|This paper is submitted by eBay Inc. ("eBay") in response to the Federal
Trade Commission's ("FTC") Request for Academic Papers and Public Comments
noticed in the Federal Register on December 16, 1998 (63 Fed. Reg. 69289) ("Request
for Comments"). The FTC plans to hold a public workshop in June 1999 to examine U.S.
perspectives on consumer protection in the global electronic marketplace. eBay submits
this paper to aid the FTC in its consideration of these issues, particularly as they
relate to consumer and business education and the development of private sector measures
sector to effectively address consumer concerns about fraud, deception and misuse in this
Summary of Position
Since its founding in 1995, eBay Inc. has grown rapidly to become the second most visited Internet shopping site. (1)/ Often called the world's largest virtual bazaar, consumers throughout the United States and abroad of all descriptions, interests, and income levels have flocked to eBay's online person-to-person trading community to buy and sell items as varied as antique maps and Beanie babies. eBay's success has spawned other online commerce sites that offer consumers the opportunity to buy and sell merchandise to each other online.
The most significant challenge that eBay has faced is improving its consumer protection programs to keep pace with the ingenuity of a small group who attempt to abuse the auction process. On its own initiative, eBay has instituted some of the most innovative and consumer friendly programs in the industry to protect its users from fraud, deception and misuse. eBay believes that its consumer education and protection programs are a model for other online person-to-person sites and other forms of e-commerce.
eBay is acutely aware that online commerce will not continue to flourish if consumers lose confidence in the safety and security of their transactions.
Therefore, eBay is committed to effective self-regulation and has been proactive in implementing programs and policies to empower and protect consumers. Specifically, in response to consumer concerns, eBay recently augmented its existing consumer protection programs by providing free insurance for transactions under $200 subject to a $25 deductible, and establishing a convenient online escrow program to protect consumers from unscrupulous buyers and sellers. In addition, eBay has announced a voluntary user verification program and a limited third party mediation service.
Government agencies on all levels will continue to play a role in protecting consumers. Public agencies should strive to increase their effectiveness by instituting their own innovative consumer protection programs. Three particularly noteworthy efforts are: (1) the FTC's web site, which provides consumer information and on-line fraud complaint forms, (2) the New York City Department of Consumer Affairs' recently created web site, which allows consumers to register complaints online, and (3) the Internet Bureau established by the Attorney General of New York to protect consumers online.
In the highly dynamic Internet marketplace, however, private firms such as eBay are in the best position to design and implement creative programs to respond to consumer complaints about fraud, deception and misuse. Therefore, both domestic and foreign government agencies should resist the temptation to impose regulations on online marketplaces and other forms of e-commerce in an effort to extend consumer protection to this new form of commerce. Effective consumer protection efforts are much more likely to emerge from industry self-regulation, "best practices" and dispute resolution than from government intervention. Regardless of how well meaning such intervention may be, it carries the serious risk of impeding the growth of the emerging e-commerce marketplace without providing meaningful benefits to consumers.
1. Consumer Protection Challenges in the Online Marketplace can be Met by Innovative Programs that Respond Directly to Consumer Concerns
eBay, like any consumer business, has a strong interest in making its shopping place as safe and secure as possible; otherwise consumers will turn to competitors or reject online commerce sites altogether. Electronic transactions in general, and auctions in particular, present new consumer protection challenges for responsible firms. eBay and other e-commerce businesses can meet that challenge by developing creative programs to provide consumers with: (1) online information to evaluate the safety and reliability of a transaction, (2) targeted safeguards to protect against unscrupulous users, and (3) easily comprehensible online programs and policies designed specifically to combat fraud, deception and misuse.
2. eBay's Consumer "Trust & Safety" Program is Model for a Comprehensive Consumer Education and Protection Program that Can be Adapted for Use by Many
In January 1999, eBay announced a comprehensive "Trust & Safety" program to augment its existing "SafeHarbor" consumer information and protection programs. The goal of the "Trust & Safety" program is to "promote safe online trading as well as protect the community from fraud, the sale of illegal or infringing materials and people that would misuse the system." The program was "applauded" by the National Consumers League, which operates the nation's leading program to monitor online fraud: www.fraud.org. The "Trust and Safety" program, along with the other consumer protection policies that eBay has instituted, are based on four primary commitments:
Developing comprehensible user policies to combat fraudulent transactions and misuse of its site, and Protecting users' privacy.
