Earlier this month we reported that Salefreaks, an Israeli company that provides arbitrage services to eBay sellers, went to court to challenge eBay on a new implementation of its search algorithm that appeared to downgrade products offered by sellers that use arbitrage.
Arbitrage is the practice of finding products on other eCommerce sites such as Amazon, then listing those products on eBay (or another marketplace different from the source).
When a buyer purchases the items, the seller actually places an order with the originating marketplaces (often a gift order to hide the price) and has that marketplace ship the product to the buyer.
Many buyers do not realize they just paid more for an item they could have purchased directly on a competing marketplace or eCommerce site.
eBay claims that this practice invites more disgruntled buyers and therefore decided to downgrade search results for items it identified as being sold by seller that engage in arbitrage.
Salefreaks, provides services that help sellers to rapidly list and manage hundreds and thousands of arbitrage items.
When it learned that eBay was manipulating the search results, it decided to take the company to court and asked the court for temporary relief demanding that eBay roll back search algorithm changes until the dispute was settled.
Court Denies Temporary Relief
Adi Reiss, founder of Salefreaks provided the following update:
“…we received a notification from the District Court stating that they have rejected our request for temporary relief to roll back eBay’s recent search throttle against dropshippers.
The judge’s reasoning for not granting temporary relief at this stage is as follows:
1. eBay claims to protect the buying experience may be justified, which will only become clear after the main prosecution process is concluded.
2. The judge acknowledges the damage caused to sellers dropshipping from online sites by eBay’s search throttle implemented on April 20th, 2018. But also said it did not take “a disproportionate step” since they are still allowed to sell on eBay’s platform.”
Reiss said they will continue with the case against eBay. There is no word yet on a date for further hearings in the case.
When we published the original story, we received mostly comments from sellers that were supportive of eBay in this situation.
Arbitrage has long been a controversial issue as buyers may become upset once they learn they paid more for an item then they could have on another platform.
But also small businesses building their own brand are not happy as often they have to deal with support questions from buyers with whom they have no purchase relationship.
Even if a brand owner offers wholesale services to another seller, they may require performance and customer service standards that sellers who use arbitrage cannot offer to customers.
In the worst case scenario, brand owners may be damaged by buyers upset about the whole situation who will never buy a product from that brand again.
This can be especially problematic now that eBay is moving further into product catalog pages and upset buyers can leave negative product reviews for items purchased from an unauthorized source.
To combat this problem, some brand owners or sellers have enlisted the help of eBay’s VeRO program which allows intellectual property rights owners to require eBay to remove unauthorized uses of their images and text.
Since the seller engaged in arbitrage does not have the product on hand for use to create images and original descriptions, eBay has no choice but to follow the law and remove those listings.
But eBay cannot legally make that decision on behalf of the rights owner.
Intellectual rights owners have to file a NOCI (Notice of Claimed Infringement) every time they find a listing that violates their legal rights. And that can be a pain.
Update to eBay User Agreement
A little-noticed update to the user agreement posted by eBay a few days ago may help eBay combat the arbitrage issue.
“Seller fees don’t purchase exclusive rights to item exposure on eBay, whether on a web page, mobile app, or otherwise. We may, in our sole discretion and without consent from, or payment, fee reduction, or other credit to, sellers, display third-party advertisements (including links and references thereto) or other content in any part of our Services.”
In a broad stroke, eBay has all the rights to a seller’s listing.
Of course, this brings up other questions, but in the context of arbitrage listings, it could be used as a weapon by eBay to further diminish the practice of arbitrage. It effectively gives them the right to display or not display listings in search results!
But there is even more strong language in the eBay user agreement that should worry sellers using arbitrage:
“You represent and warrant that, for all such content you provide, you own or otherwise control all necessary rights to do so and to meet your obligations under this User Agreement. You represent and warrant that such content is accurate. You represent and warrant that use of any such content (including derivative works) by us, our users, or others in contract with us, and in compliance with this User Agreement, does not and will not infringe any Intellectual Property Rights of any third party. eBay takes no responsibility and assumes no liability for any content provided by you or any third party.”
In other words, sellers who obtain images and other intellectual property to list items on eBay state they have the full authorization to do so and eBay effectively places the entire responsibility on the seller should eBay get sued over unauthorized use of intellectual property.
One wonders how many sellers engaged in arbitrage are aware of the potential legal responsibility they agreed to accept?
We will follow with interest where this dispute goes.
But we suspect that eBay has positioned itself to defend its practices and that the laws are generally on their side, especially when it comes to the unauthorized use of intellectual property.
What do you think about arbitrage and eBay’s position in this situation? Head over to our Facebook Discussion Group or use the comments section below.