I've always been amazed at how long it took for eBay to be called to task for the criminal activity that has been all too common on its website. Ever since the company started up 13 years ago, I've had trouble understanding why such a successful enterprise would let itself become a marketplace for piracy, counterfeiting, and fraud.
The company is now trying to clean up its act, spurred in part by lawsuits in the United States and Europe. But eBay's indifference to fraud doesn't only mean that individual buyers have been left holding the bag. Manufacturers in a wide variety of industries — from consumer electronics, to luxury goods, to entertainment — face a loss of revenue and, much more important, a loss of brand equity as a result of eBay's inaction.
Every company with goods for sale on the Web faces huge potential liabilities due to counterfeit activity, and the breadth of the potential fraud is enormous. A pending lawsuit by Tiffany & Co. alleges that 83% of Tiffany products sold on eBay are counterfeit. And a French court recently ordered eBay to pay luxury goods manufacturer LVMH Group $61 million in penalties, based on allegations that 90% of LVMH's products sold on eBay — which include Louis Vuitton, Dior, Moet, and other brands — were counterfeit.
The eBay example highlights a problem that all manufacturers whose products are sold through Web-based marketplaces are facing with increasing trepidation: Not only must the buyer beware, but also it's up to the manufacturer to police the Web or face the consequences.