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.