Can eBay Avoid Lose-Lose Litigation?

Last week’s news that four New Jersey teenagers got sick from a drug they allegedly bought on Internet auction site eBay once again raised the issue of whether online auctioneers should be held liable for the actions of their members.

According to published reports, four 17 year-old students at a boarding school in Hightstown, New Jersey were treated for vomiting and disorientation after taking a substance called dextromethorphane (DXM), which one of them reportedly purchased on eBay.

While the teens suffered relatively minor consequences, some people say this incident underscores the danger of unbridled e-commerce, and eBay is experiencing renewed pressure to more heavily monitor its site.

Who Is Liable?

However, some legal experts contend that eBay is no more obligated to police auctions than the telephone company is obligated to monitor calls, since the company does not actively participate in its customers’ online transactions. But those favoring strict policing say this position is a cop-out.

eBay’s critics argue that online auctioneers have a moral obligation to make sure that such incidents as the alleged drug purchase do not occur, until legislation is passed to decide who is ultimately liable.

For now, the consensus among many legal experts is that uniform standards of liability are far away. California attorney Ian Ballon, who specializes in Internet issues, recently told the Wall Street Journal, “There isn’t a consistent or coherent body of law regulating conduct on the Internet.”

FDA Investigates

Meanwhile, it is being reported that the Food and Drug Administration (FDA) is investigating the drug case, but the agency has declined to say whether eBay is also under investigation.

The FDA said that it decided to get involved because DMX — an ingredient used in some cough suppressants — may be illegal in forms not approved by the agency.

eBay has not confirmed that the drug was bought from its site, although reportedly, five of seven DXM listings on eBay were sold before the company pulled the other two listings on Thursday.

eBay said that if any DXM sale occurred, it would have been the first time anything like that happened, since eBay prohibits the sale of drugs on its site. It should be pointed out that some of the now-withdrawn listings for DXM on eBay’s site described the substance as “pure Dextromethorphan Hydrobromide powder” that was “intended for research purposes only, not human consumption.”

Lawyers Lick Their Chops

Faced with similar liability questions in the past, eBay has successfully claimed that it is merely a publisher of ads — like a newspaper — with no responsibility for the transactions that occur on its site. This argument, known as the common-carrier defense, has been invoked by Yahoo! and Internet music swapping service Napster in pending legal actions against their sites.

A challenge will almost certainly be mounted against the common carrier defense if a teenager ever manages to obtain something from an auction site so harmful that it leads to a premature death. Even if the situation never becomes that horrific, it is only a matter of time before the sheer volume of liability lawsuits against e-tailers reaches critical mass.

As cases multiply, the legal costs and the drain on company time and energy will be substantial. Worse, some hungry lawyer could eventually challenge the common carrier defense all the way to the Supreme Court, where a landmark decision could have a huge negative impact on eBay, along with countless other e-tailers who find themselves in the same boat.

An Ounce of Prevention

However, even if the common carrier argument were to withstand all appeals, eBay would still have to mount a defense in the court of public opinion. A loss there could be even more devastating to the company, because its greatest asset is the goodwill of its customers.

Up to this point, eBay has done an exemplary job of deleting bogus and inappropriate ads, but now the auctioneer must go above and beyond its current policing measures and become even more vigilant.

eBay should also lead an industry charge to make sure adequate liability laws regulating online auctions are quickly introduced, and then lobby heavily for their enactment into law. Further, the auction giant should encourage its members and others in the industry to join the effort.

If a “wait and see” attitude prevails, I believe eBay and other online auctioneers will soon find themselves running in slow motion as an avalanche of litigation threatens to bury them.