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August 2007



The scales of justice could tip in our favor this time!

Ebay Forces PayPal Down Customers' Throat -- Public Responds With Two Antitrust Lawsuits

U.S. District Court, Northern California --

EBay, parent company of Paypal Inc., is facing two antitrust lawsuits filed in California. The suits, which deal with eBay's practices regarding its online payment service, were filed in April and will be heard by the same judge that presided over the 2002 class-action lawsuit filed against Paypal Inc. In 2004,Paypal reached a settlement out-of-court while admitting no wrongdoing. Despite the court settlement, PayPal's business practices still remain suspect to this day.

The first anti-trust lawsuit, filed by Michael Malone on April 4, 2007, alleges that eBay "utilizes its nationwide monopoly of the online auction market to monopolize the available forms of payment that sellers can use on eBay." Recently, eBay has begun the practice of restricting which payment methods its sellers can advertise. eBay now bars sellers from accepting cash, wire transfer services (Western Union), and other competing products -- most notable, Google Checkout. This forces sellers to turn to Paypal to sell their products or go out of business. This policy in turn forces buyers to sign up with Paypal in order to be able to buy the products they want. Many of these buyers and sellers in turn become victims of Paypal's arbitrary account freezings and account verification jungle. At the end of the day, eBay users are then left with no real alternative.

eBay has a history of engaging in such unfair market tactics. Before eBay acquired PayPal, eBay's online payment service was BillPoint. It was PayPal, in 2001 that was the victim of eBay's unfair policies that promoted BillPoint over other competing services. Today, it appears eBay is up to the same game.

The second anti-trust class-action complaint was filed by Ann Farmer and Todd Van Pelt on April 23, 2007. This lawsuit alleges eBay (and PayPal) is a monopoly that controls over 90 percent of the market -- in part due to the "network effect."

Ann Farmer's and Todd Van Pelt's complaint also highlights eBay's alleged "anti-competitive activities." Such examples given are eBay acquires its competitors, forces sellers to use PayPal and blocks competitors (such as Google Checkout) from its online auctions. As a result, actual and potential competition has been restrained as eBay sellers who accept PayPal "have paid or are likely to pay artificially inflated and supra competitive fees."

Both of these anti-trust lawsuits have been assigned to Judge Fogel of the U.S. District Court, Northern District of California. Judge Fogel was the same judge that ruled in 2002 that PayPal's mandatory arbitration policy was unfair to customers. Judge Fogel also rejected Paypal's motions in 2002 to dismiss a class-action lawsuit against it. PayPal settled that case in 2004.

On May 4, 2007, the two lawsuits against PayPal were consolidated. Judge Fogel wrote, "The Court finds that Malone v. eBay Inc., Case No. 07-01882-JF and Farmer, et al. v. Ebay Inc., Case No. C-07-02209 are related actions and such cases are hereby consolidated into Malone v. eBay Inc., Case No. 07-01882-JF, and are referred to herein as the Consolidated Action."

A ruling against eBay will be an important victory for you and I. For those of us who buy and sell on eBay, we will no longer be forced to accept PayPal and endure the problems that come with it. Other alternatives will open up. Services like Google Checkout will be allowed on eBay as well as new, yet unannounced services.

With PayPal's monopoly power removed, free market competition will flourish. That means more choices for you and me. That means lower fees for you and me. That means PayPal will have to change its business practices and become more receptive to its customers in order to survive.

We will be following this lawsuit from beginning, middle and end. Check back often for more news on the Anti-trust class action lawsuit against eBay and Paypal.


Verified now, but what about next time?

PayPal's New "Advanced Risk Predictors" Software To Cause More Account Limitations, Freezings, and Invasions to Privacy

Boston, Massachusetts -- On June 13, 2007, PayPal announced yet another innovation into its ongoing battle with fraud.

Paypal Inc., still struggling with a software system and customer service system which arbitrarily freezes users accounts and transactions for no apparent reason, unveiled their "Advanced Risk Predictors" program on the last day of eBay's Boston Developers Conference.

Paypal Chief Technical Officer, Scott Thompson, said "Fraud has slowed the growth of ecommerce." He failed to mention that perhaps a factor in the slowed growth of ecommerce was the millions of Paypal user accounts his company has limited -- along with the tens of millions of dollars associated with those accounts that cannot be used to propel ecommerce forward. Continuing, Thompson said Paypal will use the 9 years worth of unique information it has on its customers -- past and present --to help merchants make more informed decisions about which transactions they should accept and which not to accept. Personal information of all eBay customers -- past and present -- will be used as well. Mr. Thompson calls this "deep historical information." In other words, PayPal is going to take your personal information and use it to determine if other people with similar traits pose a probable risk or not.

