes to more than $730 million."

21 340. With the initial development of the internet and the marketplace, it was recognized

22 early on that an electronic payment system would be necessary to facilitate online transactions.

23 Snail-mail payments by check were antiquated almost overnight with the advent of the internet.

24 341. Ebay purchased Billpoint in 1999, which was at that time, Paypals primary

25 competitor

26 342. By the year 2000 there were a number of online payment services, including Paypal,

27 Citibank 's C2iT, Yahoo's PayDircct, Western Union's BidPay and later, Googles Checkout.

28

•

•

-57-

COMPl.A I NT

343. By 2000, Paypal had the substantial share of the then still nearly infant online payment

2 market with about 11 million users.

3 344. With yet another flex of its financial might, and a reflection of Ebay '8 management 4 failure to effectively compete with a competitor, and despite Whitman's acquisition of Billpoint just 5 five months earlier, unable to make it a success, Ebay bought out its competitor Paypal, instantly

6 securing, with Billpoinl and Paypal, well over 90°lcl otrhe online payment market.

7 345. Paypal has proven to be Ehays secret weapon. whereby Ebay can charge the

~ Community twice, once through Ebay and then again through Paypal as Ebay mandates Paypal be a

9 method of payment while also bundling Ebay with PaypaJ much the way Microsoft bundled Explorer \ 0 with Wind()Vt~\·.

II 346. Reflecting the expansion of the internet, Paypal now has 223 million users and

12 operates in 190 markets

13 347. Like Ebay, Paypal amassed its market share as a result of its false and fraudulent

14 representations. Paypal lured in millions of users, solidi fying itself as the primary online payment

15 service, by offering its services for free. Once it reached its desired targeted number of users, Paypal 16 increased its fees to levels beyond what credit cards charged but without 0 ffering any of the rights, 17 remedies and protections afforded to users of credit cards.

18 348. For example, if a buyer purchased an item on Ebay and paid with Paypal and the item

19 failed to arrive as advertised, but the seller could provide proof of shipping, the buyer would he out 20 his or her money as delivery was the only criteria Paypal required for a "valid" charge.

2 I 349. On the other hand, if a buyer paid tor an item with their credit card and reported the

22 item as delivered not as advertised, the credit card would investigate and reimburse the buyer where 23 appropriate. The credit card companies charge a fee but return services to the purchaser for such fees 24 charged. Paypal charged the same or greater fees but gave no protection or benefits.

25 350. If the buyer funded their Paypal purchase with a credit card, and that credit card issued

26 a credit for the purchase, Papal would then go after the purchaser for the money the credit card

27 company determined was owed hack to the purchaser! Paypal could then suspend the purchaser's 2~

-58-

COMPI.AINT

Paypal account and, without notice, go into the Purchaser's bank account and withdraw the money 2 the credit card company had already determined was not owed by the purchaser!

3 351. The following is a true story: A consumer using Ebay purchased what was advertised

4 and shown by photographs on Ebay to he a BMW M3 engine. The consumer paid tor the engine

5 with Paypal and weeks later received a crate. Upon opening the crate a worthless old rusty junk

6 Chrysler engine was found inside. The Consumer tiled a complaint with Paypal. The Seller provided 7 a shipping and receipt confirmation which showed "a package" had been delivered to the Buyer.

8 With that and that alone, Paypal upheld the payment and the Buyer was out more than $6000.

9 352. In a similar scenario. a defrauded Buyer paid through Paypal with a credit card. The

J 0 credit card company found fC)J- the Buyer and reversed the charges. Paypal then froze the Buyer's

11 account and demanded the Buyer pay Paypal for what the credit card company had already

12 determined was a fraudulent charge.

13 353. On the other hand, if a Buyer institutes a false claim regarding goods received, should

14 the claim be approved by PayPal, the buyer gets his money back in full, PayPaJ and eBay keep their 15 fees] negative feedback posted by tile buyer against the seller is almost impossible to have removed, 16 the seller receives their item back, (in most cases), and the item is typically returned in a damaged

17 condition. There is 110 penalty of any kind for the buyer.

18 354. By signing up to use Paypal, which Ebay forces you to do if you want to buy or sell on

19 Ebay, you must "accept" Paypal s Terms 0 f Service.

20 355. Accepting their ToS in effect means you waive your rights 10 credit card consumer

21 protection Jaws and that you may not issue a chargeback for unauthorized use of your credit card and 22 PayPal account, or if you do, then they have the right to limit, suspend or even cancel your account.

23 356. Moreover, that purchaser. wit h their Paypal account now suspended, would be unable

24 to transact business on Ebay and could even be suspended from Ebay, as, in 2002 Ebay took $1.5

25 hill ion of what was really the Community's money to acquire Paypal.

26 357. Just five months after purchasing Billpoint, Whitman's Ebay purchased Paypal to

27 eliminate competition.

2S

-59-

COMPI_AIN'r

358. Rather than let the market torces determine which online payment service consumers'

2 would favor, Whitman was determined to monopolize the C2C online payment market.

3 359. Whitman laid the foundation for its monopoly even before its acquisition of'Paypal.

4 Ebay, which controlled more than 90% of the C2C market, began making its online payment system, 5 Billpo int, the payment method for Ebay,

6 360. Paypal's management was threatening to file an antitrust lawsuit against Ebay for its

7 illegal bundling strategy.

8 36/. With one stone, Whitman killed two birds: Ebay eliminated the serious threat of a

9 well-funded anti-trust lawsuit regarding Ebays bundl ing with Billpoint while also securing for itself 10 the monopolization ofthe online payment market it sought with its Billpoint bundling tactics.

11 362. While Ebay refused to permit real access to the marketplace for online payment

12 services not owned by Ebay, Ebay promoted and then effectively mandated that Users of Ebay have a 13 Paypal account and that Pay-pal be a means ofpayment.

14 363. No other online payment service could complete with Ebay's Paypal.

15 J6

364. 365.

Ebay heavily promotes PayPaJ to its buyers and sellers.

As a wholly owned subsidiary (1 f ebay, PayPal has enjoyed a monopoly on favorable

17 treatment from efsay for auction item payments. Every page of every form sent out by cBay extols 18 the virtues of Pay Pal, while plainly and overtly "bad-mouthing" every alternative such as ("2IT,

19 BlDPA Y, PA YINGFAST, etc., until those services were literally driven out of business.

20 366. Significantly, Ebay only offered "Buyer Protection" to buyers who used Paypal for

2 I their transactions.

22

367.

