Yahoo! Sued for Auctioning Counterfeit Goods

Interactive entertainment heavyweights Sega America, Electronic Arts (Nasdaq:ERTS) and Nintendo of America have filed a joint lawsuit against Yahoo! in San Francisco federal court, alleging that illegal and counterfeit games are being auctioned on the site.

The suit charges Yahoo! with copyright and trademark infringement, offering illegal devices for sale to the public, and unfair competition. The companies are seeking an injunction to force Yahoo! to halt the sales and are asking for unspecified monetary damages.

Cyber Flea Market for Illegal Goods

In 1999, American computer and video game publishers lost an estimated $3.2 billion (US$) due to piracy of packaged game software, according to the Interactive Digital Software Association (IDSA). Until recently, strong legal protection in the U.S. limited most of those losses to overseas locations.

According to the plaintiffs, Yahoo! has created a marketplace and distribution channel for video game pirates.

“Yahoo! has created an international ‘cyber flea market’ for counterfeit and illegal goods, which hurts tens of thousands of creative and technical people,” said Ruth Kennedy, Electronic Arts Senior Vice President, General Counsel.

Passive Provider or Active Participant?

Yahoo! Auctions’ guide states that “Yahoo! does not screen, review or control the listings and items being offered to users, nor does it screen, review or control any of the people who participate.”

Sellers at both Yahoo! Auctions and merchants who set up a Yahoo! Store are told that they cannot sell illegal items or items that infringe upon or violate anyone’s rights, including copyrights. Yahoo!’s terms of service make it clear that it is the seller who is legally responsible for any items they offer for sale.

Sega, Nintendo, and Electronic Arts are disputing those claims. They believe that Yahoo! has actual knowledge of illegal activity and profits from revenue generated by the sale of counterfeit video and computer games.

“Yahoo! is facilitating and directly profiting from the sale of illegal and counterfeit goods on its Web site and is using the unique nature of the Internet as a rationale to conduct activity that would not be legal or tolerated in traditional markets,” according to Kennedy.

This instance is the second time in as many weeks that an online auction house has found itself at the receiving end of a lawsuit over goods offered for sale. Last week, veteran actor Jerry Orbach sued eBay for posting personal data online.

Yahoo! Warned

Yahoo! was warned that illegal activities were taking place on its site but did nothing to stop it, according to Sega, Nintendo and Electronic Arts.

“We have advised Yahoo! many times that easily identifiable counterfeit, unpublished and illegal goods are being sold on its site, and we have asked them to implement effective controls to prevent the posting of illegal goods,” Richard Flamm, General Counsel for Nintendo of America, Inc, said.

Flamm added, “Yet while they have the responsibility and capability, they have refused to do this. Regrettably, therefore, we feel that legal action is now our only remaining recourse.”

Sending a Message

The companies are hoping that the suit against Yahoo! will send a strong message to online retailers that the interactive game industry will not tolerate piracy. “The action we’re taking today is not only designed to clean up Yahoo!’s site, but to send a message to Internet software pirates that there are no safe havens for those who steal the industry’s creative products,” Flamm said.

Flamm hopes that the action will force Yahoo! to take responsibility for what happens on its site. He said, “If the great potential of the Internet for our industry and our economy is to be fully realized, leading companies like Yahoo! must accept their responsibility to prevent illegal activity in cyberspace.”

eBay Also Implicated

There is also concern that the San Jose, California-based eBay may be regularly used as a conduit to sell illegal items, including counterfeit software.

Last year, the E-Commerce Times reported claims from the Software and Information Industry Association (SIIA) that 60 percent of the software auctioned online was illegitimate. The illegal merchandise was reportedly sold on eBay, ZDNet and Excite, among others.

A year ago, eBay cooperated in a federal investigation of sales of illegal items on its site.