Using these principles, other e-commerce firms can adopt creative, site-specific programs to ensure that users are educated about and protected from fraud, deception and misuse. Moreover, the firms can do so quickly and at a reasonable cost to themselves and their users.
a. Providing consumers with tools that they can use to protect themselves from fraud, deception and misuse is an essential component of consumer protection
Online services such as eBay create some unique consumer protection challenges because of the nature of the person-to-person marketplace. eBay provides an online venue for sellers to conduct an auction of their merchandise. Unlike traditional auction houses, eBay does not take title to nor handle the goods bought and sold on the site. Rather, eBay provides buyers and sellers with an online forum to directly meet across state and international borders and negotiate transactions. This approach keeps costs extremely low, thus providing consumers with a highly efficient market for goods.
To meet the challenges of the online marketplace, eBay's primary goal has been to provide its users with information they can easily use to make an informed decision about potential buyers and sellers. Other e-commerce firms can offer similar information to their users about the identity and transaction history of trading partners when such information is a necessary component of reaching an informed decision about transacting business online. Specifically, eBay has developed a verification program that permits its users to better assess the reliability of prospective trading partners, and a feedback forum where users can provide information to others about their experience with a particular buyer or seller.
Verified Information about Buyers and Sellers
One problem that all online commerce sites have experienced is the absence of a practical way to verify the personal identification information of a user. Although eBay has a verification program to check the proximity of the street address, city and zip code entered by a registrant, it is unable to provide greater assurance to its users about the reliability of potential trading partners. Therefore, eBay is developing a voluntary program to collect and verify information about buyers and sellers who choose to participate. The program, which is part of eBay's updated SafeHarbor initiative, is called "Verified eBay User." Users who wish to participate provide personal information, including their social security number, drivers license number, and date of birth, to Equifax Secure Inc. Equifax compares the information against consumer data already in its files to verify the identities of the users. To protect the users' privacy, eBay does not see or collect this personal information, and Equifax does not retain a record of the information submitted through this program.
When Equifax confirms the user's information, it notifies eBay, and the user earns a "Verified eBay User" icon that is placed next to the user's name on the site. That icon gives buyers and sellers an added level of confidence that the person with whom they are dealing is reliable. The cost for this service is currently $5.00.
Feedback Forum Where Customers Evaluate One Another
The feedback forum was launched in 1996. The forum allows users to provide feedback on their experience with a particular buyer or seller that others can use to evaluate that same buyer or seller as a potential trading partner. See ebay.com/aw/safeharbor-forum.html. The forum uses a numeric rating system, symbols and written comments to create a unique profile of its traders. Specifically, different color stars represent a user's "feedback rating;" that rating, which appears next to a user's name, shows how many positive, negative or neutral points the user has accumulated from other trading partners. Short written comments offer insights into how satisfied others have been with this trading partner. An example of an eBay feedback profile is depicted below.
The feedback forum offers consumers unmatched insights into the experiences that other eBay users have had with a particular trading partner, thus empowering consumers to use information generated by other consumers in making informed judgments about the prudence of doing business with a particular user. eBay has recently enhanced its feedback profile through its updated SafeHarbor initiative, allowing users to distinguish feedback tied to a particular transaction from general feedback, clarify comments and responses submitted for a profile and respond directly to feedback from other users in the same space.
b. Program safeguards can be instituted to protect consumers from fraud and to resolve disputes online
Online trading communities face some unique challenges. Among them are finding creative, cost effective means to protect users engaged in smaller transactions, providing convenient access to conventional forms of protection for users engaged in larger transactions, and developing effective means of dispute resolution. eBay has instituted three programs to address these concerns. First, eBay has implemented an automatic insurance program for users engaged in transactions under $200 to protect them against losses. Second, eBay and its escrow partner developed an online escrow system that gives consumers engaged in larger transactions convenient access to third party protection for more substantial transactions. Third, eBay is instituting a pilot online mediation service for its users. These innovative programs make it possible for eBay's users to more easily protect themselves against fraud, and resolve general disputes about products and services in a cost-effective manner.