Now Ebay profits twice from an auction or listing of an item for sale: Once for the

23 series of Ebay listing and sale tees and then again for the Paypal fees.

24 368. Even, Citibank, America's largest bank and the second largest bank in the world, was

25 unable to establish itself in the online payment marketplace thanks to Ebay's preclusion of

26 competitors from the marketplace while promoting Paypal.

27 369. Citibank began offering its service, C2iT, for tree. The relatively new service had

28 about 200,000 users, compared with about II million users for market leader PayPal.

-60-

COMPLAINT

370. However, Ebay wouldn't permit the Community to effectively use C2iT.

2 37l. For instance, after winning an auction or using the "buy it now" feature, a "Pay Now"

3 page would appear whereby the purchaser would he taken directly to Paypal via an Ebay provided

4 link on the page.

•

•

5

372.

It was not possible rcfor instance, place the C2iT logo on the same page and offer a

6 payment link via C2iT. Ebay forbid it.

7 373. Despite being the largest in the United States, Citibank was unable to compete with

8 Paypal because Ebay's predatory actions precluded it.

9 374. Realizing the impossibility o fthe situation, Citibank would cease operating its online

10 payment service.

11 375. If World's second largest bank in the world couldn't survive Ebays monopolistic

12 policies and predatory actions, who could? Certainly not the individual consumer.

13 376. Making matters worse for consumers, unlike Ciribank, a regulated financial institution

14 which could actually provide real financial services and expertise, Ebay's Paypal is an unregulated

15 private enterprise that acts arbitrarily and without due process, seizing unsuspecting user's funds

16 fro m their bank accounts and freezing their assets in their Paypa I acco unt.

17 377. As with Ebay, Paypal Customers found themselves trapped once they discovered

18 using Paypal was not like using their credit cards, despite the fact Paypal charged more than credit 19 card companies charged. For instance, Paypal was notorious tor its horrific customer service. Like 20 Ebay, it was, by design, impossible to contact customer service at Paypal for they had no customer 21 service telephone support.

22 378. Only years later did Paypal offer telephone support and only after they were forced to

23 by law under the EFTA (Electronic Funds Transaction Act).

24 379. Paypal tailed to disclose material terms at signup. For instance, Paypal failed to 25 inform customers that their money was 100% at risk. That PayPal can, will, and has in the past,

26 completely cleaned-out customers' accounts, including their checking or savings accounts and with 27 no appeals process nor due process protections available.

28

-61-

COMPl.AINT

•

380. Paypal unconscionably huried such terms in the fine print of their near 40 page Terms

2 of Service agreement.

3 381. Unlike a regulated financial institution, when there are questions of fraud or mis-

4 dealings, Paypal acts, without oversight and without having to comply with laws or regulations, as

5 the invest igator, judge, j my and executioner.

6 382. Unlike credit card companies conducting the same investigations, Paypal refuses to

7 provide the consumer with the details of their investigation while withholding documents they relied 8 upon to make their decisions.

9 383. A customers only contact with Paypal may be an email that says: "Thank you for

10 contacting PayPal. We apologize for the delay in responding to your service request. After review, 11 the decision has been made to keep your account locked. This decision cannot he appealed."

12 384. Ebay's Paypal operates in virtually every nation, deals with a quarter billion

13 customers, transacts billions of dollars of business and is regulated by absolutely no one.

14 385. Not only is Paypal regulated only by Ebay and Ebays managements' interests, but

15 they impose their self-serving rules on all who usc the Paypal service, at the end of a shotgun, thanks 16 to Ebays forced use ofPaypal upon the Community.

17 386. The fo llowing 1:-' an extremely typical Paypal experience ill the Community member's

19

18 own words:

20 21

22

23 24

25

26 27 28

"I've been selling on [bay' tor 4- yC~lr". In 200() r quit my job to do cbay only. Just about 6 months after, [ started having issueswith people stealing and !iling false claims, leaving false feed back. and chay and paypal arc just as fraudulent as those people. 1 ~bt summer ebay suspend my account and paypal froze my money for no reason. It pissed me ottthat the government is l,dking tough BS about regulation wben right under tht:ir !"1:(l!:Y!;; capitalist laws are being violated and no actions arc taken, There is no question that cbayand paypal is a

mo uo po ly. l Iyou have an chay ac\..'()unt and ,1 puypu l ucco unt , itone hus all issue it cancels the other. This is tOLd I1S, I have it store. when one ofmy credit card Ilil'I\.:.I1:HlI accounts has a problem, that doesn't automatically put me out ofbusiness. Guess what? On cbay it docs" I feci sorry Ie)!' those 'who got hurt und h;IV~' their moneyabducted hy paypal with no explanation. Somebody needs to explode or do something because I too have over S Il ()OOn stuck ill there ami they lpltl me to wait 1'(lr six months tor an appeal. What a load ofcrap. PLEASF DO SOME rrl [NG GOVEf~NM['Nr ()FFICl/\LS. DON'T L,I:T THEM BRIBE YOU.

-62-

COMPLAINT

•

2

II.

CLASS ALLEGATIONS

3 387. Plaintiffs reallege, refer to, and herein incorporate by this reference as ifset out in full,

4 paragraphs 1 through 386.

5 388. This action has been brought and may be properly maintained as a class because the

6 unlawful acts of the Defendants have caused damage to persons similarly situated and as such, there 7 is a well-defined community of interest in the litigation and the proposed class is easily ascertainable.

8 389. Plaintiff Class consists of all members ofthc Ebay "Community".

9 390. As a subclass. Plaintiffs consist of all "consumers" that, is persons other than large

10 commercial retailers, consisting of those who would tall within the Consumer to Consumer ("C2C") 11 classification.

12

391. NUMEROSITY:

The Plaintiff Class is so numerous that the individual joinder of

13 all members is impracticable under the circumstances ofthis case, where the class size exceeds 100 ] 4 million. Moreover, the likelihood of individual members of the Class prosecuting separate claims is 15 remote and individual members ofthe class do not have a significant interest individually, nor the 16 financial resources needed to prosecute separate claims against the Defendants' vast resources.

