Auction Blocks: Criminals Unload Counterfeit and Stolen Goods on eBay

Criminals use online auctions as a place to unload stolen, diverted and counterfeit products. EBay does little to stop them, creating more work for CSOs. Here's what smart companies do.

"The auction sites, in my opinion, are a marketing ploy for the organized retail crime organizations, just like the flea market booths were before the Internet took over," Rogers says. "It's simply a situation of criminal displacement."

EBay and others contend that they merely provide a trading platform for buyers and sellers, and are not responsible for any illegal transactions that may occur. "We never take possession of goods," says Hani Durzy, a spokesman for eBay. "We never touch them; we never see them. Therefore, of the 50 million listings on eBay [on an average day], we cannot confirm the origin of anything."

So far, the argument has worked. The online auction companies have managed to avoid regulation either of themselves or of the growing number of third-party brokers who specialize in selling items on their platform.

Three cases in particular stand out. In 2000, a judge in San Francisco dismissed a lawsuit filed by an attorney named Randall Stoner over bootlegged music sold on the site. The judge ruled that eBay was shielded by the Communications Decency Act, which protects Internet service providers from liability for potentially illegal conduct by their customers. Then, in 2001, a documentary film producer named Robert Hendrickson sued eBay for pirated DVDs being sold on the site. This time, a California judge ruled that eBay was covered by a safe harbor clause in the Digital Millenium Copyright Act. (The safe harbor protects online service providers from copyright liability, provided they block access to infringing material when they receive proper notification from the copyright holder.) Finally, in 2002, yet another judge in California threw out a case filed by five eBay users who had purchased phony autographed sports memorabilia. The judge ruled that eBay was not a "dealer" that needed to follow California's Autographed Sports Memorabilia statute.

Right now, the auction company faces the attorneys for two more formidable opponents. In Germany, high-end wristwatch manufacturer Rolex sued eBay for copyright infringement. The case was originally decided in favor of eBay, but an attorney for Rolex says that an appeals court recently reversed the trial court's decision and sent the case back for further proceedings. In the United States, the upscale jeweler Tiffany & Co. has filed a lawsuit charging that eBay is facilitating and participating in the sales of products that violate Tiffany's federally registered trademarks. (Tiffany declined to comment for this story, citing the active lawsuit.)

In a complaint filed in the U.S. District Court in New York, Tiffany's attorneys offer a rare glimpse into the scope of the eBay problem. During one five-month period, two Tiffany employees devoted "substantial portions of their time" to getting eBay to shut down 19,000 auctions of counterfeit Tiffany merchandise. That's 126 auctions a day. In another effort, the company randomly purchased 186 pieces of "Tiffany" jewelry for sale at eBay and found that only 5 percent of the items "advertised and sold as being genuine Tiffany jewelry were, in fact, genuine."