No Cost Insurance for Transactions Up to $200
As part of its enhanced SafeHarbor initiative, eBay (through Lloyd's of London) now offers free transaction insurance to users in good standing for transactions of up to $200. This insurance program protects most of eBay's users and most of the transactions conducted on the site. The insurance covers failure to receive payment for merchandise that users have sold, failure to receive merchandise that users have purchased, or receipt of merchandise that is materially different than represented. The insurance is subject to a small deductible of $25. Users who need this service must report the problem to eBay via its online reporting system shortly after the auction closes. Lloyd's investigates the claim and responds to the user within 45 days of the complaint.
Escrow Services Available for Larger Transactions
As another feature of its updated SafeHarbor program, eBay integrates its transaction reporting forms with a hyperlink to an online escrow service. Escrow services provide additional security for users engaged in larger transactions by holding the buyer's payment until he or she has received and inspected the merchandise. eBay partnered with an online escrow firm to launch an integrated service that allows eBay to offer its users effective online escrow services that they can retain and pay for online.
Mediation and Arbitration Services
eBay is working with the Online Ombuds Office, a branch of the University of Massachusetts, to develop an online mediation service for its members who are concerned about certain aspects of a transaction. Currently, the Online Ombudsman Office, which employs professional mediators, offers free mediation to eBay members for qualified disputes. Disputes that qualify include receipt of damaged items, disputes over the quality of merchandise and disputes over shipping or payment terms. eBay also will link its users to arbitration services that they can use to settle disputes over expensive purchases.
c. User policies can be designed to facilitate appropriate oversight of consumer transactions
Online person-to-person trading communities and other forms of e-commerce can design their sites to deter fraudulent transactions through appropriate policing and reporting policies. In some cases, appropriate oversight may require the company to ban or remove certain items for sale. eBay facilitates complaint reporting by its users at an early stage when disputes are most likely to be resolved amicably. eBay's consumer protection efforts have also led it to ban and remove certain merchandise from its site, including inappropriate, illegal, and unduly dangerous items, and those that infringe another company's copyrights and trademarks.
Policing Abuse of the Site
Under its SafeHarbor program, eBay monitors and investigates
conduct that undermines the integrity or fairness of the auction process. Such conduct may include abuse of its feedback forum process, bidding offenses, such as attempts to artificially raise the level of a bidding price (called shill bidding), selling offenses, such as failure to complete the transaction, (called deadbeat bidders), contact information or identification offenses, such as providing patently false contact information and other offenses such as sending spam (unsolicited commercial e-mail). As part of its updated SafeHarbor initiative, eBay has strengthened its deadbeat bidder and shill bidding policies by adding tougher sanctions. Depending on the seriousness of the offense, eBay may warn offenders, or suspend them (temporarily or permanently) from the site. In appropriate cases, EBay may also notify the proper law enforcement authorities.
Facilitating Fraud Reporting
eBay's SafeHarbor reporting system enables users to file fraud complaints at an early stage when it is still possible to settle them amicably. Specifically, when a user files a complaint with eBay's online fraud reporting service, eBay automatically sends an e-mail to the other trader involved. eBay clearly informs the trader about the complaint and gives him or her the opportunity to resolve the problem expeditiously. Also, eBay informs the trader that failure to resolve the complaint may result in notification of the appropriate agencies by the complaining party. eBay is developing a database that identifies public consumer protection agencies in each state, and a procedure for forwarding its users' complaints about fraud directly to those agencies.