17 392. COMMON QUESTIONS PREDOMINATE: There is a well-defined community

18 of interest in the questions of law and tact invo lved affecting the parties to be represented. Common 19 questions of law and fact exist as to all members of the PlaintiffClass and predominate over any

20 questions which affect only individual members of the class

21 393. TYPICALITY: Plaintiffs claims are typical ofthe claims of the members ofthe

22 Plaintiff Class. Plaintiff" injuries flow from the Defendants monopolization of what is truly a public 23 marketplace where transactions are conducted ill the C2C market via an electronic medium. the

24 internet. The injuries and damages of each member ofthc Plaintiff Class were caused directly by tbe 25 Defendants' wrongful exploitation of the community.

26 394. ADEQUACY: Plaintiffs will fairly and adequately protect the interest of the

27 members of the Plaintiff Class. Plaintiff-students reside in California, arc similarly situated, attended 28 the same classes, suffered the same harms and seek the same redress. Plaintiff-students are adequate

-63-

COMPI.AINT

representatives 0 f the Plaintiff Class and have no interests which arc adverse to the interests of absent 2 class members. Plaintiff-students have retained counsel whom they believe best able to prosecute

3 their claims, whom they trust, and with whom they arc familiar and who has pre-existing familiarity 4 with their claims.

5 395. SUPERIORITY: A class action is superior to other available means for the fair and

6 efficient adjudication of this controversy since individual joinder of all members of the Class is

7 impracticable. Class action treatment will permit a large number of similarly situated persons to

8 prosecute their common claims in a single forum simultaneously, efficiently, and without the

9 unnecessary duplication of effort and expense that numerous individual actions would engender.

I () Furthermore, as the damages suffered by each individual member may be relatively small whereas It the expenses and burden of individual litigation, particularly against these resource rich Defendants, 12 would make it difficult or impossible for the individual members of the class to redress the wrongs 13 done to them while an important public interest will be served by addressing the matter as a class

14 action. The cost to the court system of ad judie at ion of such individualized litigation would be

15 substantial and impractical while individualized litigation would also present the potential for

16 inconsistent. or contradictory judgments.

17 396. Plaintiffs arc unaware of any difficulties that are likely to be encountered in the

18 management of this action that would preclude its maintenance as a class action.

19 397. Like Defendant Omidyar (supra), Co-defendant Whitman, Ebay's CEO for most of

20 the company's history, has repeatedly admitted that Ebays success Ebay is directly attributable to the 21 Ebay Community.

22 398. In an interview with Business Week's Senior Correspondent, Robert Hoff, Whitman 23 admits that Ebay was "built by the users" and that Ebay was created and constantly refined and 24 modified by the Users themselves. As Hof put it: "Whitman's secret: Let the customers tell 25 Ehay what to do. H Below are several such admissions made by Whitman regarding the

26 Communities contributions.

27 28

-64-

COMPLAINT

1 I

2

3 4 5 6 7 8 9

10

12

13 14

Q: Can you explain how Ebay views the 1II11lS1Wlly active role of its customers in the company?

\VHlTMAN: We created the marketplace, but the site was actually built by the users. The users listed the items, the users handled customer support, the users shipped out the items, and the users were buying the items. Without them, we actually didn't have a business. (Ofcourse, Whitman's statement the Ebay "created the marketplace" is wholly unsupportable and historically false.).

Q: Although you have compared Ebay to financial marketplace . ..,' such as the New York Stock Exchange, it seems that Ehav's customers have Oil el'en more direct influence 011 its business than at those marketplaces,

WHITMAN: "Involving the users in the .• .. trategy of the company, the product development of the company, and the direction of the company was central to our ability to build a successful, long-term marketplace." (Whitman admits Ebay is a "marketplace" as contrasted with a "busincss".)

Q: SO arc most of the new features and categories driven by the customers?

WIIJTMAN: I would say between 75% and 85% ofideas germinate within the user community. Sometimes we veer off from that, and it's usually not as

successful as wc thought, ... What we have is millions of entrepreneurs who make small changes to the marketplace, That adds up to all optimized marketplace. It isfar better to have an army of a million than a command-and-control system that tries to make the decisions.

399. The Ebay Defendants unethical conduct and greet was further exemplified by a House

15 Financial Services Committee Report which showed the Ebay Defendants as having used their 16 influence and flexed their financial muscles to obtain insider trading information, including Ebay 17 billionaires Whitman, Omidyar and Skoll.

18

20

19 Defendants for having used their power and influence to obtain insider trading information.

400. A report released by the House Financial Services Committee cited several of the

21

40 l , The Report states: "These initial public 0 tferings seemed to be anything but public."

402. Rep. Richard H, Baker. R-La" chairman of the Financial Services subcommittee on

22

capital markets, stated: "A small circle ofpreferred clients were given vast access by the investment

23 hanks to IPO shares and reaped large profits 011 the sale of these shares. What is most disturbing is 24 that their profits were gained a/the expense of the average investor whose only option was to buy 25 the shares at the oftentimes inflated aftermarket price. II

26

27

28

403, New York's Attorney General declared "Small investors were left holding the bag."

-65-

COMPLAINT

404. Goldman Sachs was the lead underwriter of Ebay's 1998 ]PO. Not so coincidentally,

2 soon thereafter Defendant Whitman became a Goldman Sachs director and member of the

3 brokerage's compensation and audit committees.

4 405. Access to [POs can be better than winning the lottery for the individual but

5 devastating to the company and individual investor. When the recipients of the shares were top

6 executives in a position to return the favor with business from their firms, it wasn't just favoritism. 11

7 was tantamount to a bribe, as the profits were pocketed by the executives themselves, not their

8 companies. Perhaps more damaging is the fact. that IrO shares were attractive as gifts only as long as 9 investment bankers priced IPOs below market, knowing the stock would immediately go up in price.

10 That routine doubling and tripling -- and in one case eightfold pop -- in the share prices of dot-corns 11 during their first day of trading, robbed the fledgling companies of tens of millions in hard cash

12 they would desperately need. Investors paid the price.

13 14 15

406. 407. 408.

Defendant Skoll bought more than 75 IPOs. Defendant Omidyar purchased more than 40 1 POs. Defendant Whitman bought more than 100 IPOs.

16

III.

