Analysis: eBay's hot -- in more ways than one
By Christopher Byron, MSNBC
November 13, 1998 9:17 AM PT
>From Beanie babies to assault rifles? That pretty much sums up the range
of items for sale on the Web site of overnight Internet sensation eBay
Inc., the zero-to-hero IPO that was selling for $18 only six weeks ago
and these days is trading for north of $115.
A simple search of offerings: two cases of hypodermic needles...33 AK-47
semi-automatic rifles, four lots of "Talon" flesh-shredding ammo...
-- eBay classifieds, Nov. 11 and 12
California-based eBay Inc. runs the most popular - and rapidly growing -
auction site on the Web. Wall Street has fallen in love with the stock
because the company is not only one of the few Web IPOs that was already
profitable when it went public, but also because its business model
offers 90 percent-plus gross margins that promise an ever-rising river
of profits for years into the future.
A disclaimer in eBay's IPO registration statement points out that the
company does not monitor what is actually for sale on its Web site -
which is why the company is able to boast such enormous gross margins in
the first place.
Instead, a staff of some 130 manage an almost totally automated auction
operation in which more than 900,000 items are listed for sale and more
than 41,000 change hands every day. eBay simply manages what amounts to
a flea market in cyberspace, bringing buyers and sellers together and
taking an average 5 percent cut on each successfully completed
transaction.
What's going on?
But a close second-look at what in fact is actually for sale on the eBay
Web site reveals an utterly stupefying array of apparently illegal,
contraband, and gray-market merchandise - exactly the sorts of goods
that should not be offered for sale on the Web or anywhere else. Items
range from hollow-point ammunition to switchblade knives, from burglars'
tools to the skins and ivory of endangered species.
Should eBay stay an 'open' site or is it responsible to censor its
classifieds? Add your comments to the bottom of this page.
A simple search of offerings listed on the Web site on Nov. 11 and 12
revealed the following: two cases of hypodermic needles, five sets of
Kevlar body armor, 33 AK-47 semi-automatic rifles, four lots of "Talon"
flesh-shredding ammo, one box of contraband Cuban cigars, 11 lots of
brass knuckles, 148 lots of federally banned switchblade knives, six UZI
submachine guns, one Mas 49/56 sniper rifle, three night vision rifle
scopes, one $3,500 pair of Leopard skin pants, a CDRom containing the
text of The Anarchist's Cookbook as well as instructions for how to
build cable signal descramblers, how to obtain Microsoft software for
free, and how to get college degrees for free, 27 lots of drug
accessories and head-shop paraphernalia, and 1,217 lots of ivory items
including a "bag of elephant ivory dust." (Microsoft is a partner in
MSNBC.)
Just the beginning
"That just barely scratches the surface of what's available on that
site," says Nick Wagner of Valparaiso, Ind., a knife dealer who says
that while checking out the eBay site he spotted what appeared to him to
be an illegal knockoff of a German-made knife for sale on his own Web
site. Wagner says he complained repeatedly to eBay but never received a
response.
eBay's corporate
counsel, Brad Handler, says the company in fact knows that at least some
of what is offered for sale on its site is illegal. But maintains
Handler, the company can't "pre-screen" items offered for posting
without incurring legal liability as a publisher - a risk the company
apparently regards as greater than the liability it might incur from
actually facilitating the trafficking in illicit and dangerous goods.
Action promised
As a way out of the problem, eBay's senior manager of customer support,
Keith Antognini, says the company relies instead on its 1.2 million
users to identify the questionable items, and that once having been
alerted to them, eBay takes "quick and decisive action." Penalties can
range from warnings to expulsion from the site. Antognini says his
company has recently set up a "proactive legal buddy" system in which
organizations that see suspect items listed for sale can also complain.
When asked if eBay would permit weapons such as AK-47s to be offered for
sale on his site, he answered without hesitation, "That would be an
example of an illegal item that we would not allow on the site."
