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.

By Sarah D. Scalet

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EBay declined to comment on the specifics of the case. Durzy says only that the claims are without merit and that the company is "disappointed to see that Tiffany felt that it had to resort to this."

"Their theory is that they're not like a seller, they're like a classified ad," says Brian Brokate, a partner with Gibney, Anthony & Flaherty, a New York City law firm that serves as Rolex's general counsel. "But they take a percentage of the sales price, so that to me says they are participating in the sale."

Brokate doesn't seem terribly optimistic that the courts will agree with him, though. "Everybody is watching the Tiffany case to see what happens," he says. "We're hoping for a good result, obviously. My primary concern is that no bad law comes out of itthat some court doesn't say, this is what eBay is, and this is what eBay's responsibilities are, and one of them is not to monitor for counterfeits.

Working with the System

Limited Brands and a coalition of other large retailers have taken a different tack. About a year and a half ago, under the auspices of the Retail Industry Leaders Association, companies including Limited, The Home Depot, Lowe's, Wal-Mart, Gap and Target approached eBay to open talks about reducing illegal activity on the site.

"They're pretty good at dealing with law enforcement, but that doesn't help if you're a retailer," says Limited Brands' Jones (whose full title is CSO and senior vice president of loss prevention and global security). He recalls the first meeting with eBay: "We said, Look, if you start working with us, and you start coming to the table with solutions," then retailers won't be forced to take legal action. "But right now," the retailers told eBay, "you're part of the problem."

The most pressing issue at the time was gift cards. Organized retail crime rings were returning stolen merchandise for store credit, and then selling the credit online. For criminals, selling store credit provides much higher profit margins than selling the merchandise itself. Hajdu, the Limited investigator, paid 25 cents on the dollar for the allegedly stolen panties that he purchased from Stevanovich. Recently, an eBay buyer paid $375.99 for a $449.99 Victoria's Secret gift card84 cents on the dollar.

Richard Hollinger, a University of Florida professor who conducts the annual National Retail Security Survey, posits a scenario such as this: "Imagine a woman manager standing there in Victoria's Secret, when this guy comes in with 50 pairs of panties in different sizes," Hollinger says. "What does she say? Do you not like the color, Sir? Did they not fit?' And he has no receipt. It's bad enough to be ripped off, but the ultimate insult is to use your own profits to buy the stolen merchandise back."