17 18 19

VENUE AND JURISDICTION

409. Plaintiffs seck to secure injunctive relief and civil penalties for Ebay's violations of

the antitrust Laws of the United States and the antitrust and unfair competition laws of the State of 20

California, and for, infer alia, unjust enrichment, fraud. breach of contract, Violations of the 21

Consumer Legal Remedies Act, negligence, misrepresentation. conversion, restitution. 22

23

4 J O. This Court has jurisd ict ion over this matter pursuant to Section 4 of the Sherman Act

15 o.s.c. § 4, and 28 U.S.C. ~* 1331 and J 337(a). Plaintiffs bring this action, inter alia, pursuant to 24

25 Section 16 of the Clayton Act, 15 U.s.c. ~* 26, to obtain injunctive reliefbased upon Defendants'

anticornpetitive practices in violation of Sections 1 and 2 of the Shennan Act, 15 U.S.c. §~J, 2. 26

-66-

27

411. The Complaint also alleges violations of the following, but is not limited to, and is

expected to amend to include further, State antitrust and/or unfair competition and related laws, and 28

----------~ ---_ _ _---_ _---_._-_---------------

l·OrvtPl.AINT

seeks injunctive relief as well as civil penalties based on these claims: California's Cartwright Act, 2 Cal. Bus. & Prof Codc_§§ 16720 ct scq.; California's Unfair Competition Act, Cal. Bus. & Prof.

3 Code ~* 17200 et scq.; Connecticut Antitrust Act, Conn. Gen·._Stat. ~* 35-24 et scq.; District of

4 Columbia Antitrust Act, D_C Code § 28-4501 et seq. (1996); Florida Statutes ~§ 501.0275, 501.24, 5 542.18,542.19,542_21-.23; lllino is Antitrust Act, 740 lLCS ]0/1. et. seq.; JowaCompetition Law, 6 Iowa Code Chapter 553; Kansas Antitrust Statue, K.S_A_ ~9 50 I et seq., 50~(jn ct seq.; Kentucky

7 Antitrust Statue, K.R.S. 367.175; La. R.S. 51:122 et seq., and La R.S. 51:1401 et seq.; Marvland

8 Antitrust Act, Md. Com. Law Code l\nn. ~~ 11-201 et seq.: Michil!:an Antitrust Reform Act

9 (MARA), MeL 445-771 e( seq., and MSA 28.70(1) et. seq.; Minnesota Antitrust Aet §§ 3250.49- 10 3250.66 (1996); N.M. Stat. Ann. *§ 57-1-1 to 57-1- j 5; I'J __ .Y. Gen. BusLaw ~~ 340 et St'q.

1 J (Mckinney 1988); Nort.h Carolina, N.C.G.S. *~ 75-1, -1.1, -2, and -2.1; OhiO Valentinl~Act, Ohio 12 Rev. Code §§ 1331.01 et seq.; Sout]tC<:!rolina('()Qe of Laws §~ 39-3-10 et seq. and §~ .19-5-10 et 13 seq.; Utaht\11titrust. Act Utah CoQ_c;\Q_Q. §§ 76-10-911, ct seq; West Virginia Antitrust Act, W. Va. 14 Code §§ 47--18-1 et seq., and West Virgif!_i_<l Con_~.\J_mer Credit & Protection Act, W. Va. Cod~ §*

15 46A-l-1 01, et seq.: and WisconsinTru:::t~.and MQ.nopolics Law, ~§ 133.03( I). (2), 133.14, 133.16, 16 Wis. Stats, This Court has supplemental jurisdiction over these state-law claims pursuant to 28

17 U.S.c. § 1 367(a). The State-law claims arc so related to the Federal-law claims raised in this

18 complaint that they form part of the same case or controversy under Article IlJ of the United States 19 Constitution. The issues raised by the State-law claims arc no more novel or complex than the federal 20 law claims, nor do they substantially predominate over the federal-law claims. Supplemental

21 jurisdiction would avoid unnecessary duplication and multiplicity ofact ions, and should be exercised 22 in the interests of judicial economy, convenience and fairness.

23 412_ Venue is proper in this district under Section 12 of the Clayton Act, J 5 U.S.c. § 22

24 and under 28 U.S.c. § 1391, because Ebay transacts business and is found within this district. Ebays 25 anticornpetitive practices complained of herein threaten loss or damage to the general welfare and

26 economy of the United States.

27 28

IV.

CLAIMS FOR RELIEF

-67-

COMPLA1NT

1 1

('OM Pl.AINT

2 3 4

FIRST CLAJM FOR RELlEF

(VIOLA nON OF SECTION 2 OF TUE SHERMAN AND CLA ¥!'ON ACTS)

413. Plaintiffs reallege and incorporate herein by reference, as though set forth in full, the

allegations contained in the Introduction and 1 through 412.

4 J 4. Ebay and the Ebay Defendants attempt to monopo lizc the int crnet auction market has

5 6

been successful as a result of the illegal practices and circumstances recited hereinabove, all to the detriment and harm of the public.

415. Ebay and Paypal possess monopoly power in the Consumer to Consumer and

7 8

9 10

Consumer to Small Business internet marketplace, including the internet C2C and C2SB auction

marketplace, and in the field () f online payment services.

416. Significant entry harriers now characterize this market.

417, The Defendants have willfully maintained that power by antico mpetitive and

12 13

unreasonably exclusionary conduct, as alleged herein.

418. Unless restrained by the Court, the Ebay / Paypal Defendants will continue to

14 15

unlawfully maintain their monopoly power causing irreparable harm to the Plaintiffs, the "Community", for which Plaintiffs have no adequate remedy.

4 L 9. Ebay and Paypals anticornpctitivc acts have harmed consumers and competition.

420. Ebay and Paypal have acted with the specific intent to maintain their monopoly power

16 17 18

19 20 21

and its illegal conduct have allowed them to do so.

421. Ebay and Paypal's conduct occurred in and affected interstate commerce.

422. The Defendants have retarded if not altogether extinguished competition in the

22

consumer to consumer and consumer to small business online marketplace and consumer to

23

consumer online payment industry.

423. The Ebay Defendants use their monopoly power to charge consumers 70-80% greater fees than would be necessary to sustain a profitable enterprise.

