Antitrust Monopoly Suit Claims eBay Squeezes Out Small Sellers

Monday, December 20, 2010

Courthouse News Service - Bridget Freeland

SAN JOSE (CN) – An antitrust class action claims that eBay abuses its monopoly of online auctions to force out small sellers through new, discriminatory policies that favor eBay’s larger sellers – and can subject small sellers to “feedback extortion.” Because a few negative comments from buyers can get small sellers kicked out of eBay, “unscrupulous buyers are using this power of … rating to force sellers to provide them items and services which are over and above what they have paid for,” according to the federal complaint.

The class claims that “eBay controls in excess of 90% to 98% of the online auction market,” and is “currently ranked as the 16th most popular Web site on the Internet.”

It says eBay is abusing its monopoly power by implementing an unfair and discriminatory policy that is “destroying the business and livelihood of many well established, small eBay auction sellers.”
eBay recently has subjected sellers to strict rating regulations and unfairly suspended or closed their accounts without grounds – destroying people’s businesses and livelihood, according to the complaint.

The class claims that beginning in May 2008, eBay implemented a “Detailed Seller Ratings Policy” (DSR) allowing buyers to rate sellers’ services “on a one to five star scale,” based on the accuracy of the item description, communication with the buyer, shipping speed and charges. This year eBay modified its rating policy, adding requirements that “undermine the ability of small auction sellers to compete with larger sellers,” according to the complaint.

The class claims the new policy severely limits the number of low ratings that a seller can receive and stay active.

“Specifically, defendant eBay now mandates that starting October 2010, all eBay sellers will need to have 1s or 2s for item as described on no more than of 3.00 percent of transactions, and on no more than 4.00 percent for communication, 4.00 percent for shipping time, and 4.00 percent for shipping and handling charges,” the complaint states.

Many sellers who have feedback ratings of 90 to 100 percent “now have restrictions on their accounts or have had their accounts permanently disabled due to low DSR ratings,” the class claims.

When a seller’s account is restricted due to low ratings and the listings are removed from eBay, “a seller is accorded a specific time period in which to rehabilitate his or her DSR ratings,” the complaint states.

But the class claims that this “rehabilitation” is almost impossible if the seller is not allowed to sell products on eBay.

The policy also leaves “sellers vulnerable to feedback extortion,” the complaint states.
It continues: “Just a few negative DSR ratings can destroy a seller’s goodwill and impose severe limitations on the seller’s account. Many unscrupulous buyers are using this power of DSR rating to force sellers to provide them items and services which are over and above what they have paid for.”

The class claims that the “one to five stars” rating system is misleading, in that most consumers would consider “a rating of three as average, and a rating of four as good, with five being excellent.”
A fully satisfied buyer might rate the seller’s services as a four, which is actually low on eBay’s standards, since a seller must “maintain a DSR average of 4.3 to freely operate on eBay,” the class claims.

It claims the ratings are anonymous and that eBay has no mechanism in place to keep competitors from “artificially lowering” a seller’s rating.

Also, the class says, “large sellers are often exempt from DSR penalties that small sellers are subject [to] and/or have a much greater chance of rehabilitating their DSR rating due to the volume of transactions which they conduct.”

Therefore, the class claims, “eBay assumes that larger sellers are more dependable than the small sellers, giving them an arbitrary preference.”

The named plaintiffs – Max Garon, Phil Lentsch, Office Dynamics, Amy Rickel, Fred Rickel and Ben Guz – are all longtime sellers on eBay; all claim their accounts were suspended for no good reason.

Rickel says she tried to sell iPhones on eBay after she ordered them from another seller, though she never actually received them and ended up giving her customers refunds. After she bought another set of iPhones, received them and posted them for sale, eBay unfairly banned her, deemed her “a threat to eBay security” and refused to communicate with her, she says.

eBay then closed her husband Fred’s account – which he used to sell neckties – without explanation, though he had 100 percent feedback rating, the Rickels say. They claim that eBay sent an email to all of Fred Rickel’s clients informing them that he too was “a threat to eBay security.”

“The email went on to say that if the customers wished to receive their money back, even if they had already obtained their purchased item, they could fill out an attached form and the money would be automatically debited from plaintiff Fred Rickel’s PayPal account,” the complaint states.

Garon, who grossed more than $300,000 a year selling “articles relating to the dog training industry,” says eBay unfairly shut down his account after unexpected delays in shipping caused his ratings to drop below 4.3.

Due to eBay’s unfair practices, buyers are forced to pay inflated prices because large sellers no longer must compete with small sellers, who will have no incentive to enter the market for fear that they will be shut down, according to the complaint.

The class demands damages and restitution from eBay for violations of the Sherman Act, unfair competition, tortious interference, trade libel, unjust enrichment and negligence.

The class is represented by Marina Trubitsky of New York, N.Y.