MEMORANDUM OF LAW
TO: Professor Benjamin Greer
FROM: Shawn Butler
DATE: February 24, 2008
RE: Regulatory Action of French Council of Sales vs. eBay Inc. France
STATEMENT OF FACTS
France's auction house regulatory Authority, Council of Sales, challenges the legality of eBay France, the France-based division of the California, USA online auction and shopping website company eBay Inc. The Authority asserts "that eBay's French site 'should be held to the same standards as other auction houses in France,' which are required to acquire a special permit from authorities that includes guarantees of consumer protection."1
The requirement of permits allows the Authority to impose regulations regarding auction houses aimed at preventing the inadvertent sale of stolen goods, counterfeits, and frauds.
eBay Inc. responds by stating that it "has 'invented another way of buying and selling' not covered by the law on auction houses."3 The company's claim is that they are not an auction house but a "facilitator"4 or a brokerage company for sellers and buyers.
The Authority said "that eBay's failure to abide by the rules governing auction houses leaves consumers open to exploitation by unscrupulous eBay users, and could make it easier for users to sell fakes or to evade tax."4
QUESTIONS PRESENTED
A. Is eBay correct in its allegation that it has invented something completely different from an auction house using its online auction and marketplace model?
B. Should eBay fall under the same rules regulating auction houses and be responsible for the validity of the goods traded through its service?
DISCUSSION
A. eBay defines itself on its website as "[t]he World's Online Marketplace®, enabling trade on a local, national and international basis. With a diverse and passionate community of individuals and small businesses, eBay offers an online platform where millions of items are traded each day."6 This careful avoidance of the term "auction" in their own description neither states that the company operates, by its own definition, as a brokerage or an auction house.
However, for the opposition, the semantics does not appear to be the key issue. "The Council said that it did not accept eBay's assertion that it was simply a broker and not an actual auctioneer. 'What is the difference?' [Council chairman Christian] Giacomotto said to The Times. 'They charge a commission to the seller and a commission to the buyer. These people cannot say they are responsible for nothing at all. If you rent your house to someone who sets up an illegal casino in it, then you share part of the responsibility.'"4
The logic presented by Chairman Giacomotto is verifiable; that the owner of a house bears partial responsibility for illegal activities that occur in the house on the part of the renter is well represented in precedent. Whether or not this scenario relates to the online auction sector is still a matter of deliberation.
B. The overt reason given by the Council to impose the requirement of licensing on eBay France is to protect the consumer, but they also are interested in protecting other auction houses. "This is unfair competition, because other auctioneers have to make sure they are transparent and that they provide guarantees," Council chairman Christian Giacomotto told The Times. 'Our ambition is not to regulate the world, but we want groups such as eBay to accept their responsibility.'"4
The responsibility mentioned here is the requirement to purchase insurance against fraud on the part of the auction house which puts the house itself responsible for authenticating that the goods bought and sold on the site are verifiable and legally obtained. Currently, eBay takes no responsibility for fraud committed via its website.
Which laws can be applied to the company is again dependent on the way that it is determined the company is doing business, whether as an auction house or as a brokerage. "[The July 2000] law makes a clear distinction between the activities of online auctioneers, which have a mandate from the owner of the goods to sell them to the highest bidder, and online auction brokerages, where no third party intervenes between the buyer and the seller to complete the sale. Online auctioneers must obey the same rules as physical auction houses, in particular taking responsibility for delivering the goods to the buyer, but auction brokers are almost exempt from regulation, except where the goods sold are "cultural products" such as books, CDs, or DVDs, according to the regulator." 3
Finally, other matters that should be considered are the cases cited parallel to this regulation by the council in France. "Last month, [November 2007,] the regulator filed suit against the online car auction site Carsat.fr seeking a similar court injunction to halt its activities, which it said were being conducted without due authorization, and warned that other online auctioneers faced similar action."3
"French regulation of internet businesses recently failed when the Government lost a case in which it tried to prevent an online gambling company from operating. A Maltese horserace betting site, Zeturf, had a ruling banning it from operating overturned in July by France's highest court, the Cour de Cassation. That court said that France's state monopoly on gambling broke EU competition rules."4
It could be construed that similar financial and monopolistic motivations could be spurring the regulatory Councils investigations into eBay France.
CONCLUSION
eBay has been a successful and fast-growing company since its inception in 1995 and currently operates in 30 countries. The reputation for fraud on the website is well documented. "It is estimated that about a quarter of all ancient coins and about two-thirds of all antiquities sold on eBay are modern forgeries."5
A. eBay defines itself as something new that falls outside of the scope of auction houses or brokers. By this definition, they are attempting to fall outside of the legal limits regarding both institutions. The best comparison, however for eBay would be to not claim to be something brand new, but rather to be something that is already understood by governmental agencies.
The action and model of eBay is much more similar to the current function of newspaper classified advertisement sections that have been posted online. In the case of online classifieds, zero fault or responsibility is assigned to the posting agent as it regards fraud. A simple disclaimer that buyers should be cautious and careful in their transactions via the media serves to prevent the allocation of guilt.
B. By finding eBay to be subject to the same requirements as an auction house and responsible for verifying its goods and services will leave the company financially responsible for fraud on its site. This additional monetary responsibility will quite possibly change the model of eBay from an online auction to an online marketplace, in order to avoid the impending financial burden. If France's Council determines the requirement of a permit, it is likely that other countries will impose the same restrictions.
Rather than having to follow the laws regarding auction houses, or even the more relaxed laws regarding brokerages, eBay should be held to the legal regulations that apply to other vehicles that simply connect buyers and sellers together, like classified advertising and public bulletin boards. The Council of Sales is misguided in its attempts to apply the July 2000 law to the French division of the eBay company.
RESOURCES
1. http://www.caltradereport.com/eWebPages/page-two-1198255692.html
2.http://www.reuters.com/news/video?videoId=72200&videoChannel=5
4.http://www.channelregister.co.uk/2007/12/05/france_says_non_to_ebay_broker_claims/
1 comment:
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