24 25 26

27 28

-68-

424. The Ebay Defendants usc their monopoly power in an arbitrary manner, suspending

2 individuals and business from access 10 the internet marketplace at will, without recourse and without 3 any due process.

4 425. The Ebay Defendants possesses monopoly power over the internet auction

5 marketplace. Significant entry barriers characterize said market.

() 426. The Ebay Defendants have willfully maintained that power by anticornpetitive and

7 unreasonably exclusionary conduct in violation of Section 2 of the Sherman Act 15 USc. ~2.

8 Unless restrained by the C0U11, the Ebay Defendants will continue to unlawfully maintain its

9 monopoly power causing irreparable harm to Plaintiffs, for which Plaintiffs have no adequate legal 10 remedy.

J J 427. As a direct, foreseeable and proximate result ofthe Ebay Defendants' conduct in

12 violation of Section 2 0 f the Sherman Act, Plaintiffs have been and will continue to be damaged by, 13 without limitation, the wrongful conduct alleged herein, in amounts to be proven at trial and in excess 14 of 40 billion dollars.

15 428. Plaintiffs injuries are the types the antitrust laws are intended to prohibit and thus

16 constitutes antitrust injury. Unless the activities complained of are enjoined, Plaintiffs will suffer 17 immediate and irreparable injury tor which Plaintiffs are without an adequate remedy at law.

18 19 20

SECOND CLAIM FOR RELIEF RACKETEERING (RICOH)

21 429. Plaintiffs reallege and incorporate herein by reference, as though set forth in full, the

22 allegations contained in the Introduction and I through 428.

23 430. In doing the things alleged herein, Defendants have violated the Racketeer Influenced

24 and Corrupt Organizations Act (RICO), 18 U.S.c. J 96 L et seq.

25 43 J. The Defendants committed wire fraud as they devised, and intended, to devise a

26 scheme to defraud the Plaintiffs on the basis ofa material representations, as set forth herein, and the 27 Defendants did such things with the intent to defraud the Plaintiffs and the Defendants did in fact

28

-69-

COMPLAINT

defraud the Plaintiff through their use 0 fin! erstate wire facilit ies, thereby co mmitting wire fraud 2 under under 18 USc. § ]343.

3 432. In doing the things alleged herein, the Defendants acted with a specific intent to

4 defraud the Ebay Community.

5 433. In doing the things alleged herein, the Defendants were engaged in activities that

6 affected interstate commerce, including internet commerce and financial transactions, electronic mail, 7 bank withdrawals, etc., made between the Defendants and the Plaintiffs and originating in other

8 States, thereby violating 18 U.S.c. ~ 1341, ~ 1343.

9 434. Financial institutions were involved in the Defendants' illicit activities as the

10 Defendants have, by electronic means, withdrawn money from Plaintiffs' bank accounts.

11 435. Plaintiffs are informed and believe that the Defendants have intentionally deleted

12 relevant emails and arc thereby guilty of obstruction of justice under the RICO statutes.

13 436. Defendants, and each ofthem, conspired to commit the prohibited illicit offenses and

14 each Defendant is therefore subject to the same penalties as their intentions were in furtherance of the 15 conspiracy (18 U.S.c. *1349).

16 437. Defendants have LlSC'(] income derived from their pattern of racketeering activity to

17 invest in and acquire businesses, as set forth herein, that are engaged in and affect ing interstate

18 commerce. (18 USc. § 1962.)

J 9 438. Among the "racketeering activities" committed by Defendants, as alleged herein are 20 acts in violation of several State and Federal criminal laws, including criminal provisions regarding 21 fraud and illegal monopolization.

22 439. In addition to violating State and Federal criminal laws as set forth hereinabove. 23 including Section 2 of the Sherman Act (15 U.S.c. ~2; monopolization as afelonyv; Defendants 24 violated 18 U.S.c. 91343 (Fraud by Wire).

25 440. Plaintiffs have been injured by reason of Defendants RICO violations and are entitled

26 to recover threefold the damages they've sustained and the cost of his suit, including reasonable

27 attorneys' tees.

28

-70-

COMPLAINT

2 3 4 5 6

THIRD CLAIM FOR RELIEF (LARCENY)

441. Plaint iff" reallege and incorporate herein by reference, as though set forth in full, the

allegations contained in the Introduction and I through 440.

442. Defendants fraudulently appropriated the property that was entrusted to them by the

Ebay Community.

The Ebay Community created the Ebay marketplace, including its ideas and

19

The Ebay Community entrusted the Defendants with the supervision of this property. Defendants, knowingly and designedly, by false and fraudulent representation or pretenses, defrauded the Community of this property and their interests therein. The Community invested in the building, operation and marketing of the marketplace based on the representations of the Defendants that Ebay was, at first, a free website created for the "Community" and later, that only nominal fees would be charged to the Community in order to operate the website, encompassing such things as electricity and computer servers.

446. Relying on these representations and assurances, the Community continued to build its

property, <L<; Defendants have admitted and (L') alleged herein.

447. Once the property reached a particular point ofvalue, that is, the Community's

marketing efforts had successfully increased the Community size, the Community had provide the necessary ideas and structure to make the marketplace an undeniable success, etc., the Defendants took the Defendants property, claimed it as their own, and began charging the Community excessive fees to usc what was really the Community's property.

448. The Community seeks the return oftheir property (i.e., the Ebay website) and the

return of the moneys paid by the Community for use of its created property.

12

13

14 15 16 17 l8

20 21 22 23 24

-71-

25

26 27

FOURTH CLAIM FOR RELIEF (CONVIWSJON)

28

-------------------------------- ------------------------------

COMPLAIN'!"

449. Plaintiffs reallege and incorporate herein by reference, as though set forth in full, the

2 allegations contained in the Introduction and I through 448.

3 450. The Defendants have willfully interfered, without lawful justification, with the

4 Community's right to access and participate in the internet marketplace which, by Defendants' own 5 admissions .. it substantially created.

6 451. Defendant Whitman admits 75·85% of tile ideas for Ebays successful creation came

7 from the community, that the Community was responsible lor the grass roots marketing that grew

8 Ebay, that the Community was responsible for customer service / help functions via the Help Forum, 9 that the Community was responsible for monitoring the marketplace through the Feedback system it

10 had created, that the Community is responsible for the buying, selling and shipping of all items, etc.