When asked if switchblades would be permitted for sale, he said, "We've
received no complaints. I'll have to investigate the matter further."
Though individually vetting all items listed for sale on the site would
obviously be time-consuming and costly, it doesn't seem an
extraordinarily burdensome task to identify simple categories of goods
that should be flagged for a closer look. But when asked why eBay
doesn't do even that, Handler answered that such a limited "proactive"
gesture would itself create liability as a publisher, and that the
"legal buddy" system is the route the company has chosen to follow.
Apparently the buddy system leaves something to be desired. Title 15 of
the United States Code, Sec. 1243, says, for example, that anyone who
"manufactures, sells, or possesses any switchblade knife, shall be fined
not more than $2,000 or imprisoned not more than five years, or both."
Is it illegal?
eBay, of course, doesn't actually "manufacture, possess, or sell" any of
the items listed on its site. But at least in the case of switchblade
knives, that may not be good enough, for Title 15 of the U.S. Code
further stipulates that the penalties also apply to anyone who
"knowingly introduces, or manufactures for introduction, into interstate
commerce, or transports or distributes in interstate commerce, any
switchblade knife." Further and separate penalties apply for the
advertising of such knives to the public as well.
It is hard to see how eBay can claim it doesn't know this sort of trade
in switchblade knives is taking place on its site since the site
currently lists 148 separate lots of such knives, at prices ranging from
$6 to $266 per knife. Many appear to be manufactured in Italy. One
knife, offered by an individual in Tucson, Ariz., carries the limp and
utterly meaningless exculpatory stipulation that the buyer must "be
responsible...and know the laws," and "be 18 years."
Eleven states, including New York, currently make possession of
hypodermic needles a criminal offense. But on Nov. 12, the eBay site
listed three separate lots of hypodermic needles for sale at prices from
$9.99 to $17.50 per lot. The listing for one lot, from a Texas seller
with the e-mail alias of "chemtrader," carried the caveat that the item
was being offered as "a medical collectible only..." was "not intended
for use..." and should be "kept away from children."
Weapons trade
Vast amounts of deadly ammunition and weaponry are available on the
site. For the most part this trade appears to be perfectly legal, though
it is hard to see in what way it is a socially desirable activity.
Federal law allows anyone over 21 years of age to purchase hollow-point
"cop-killer" exploding handgun ammunition through the mail. As of Nov.
12, four separate lots were available on the eBay Web site. One lot,
from a Texas seller, carried the following description: "This is the
last of the good stuff, get it while you can." Another lot, from a
Florida seller , featured a photograph of a box of Finnish-made,
hollow-point bullets, and carried the following description: "Equivalent
for Winchester law enforcement SXT ranger ammo."
Federal law requires anyone who makes their living buying or selling the
guns themselves to have a federal firearms license. The law also covers
so-called hobbyists who offer guns for sale in interstate commerce. And,
according to an official at the Center For Prevention of Handgun
Violence in Washington, D.C., the so-called Brady Bill law requires such
individuals to conduct background checks on anyone wanting to buy a
weapon from them.
But according to Det. Darren Edwards of the firearms licensing division
of the Connecticut State Police, the law does not cover individuals who
claim they are not professional gun dealers and who traffic in weapons
only intrastate. This in turn has spawned a flourishing traffic in guns
from unlicensed dealers at local flea market gun shows. The eBay trade
in guns suggests this business is now migrating to cyberspace.
The federal Endangered Species Act has banned the importation and trade
in elephant ivory, tortoiseshell, and other such products. But according
to Simon Habel, the director for the World Wildlife Fund's program that
monitors trafficking in endangered species, the law does not cover
commerce in such goods that were already inside the United States when
the ban was enacted in 1989. The eBay site lists nearly 2,000 ivory
items alone, but a sampling of individual lots turned up nothing to
indicate whether the goods were in fact legally saleable.
eBay's Antognini said the World Wildlife Fund would be a good candidate
for eBay's "legal buddy" system. "We have a safe harbor for trade here,"
he insisted.
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