While Paypal has said it will begin testing the service in August 2007, it has failed to address the numerous negative impacts this system will have overall. Such concerns include the fact that PayPal's current fraud detection system arbitrarily and liberally freezes and limits user accounts for no apparent reason. The new "Advanced Risk Predictors" software, to fully rollout in 2008, promises more of the same.

Not only will PayPal have the ability to freeze or limit account based on calculated probability a transaction is risky or fraud is apparent, sellers will have the ability to accept payments or not based on PayPal's recommendations. And those recommendations are only based on what a computer says.

What this amounts to -- along with PayPal's current tactics -- is employing sanctions on well meaning customers and sellers before any crime has even occurred. The logical process of completing a transaction first and then dealing with issues once a complaint is lodged will no longer be the norm. Being verified by PayPal will mean nothing. Buyers and sellers will have to scratch their heads and hope transactions go through on a case-by-case basis.


PayPal could be hazardous to your business

Paypal to Decide Which Transactions are Risky or Fraudulent Before the Transaction is Even Completed

San Jose, California -- Buyer and seller beware. Paypal is in the process of implementing a new program whereby it will determine which transactions are risky or fraudulent -- before the transaction is even completed. Those transactions that are deemed suspicious or suspected fraudulent will not be completed. Instead, Paypal will inform both parties who will then have to provide additional information before the transaction could continue.

PayPal is launching "Payment Review" later this summer in order to "reduce fraudulent transactions." PayPal intends to identify those transactions it believes may pose a risk. PayPal will keep those transactions pending while an investigation is conducted. Those who are familiar with PayPal's current investigative times and languid customer service should shudder at the prospect.

Once PayPal eventually completes the transaction, PayPal claims sellers will be 100% protected on those transactions. All other transactions not recommended by PayPal will be covered under the current seller protection policy. PayPal claims that the new procedure will have a positive effect in reducing chargeback issues for sellers (and for PayPal).

Mr. Jeffrey Clementz, Director of Product Marketing at PayPal, said it will be optional for sellers to go ahead and fulfill pending transactions. Those transactions, however, would not be covered under the Payment Review protection guidelines.

It is not clear how PayPal will offer 100% seller protection under the new program. If PayPal deems a transaction to be risky or fraudulent, investigates and then finds the transaction valid, the seller would be covered according to PayPal. However, a popular Paypal scam is for buyers to use credit cards to purchase something, receive the item, and then file a complaint with PayPal for non delivery or a product not-as-described. In the end, the buyer ends up with his or her money back and the item. How will PayPal protect the seller in this instance as well as other instances?


PayPal not on Time's list!

Time Magazine Snubs eBay's PayPal

San Jose, California -- In Late July 2007, Time Magazine released its list of the 25 Best Websites to use. In introducing the list, Time Magazine said, "From Amazon and Google to Craisglist and Wikipedia, here are the sites that we keep bookmarked year after year." PayPal was no where on that list. Time Magazine sang the praises of such websites as Amazon.com, BBC.co.uk, CitySearch.com, Craigslist.com, Digg.com and YouTube.com

Even Ebay made the list of Time's 25 best. Here is what Time said about eBay: "The online auction powerhouse sells one car every minute on eBay Motors; at StubHub, which eBay acquired in February, you can buy tickets for baseball games, Broadway shows, concerts and other events. And the charity auctions at eBay Giving Works have helped buyers and sellers raise $100 million for more than 10,000 nonprofit organizations since the program started in November 2003. Also, check out the eBay Wiki to read about -- or chime in on -- all things eBay." While most of eBay's services are impossible to use without PayPal, eBay's PayPal is left out.

PayPal markets itself as a revolutionary payment system changing the online world. Google is doing the same thing and made Time Magazine's list as one of the top 25 websites. The complaints against PayPal and its service apparently out weighed the hyped 143 million user accounts they say they have.

By including eBay, and not mentioning PayPal anywhere, Time Magazine is acknowledging what millions already know: PayPal is not your pal and PayPal is not a website that "we cannot live without."

So while Time Magazine sings the praises of such sites as Google.com, IMD.com, Fastcheck.com, and ESPN.com, Time has nothing good to say about PayPal.

And following the old adage of, "If you don't have anything good to say, then don't say anything at all," Time Magazine showed some class and did just that. They had nothing good to say about PayPal so chose to say nothing at all.


 

 

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