11 452. Notwithstanding the foregoing, the Defendants have unjustifiably and above and

12 beyond the costs necessary to maintain the website, charged the Community for the right and use of J 3 its undeniably created property.

14 453. In doing the things alleged herein, the Defendants have converted the Plaintiff

15 Community'S property and made of the Community's property as their own through the exploitation

16 of the Community. 17

18

FIFTH CLAIM FOR RELIEF (EM BEZZJ.I(M ~:NT)

454.

Plainti tfs rea liege and incorporate herein by reference, as though set forth in fu 11, the

19 20 21 22

aJ legations contained in the Introduction and I through 453.

455. In doing the things herein alleged, the Defendants have fraudulently misappropriated

the property entrusted to them by the Plaintiffs.

456. As alleged herein, the Plaintiffs (i.e., the "Community") is mostly responsible for creating and developing the internet, C2C and C2SB (consumer to small business) marketplace.

457. Defendants admit it was the Community that provided 75-85% of the ideas

23

24 25 26 27 28

responsible for making Ebay successful, that the Community was responsible for the grass roots marketing that grew Ebay, that the Community was responsible for customer service / help functions via the Help Forum, that the Community was responsible tor monitoring the marketplace through the

-72·

CO M I' 1./\ I NT

Feedback system it bad created, that the Community was responsible for the buying, selling and 2 shipping of all items, etc.

3 458. The Plaintiffs entrusted the management of this property, that is, the Community's

4 marketplace, which, in a digital medium, was embodied in the form of data contained in generic

5 computer hardware.

6 459. The Defendants took the Community's property which had been entrusted to them and

7 made use of it as their own and to the exploitation and disadvantage of the Community, and to the

8 profit of the Defendants at the Community's direct expense.

9 460. Plaintiffs seck the return oftheir property and reimbursement ofall funds paid by the

10 Community to the Defendants, minus all operating costs and fair compensation to the Defendants for

I] their labors.

12

SIXTH CLAIM FOR RELIEF

(VIOLATION OF TIll CONSUMERSLE(,AI RCMFDlEsAcT: CAL. CIVIl. CODE, ~ 1770 ET SEQ.)

I J

14 461. Plaintiffs reallege and incorporate herein by reference, as though set forth in full, the

15 allegations contained in the Introduction and I through 460.

16 462. In doing the things herein alleged, the Defendants, and each of them, did engage in

17 unfair methods ofcompctition and deceptive acts and practices which were intended to result and did

18 in fact result in the sale of services to consumers.

19 463. In doing the things alleged herein, the Defendants violated Section 1770 of the

20 Consumer Legal Remedies Act, subsection (5), by representing that the services it provides have

21 characteristics and benefits which they did not have; subsection (9) by advertising services with

22 intent not to sell them as advertised, subsection (2) by misrepresenting the source, sponsorship,

23 approval, or certification of the services provided; subsection (7) representing that goods or services 24 are ofa particular standard, quality, or grade, or that goods arc of a particular style or model, if they 25 are 0 f another; and subsection ( 14) by representing that Ebay transact ions confer or invo lve rig hts,

26 remedies, or obligations which they do not have or involve.

27 464. As alleged herein, for one example, Defendants advertised that Ebay had advanced

28 security measures in place, and according 10 Ebay's much touted advertisements, Consumers

-73-

COMPLAINT

wouldn't get "hosed" by fraud on Ebay. When in fact, Ebay's security measures were intentionally 2 ignored by the Defendants as the implementation of such measures, even basic ones, would have cut

3 into the Defendants price earning ratios, as outlined hereinabove. Despite Ebay's representations

4 regarding the services it provided, there was substantial fraud and hundreds of thousands of victims 5 of fraud, which, had the Defendants implemented the measure of security they represented, could

6 have been avoided.

7 465. Ebay also represented to offer a market that was tree from interference yet Ebay

8 interfered directly with Sellers and Buyers transactions, including actions ranging from unjustified

9 censorship to interference with contractual relations to unwarranted suspension of buyers and sellers 10 from the internet marketplace, all in contravention to Ebay's representations of an open marketplace.

11 466. Plaintiff consumers relied 011 the Defendants' representations to their detriment and

12 have suffered real and substantial harms as a result of said reliance.

13 467. Pursuant to Civil Code ~ 1 no, Plaintiffs statutory damages for the violations alleged 14 herein of the Consumer LcgalRemedies/\cl include punitive damages, actual damages (in no case 15 less than $1000 per victim multiplied 75 million registered users), injunctive relief, restitution,

16 attorneys fees and costs, and if the victim is a senior citizen, an additional $5000 per victim.

17 18 19 20

SEVENTH CLAIM FOR RELIEF (ON,IlJST ENRICHMENT)

468. Plaintiffs reallege and incorporate herein by reference, as though set forth in full, the

21 allegations contained in the Introduction and I through 467.

22

469. As alleged herein, the Defendants have admitted, time and again, that it was the

23

Plaintiffs. i.e., the "Community", that "built" Ebay, that contributed 75-8.5% of the ideas that made

24

Ebay successful, whose grass-roots marketing efforts built Ebay's customer base, whose concepts

25 formed the very basic functioning ofEbay (e.g., the Feedback system), who provided "Help" via the 26

Help Forum, and who did the buying, selling, packing and shipping.

27 28

-74-

.---~--- ----------,

COMI'I.AINT

470. As alleged herein, from the outset, these contributions by the Community which

2 actually and admittedly "built" Ebay, were made with the understanding and expectation that the

3 Community would benefit from the Community's efforts and that the Community's access to the 4 "Marketplace" would be unhindered, without interference and without costs above and beyond the 5 costs necessary to maintain the marketplace itself

6 471. Despite the trust reposed in the Defendants by the Plaint i1J Community, the

7 Defendants breached that trust by taking the Community's property (ideas) and contributions and 8 claimed them for their own.

9 472. The Defendants began charging the Plaintiffs for tile marketplace they built. At first

10 these charges were just as understood, to cover the costs for fund ing the operation itself (electricity, 11 computer hardware, etc.). However, the Defendants became greedy. They realized they were at the 12 front of a marketplace and, as the marketplace grew stronger and the network effect took hold, the

13 Defendants repeatedly and routinely raised the fees charged to the Community, to the point where the 14 goal was generating tens of billions o ldollars in profit.

