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eBay’s Day In Court: No Soup For You

Written by Mark Rasch
February 14th, 2013

Attorney Mark D. Rasch is the former head of the U.S. Justice Department’s computer crime unit and today serves as Director of Cybersecurity and Privacy Consulting at CSC in Virginia.

Some retailers sell products. Some retailers sell services. But companies like eBay (NASDAQ:EBAY), Amazon (NASDAQ:AMZN) and Craigslist sell something more—a marketplace. They are not simply a “store” but the entire mall—the downtown retail zone. If you can’t sell on eBay, Amazon or Craigslist, then, to a great extent, you can’t sell online. So what happens if you are banned for life from one of these marketplaces? A recent California Appellate Court decision substantially impaired the rights of consumers to have access to these marketplaces when the merchant/marketplace owner determines that the consumer did not follow the rules.

Linda Genesta was a long-time eBay seller. For 18 years, beginning in 1999, she sold what she described as “high-end, high-quality, imported authentic European and American antique and vintage textiles, fabrics, pillows and trims.” Everything was fine until July 2008, when eBay allegedly removed Genesta’s items from the marketplace, alleging “unspecified ‘misrepresentations'” in violation of its Terms of Service. After what Genesta called a “sustained campaign by [her] competitors to discredit [her] with eBay through unsubstantiated complaints about the authenticity of the antiques,” eBay put a “permanent sales block” on her account, which prohibited Genesta from selling items on eBay. As a result, she says, she is effectively “out of business.”

That’s the problem with an online marketplace. If you get banned from the marketplace, you have few opportunities to get back on. Sure, Genesta could have gone to Craigslist or eBid or uBid, but they have neither the market share nor the name recognition of eBay. Even though the Internet is an open market, and Genesta could have created a Web site to sell her wares online, quite frankly, the open Internet provides little opportunity for small merchants to reach a large market. So when she was banned from eBay, Genesta sued the online forum for interference with a business relationship and antitrust violations under California law.

This is similar to the episode of Seinfeld when the “Soup Nazi” imposed a set of rules of behavior on those who wanted to get soup. Violate those (ever changing) rules, and you were banned from buying soup—often for life. “No soup for you!” Indeed, a number of economics professors have put up a Web site that addresses the case of the Soup Nazi in terms of antitrust barriers to entry and monopoly power. Of course, if you are denied soup from the Soup Nazi, you can still get soup somewhere else—just not the same soup.

And that, in essence, is what the California Appellate Court held in denying Genesta’s antitrust claim against eBay. eBay was entitled to create its own rules of engagement, just as the Soup Nazi was entitled to his (stand to the right, step up, order, pay, leave). Violate the rules (ask for bread), and—you guessed it—”No soup for you!” eBay’s rules indicate that, if the company suspects you are selling counterfeit merchandise (or, worse, if others—including competitors—simply complain loudly enough that you are), it could ban you from the marketplace.


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