In addition to assisting its users, eBay's online reporting service enables the company to track abusive traders and suspend or terminate their trading privileges. Also, it permits eBay to detect patterns of fraudulent behavior and to take appropriate corrective measures. For example, after examining several reported fraudulent transactions, eBay modified its procedures for Dutch auctions by requiring prospective traders to be registered with eBay for a minimum of 60 days and to have a feedback rating of 10 or greater before conducting such an auction.
eBay has a hyperlink to assist its users obtain advice about internet transactions from, or report fraudulent transactions to, the National Fraud Information Center (NFIC). The NFIC is a project of the National Consumers League. NFIC offers online services and a toll-free hot line that consumers can use to get advice about reporting suspected online fraud to law enforcement agencies. Also, eBay features NFIC tips for avoiding internet fraud on its site.
Combating Copyright and Piracy Violations
eBay recently launched an upgraded "Legal Buddy" program to improve its ability to detect and remove illegal or unlicensed merchandise from its site. eBay worked with industry leading companies in defining sophisticated searching tools and dedicated e-mail accounts to enable companies to find and report potentially illegal or infringing merchandise. Once such merchandise is identified, eBay works quickly to remove it from its site and notify sellers and bidders of the problem. Sellers and bidders are referred to content owners for more information. In addition, eBay has offered content owners space on its site to educate its users about potential violations.
eBay's site complies with the requirements of the Digital Millennium Copyright Act to terminate repeat offenders and to clearly inform users of its copyright infringement policies. The eBay site includes a Copyright Infringement form that content owners can use to inform eBay of the potential infringement and DMCA Registered Agent information. Also, the eBay site informs its users how they can protect themselves from listing potentially illegal or infringing items.
Restricting Inappropriate or Dangerous Items
eBay has taken measures to ensure the integrity of its site and the safety of its customers. For example, eBay recently banned the sale of firearms from its site. eBay did so because it determined that it could not readily guarantee that its buyers met the qualifications for purchasing firearms or would comply with such laws. Therefore, eBay concluded that it was imprudent to list firearms on its site. Further, after close consultation with federal and state law enforcement officials, eBay prohibited listings for most federal and state police badges on its site.
d. Appropriate privacy protections are an essential component of an effective consumer protection program
eBay does not offer its services to minors and requests that no information on minors be submitted. eBay does not sell or rent any personally identifiable information to third parties. Aggregate information is disclosed to advertisers and marketers for promotional purposes. However, no information disclosed can be used to personally identify its users.
3. Private Sector Leadership Can Most Effectively Respond to the Challenges of Protecting Consumers Online
The creative array of consumer education and protection programs that eBay has developed respond to the challenges of the electronic marketplace. eBay is committed to improving its consumer education and protection programs to deal with new or unexpected consumer complaints. In the fast paced world of cyberspace, online firms such as eBay are better positioned to address consumer fraud, deception and misuse complaints than government regulatory agencies. eBay's recent efforts to enhance its consumer education and protection programs have been praised by a leading consumer group as an "innovative step to reduce the potential for problems with online auctions." (2)/ Moreover, eBay has implemented those enhancements quickly and at minimal cost to its users.
eBay recognizes and supports the role that consumer protection and law enforcement agencies have in investigating and prosecuting legitimate complaints of consumer fraud, whether such fraud occurs over the telephone, in person or in cyberspace. eBay is committed to working with such agencies to ensure that eBay users' rights are fully protected. Also, eBay encourages government agencies to develop creative ways to respond more quickly to consumer complaints about online transactions. Innovation is not, however, synonymous with regulation, and the government should proceed cautiously to ensure that its policies do not unnecessarily impede the growth of this new and dynamic marketplace.
eBay recognizes that the integrity of its site and the confidence of its users is its most valuable commodity. It will continue to improve its consumer education and protection programs to meet the growing challenges of Internet commerce. eBay believes it can continue to meet these challenges without the stimulus of government regulation, and that other e-commerce firms should be encouraged to do likewise.
U.S. Perspectives on Consumer Protection
COMMENTS OF eBay Inc.
Brad Handler, Esq.
Dated: March 26, 1999
1. The number two ranking was as of December 1998. Money, Winning Bid the hot Web action site eBay is addictive, for sure, March 1, 1999.
2. Comments of Susan Grant, Director of the National Consumers League Internet Fraud Watch program. eBay press release, dated January 14, 1999, www.ebay.com/aboutbay/releases/9901.html#2.