15 473. These Defendants have been unjustly enriched at the expense ofthe Community.

16 474. Plaintiffs seek reimbursement of the funds that were unjustly taken by the Defendants.

17 18

ErGHT CLAIM FOR RELIEF (INTERFERENCF WITH CONTRACT)

19

20

475. Plaintiffs reallege and incorporate herein by reference, as though set forth in full, the

21 allegations contained in the Introduction and I through 474.

22

476. Ebay would arbitrarily suspend Community members. The suspension could be for

23 almost anything as Ebay was literally the law, judge and jury. For instance, even complaint to or 24

about Ebay could get a member of the Community suspended from the marketplace.

-75-

25

477. On thousands of occasions of such suspensions, valid contracts between Buyers and

26 Sellers had been created which would result in economic benefits for the Sellers. 27

28

-----------_ _ _ _._ .. _-------------------

('OMPI,;\INT

478. As shown by Ebay's records, Ebay had knowledge of these specific contractual

2 relationships.

3 479. Nevertheless, Ebay acted intentionally and with the specific design to interfere with

4 and disrupt the contractual relationships. Ebay would email the contracting party, advising them of

5 their suspension ofthe Buyer or Seller, and further instructing the Buyer or Seller not to complete the 6 transaction, notwithstanding the legally enforceable contractual relationship.

7 480. On receiving these severe appearing letters from Ebay, the Buyers or Sellers,

8 believing they had to follow Ebay's rules, would then breach their contractual obligations as a result 9 of Ebay's actions.

10 481. Consequently, the party Ebay suspended was now incurring additional damages as a

11 result of the breach ofcontract(s) caused by Ebays actions.

12

NINTH CLAIM FOR RELIEF (BREACH OF CONTRACT)

13

14 482. Plaintiffs reallege and incorporate herein by reference, as though set forth in full, the

15 allegations contained in the I ntroduct ion and 1 through 481.

16 483. Tn doing the things herein alleged, Ebay and the Plaintiffs entered into a contractual

17 relationship.
18 484.
19 relationship.
20 485. At all times material, the Plaintiffs have performed pursuant to the Parties' contractual

Defendants, in doing the things herein alleged, have breached material terms of the

21 Parties' Agreement.

22 486. As a consequence of the Dcfcndarus' breach, the Plaintiffs have suffered damages as

23 J lleged herein.

24

TENTH CLAIM FOR RELIEF (Negligence)

-76-

25

26 487. Plaintiffs reallege and incorporate herein by reference, a') though set forth in full, the

27 allegations contained in the Introduction and 1 through 486.

28

COMPLAINT

488. The Defendants owed a duty of care to ensure the Plaintiffs were not injured while

2 using the product the Defendants were packaging and offering.

3 489. The Defendants breached their duty of care as alleged herein, motivated by their

4 efforts to maximize their profits at the expense ofthe Plaintiff's safety.

5 490. As a direct and proximate result of the Defendants negligence, Plaintiffs have suffered

6 harms as alleged herein, includ ing millions if not billions of do liars in avo idable injuries.

7 8 9

10

ELEVENTH CLAIM FOR RELIEF (Unfair Competition and False Advertising)

491. Plainti ffs reallege and incorporate herein by reference, as though set forth in full, the

allegations contained in the Introduction and 1 through 490.

492. The Defendants' violations of the Federal Statutes, including Antitrust Laws, and

1 1

12 13 14 15 16 17 18 19 20 21

Defendants violations of the California Cartwright, etc., constitute unfair competition and unlawful

and unfair business practices and acts and practices within the meaning ofCalifornia Business and

.professions Code.

493. The Ebay Defendants' actions, as alleged herein, constitute "unlawful, unfair, or fraudulent business practicers)" and accordingly violate Section 17200 ct seq. of the California

Business and Professions Code.

494. Defendants' acts of un fair competition alleged herein include unlawful, unfair and

fraudulent business acts. Defendants have, in furtherance of their unlawful acts, engaged in

deceptive, untrue and misleading advertising.

22

495. Defendants' actions, as alleged, constitute unfair competition and an unreasonable

restraint on trade in violation of the California .Business and Professions Code.

23

24

496. Defendants will continue their unlawful. unfair, and fraudulent business practices, as

described hereinabove, causing irreparable and continuing harm to the Plaintiffs and to the public.

25 26 27 28

497. Defendants will continue their deceptive, untrue and misleading advertising, causing

further damage and injuries therefrom.

-77-

COMPLAINT

498. As a direct, foreseeable and proximate result of Defendants unlawful. unfair and

2 fraudulent business practices, as set forth herein, Defendants have obtained at the expensive of 3 Plaintiffs and continue to hold ill-gotten gains and have been unjustly enriched thereby. These

4 wrongful acts have proximately caused and will continue to cause Plaintiffs and the pub lie at large 5 substantial injury until this Court enjoins such conduct.

6 499. Plaintiffs are entitled to restitution tor the unlaw ful and unfair business practices as

7 alleged in this Complaint.

H 500. Plaintiffs arc also entitled to disgorgement of Defendants' ill-gotten gain derived frorn

9 their unlawful, unfair and/or fraudulent business practices in violation of Cali forni a Business and

10 Pro fessio o!'i ... C;_q de.

I I 501. Plaintiffs further allege that Defendants me subject to liability for treble damages

12 under Section 17206. I for perpetrating the acts alleged hereinabove against senior citizens and 13 disabled persons.

J 4 502. Although unascerta ined. Pia intiffs ' damages are estimated at more than forty billion

15 dollars for which the Plaintiffs seek restitution thereof

16

17 18

TWELFTH CLAIM FOR RELIEF (COMMON LAW UNFAlH COMrETlTlON)

19 503. Plaintiffs reallege and incorporates herein by reference, as though set forth in full, the

20 allegations contained in paragraphs 1 through 502.

21 504. The actions and conduct in which the Defendants engaged, described hereinabove,

22 constitutes common law unfair competition.

23 505. As a direct and proximate result of Defendants' acts of unfair competition, Plaintiffs

24 have suffered, and continues to suffer, damages and harms.

25 506. In engaging in the acts ofunfair competition alleged herein, Defendants acted

26 willfully, with malice and with conscious disregard for the rights of Plaintiffs, thereby entitling

27 Plaintiffs to an award of exemplary or punitive damages, pursuant to California Civil Code, §3294, in 28 an amount to he determined by the trier of tact.

-78-

COMPI.AINT

THIRTEENTH CLAIM FOR RELIEF (VIOlATION OF THE CARTWR(arr ACT (~t 6720 ET SEQ.)

2 3

4 507, Plaintiffs reallege and incorporates herein by reference, as though set forth in full, the

5 allegations contained in the Introduction and 1 through 506,

6 508, In doing the things al lcged herein, Defendants have formed an illegal trust in order to

7 carry out restrictions in trade and commerce in order to increase the price of the digital/internet

8 marketplace, to prevent and eliminate competition, and to fix and control the price ofparticipation in 9 the internet marketplace, causing injury to the Plaintiffs' in an amount to be determined according to

10 proof at trial.

11 12

FOURTEENTH CLAIM FOR RELIEF (FRAUD AND Ol<:CEIT)

]3

14 15

509. Plaintiffs reallege, refer to, and herein incorporate by this reference as ifset out in full,

paragraphs 1 through 508,

510. As alleged herein, Defendants made the aforesaid material representations with actual

16 17 18

knowledge of their falsity and/or were reckless when they made such representations without knowing whether the representations were true or false.

511, Defendants have concealed and suppressed material facts relating to the internet

19

20 21

marketplace as set forth hereinabove while falsely representing their contributions to the creation and development of the marketplace.

512. The misrepresentations of material fact and concealment of material facts outlined

,,)

herein were made by the Defendants with the intent to induce Plaintiffs to rely thereon and for the

23

purpose of Defendants wrongfully profiting from Plaintiffs' reliance.

24

25 26

513. At the time Defendants made these representations, Plaintiffs were ignorant of the

falsity ofthe Defendants' representations and believed them to be true.

514. Plaintiffs justifiably relied on the Defendants' representations and as a result, suffered

27 28

harms and damages therefrom.

-79-

COMPLAIN',·

515. Plaintiffs reallege, refer to, and herein incorporate by this reference as if set out in full,

2 paragraphs 1 through 514.

3 516. Defendants made assertions of fact on which the Plaintiffs relied which were untrue

4 and for which Defendants had no reasonable ground for believing the statements, outlined

5 hereinabove, to be true.

6 517. Defendants owed the Plaintiffs a duty to exercise reasonable care to disclose facts

7 basic to the transaction and not to falsely represent material facts on which Defendants knew

8 Plaintiffs would rely.

9 518. Defendants breached this duty by making misrepresentations of material facts on

10 which the Plaintiffs relied, as set forth hereinabove, causing Plaintiffs to suffer harms as alleged. II

12 PRAYER FOR RELIEF

]3

14 Wherefore, Plaintiffs pray for relief against Ebay and the Ebay Defendants as follows:

15 That the Court adjudge and decree that:

J 6 (a) Ebay is a marketplace;

17 (b) As a marketplace on the publicly funded and developed internet, the Consumer

18 to Consumer and Consumer to Small Business marketplace serves a vital and

[9 20 21 22 23 24 25 26 27 28

(c)

(d)

(e)

essential function in today's economy and society and as a necessity thereof it shall be regulated as the public utility which it is:

Ebay and the Ebay Defendants Unlawfully possessed and exploited internet marketplace monopoly in violation of Section 2 of the Sherman Antitrust Act and Cartwright Act;

Ebay and the Ebay Defendants unlawfully acted to secure and monopolize as its own for its own exploitation the internet marketplace in violation of the Sherman Act and Cartwright Act;

Ebay and the Ebay Defendants unlawfully tied the usc of its Paypal payment system 10 transactions on in the marketplace while forbidding the use of other

-80-

COMPLAINT

2 3 4 5 6 7 8 9

10 I J 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

payment services such as those o ftc red by Citibank (C2iT), GoogJe (Google Checkout), etc.

(I) Ebay and the Ebay Defendants violated the Racketeer Influenced and Corrupt Organizations !lei

(g) Ebay and the Ebay Defendants unlawfully committed acts of unfair competition, including violations of the California Business and Prokssions Code, §~ 17200 ct scq.;

(h) Ebay and the Ebay Defendants unlawfully committed acts of unfair competition in contravention to the common law;

(i) Ebay and the Ebay Defendants vio lated Section 17500 of the California Business and Professions Code;

U) Ebay and the Ebay Defendants violated 18 U,S.c. § 1343 (Fraud by Wire);

(k) Ebay and the Ebay Defendants have been unjustly enriched and profited from the fruits of the Plaintiffs' labors;

(I) Ebay and the Ehay Defendants violated California's Consumers Legal

Remed ics Act:

(rn) Ebay and the Ebay Defendants are guilty of Conversion;

(n) [bay and the Ebay Defendants are guilty of embezzlement;

(0) Ebay and the Ebay Defendants have committed larceny under California Penal Code ~4X4;

(p) That the Court grant an Order declaring that Ebay and all persons acting on its behalfor under its control, and all successors thereto, be enjoined from engaging in the unlawful practices described in this Complaint and from engaging in similar unlawful practices;

That Plaintiffs recover treble damages as permitted by law, including 18 USc. 91964, the Clayton Antitrust Act, and Business & Professions Code, Sections 16750, 17082, 17206.1;

(q)

-x 1-

COMPLAINT

8 9 10 11 12 13 J4 [5 16 17 18 19

20

21

22 23 24

25

26

27 28

2 3 4 5

6

7

(r)

That Plaintiff" are awarded punitive and exemplary damages pursuant to, c.g.,

Cali rornia Civil Code, §3426.3, §3294, C1RA, § 1780, etc.;

(s)

That Plaintiffs recover damages in the amount of damages in the amount of

(t)

$40,000,000,000.00 (forty billion dollars hom the Ebay Defendant; That the Plaintiffs recover $14.000,000,000 from Defendants Whitman, Omidyar and Skoll;

(u)

That Plaintiffs recover the costs of this suit, including attorneys fees, as

(v)

provided by law;

That Plaintiffs be awarded prejudgment interest at the legally allowable rate on

all amounts owed;

(w) That the Court grant any such other relief as the Court deems just and proper.

Respectfully submitted,

Dated: October 24, 2010

Attorney tor Plaintiffs

-82-

COMPLAINT