NYT via The Ledger.com:

Published Sunday, June 4, 2006
How eBay Makes Regulations Disappear

By KATIE HAFNER
New York Times

IN quick succession one morning last month, Louisiana state
legislators plowed through a long list of bills, including one to
relocate the motor vehicle commission, another to regulate potentially
abusive lending practices, and yet another that was the handiwork of
eBay, the digital shopping mall that bills itself as "the world's
online marketplace."
EBay had worked overtime to ensure the passage of Senate Bill 642,
which sought to exempt some Internet transactions like those that
occur on its Web site from Louisiana licensing requirements for
businesses conducting auctions. As the State Senate's Commerce
Committee convened to consider the bill, Duane Cowart, an eBay
lobbyist, testified that forcing eBay "trading assistants" to fork
over $300 for a license was unduly burdensome.
"What they do on the Internet is not an auction, and they are not
auctioneers," Mr. Cowart told the committee. Trading assistants take
items on consignment from other owners and put them up for bid on
eBay, but Mr. Cowart said their activities were more akin to placing
classified ads. Louisiana's senators seemed to agree with him
wholeheartedly. "I think eBay is great," said one, while another
regaled the room about his adventures shopping for a Plymouth Prowler
on eBay. State Senator Noble E. Ellington, a Democrat who sponsored
the bill at Mr. Cowart's behest, beamed as his colleagues gave the
legislation their unanimous support.
EBay's lobbying activities are not confined to Louisiana. As the
company has spread its innovative and influential wings across the
Internet, it has also woven together a muscular and wily lobbying
apparatus that spans 25 states. "It is a fast-moving train, and if you
get in front of it you'll get flattened," said Sherrie Wilks, an
official with Louisiana's licensing agency, who is concerned that eBay
flouts regulatory oversight by persuading state legislators to take
the company's side.
Regulators in other states also say that when they try to erect
guidelines around eBay's activities, they quickly encounter the
realities of the company's political power, raising anew the perennial
questions about the proper balance among public policy, consumer
protection and business interests. EBay's lobbying tactics, meanwhile,
illustrate the spoils to be won when a savvy, resourceful company
combines local political persuasion and grass-roots rallying to get
lucrative regulatory exemptions that allow it to safeguard its
profits.
EBay's efforts have been remarkably successful, and the company, which
has worked tirelessly to cultivate its image as a friendly
neighborhood bazaar even as it engages in hard-nosed lobbying, is not
shy about boasting of its victories. Last year, Ohio passed a law that
would have regulated eBay sellers, but the company moved quickly with
the help of seasoned lobbyists to have a pre-emptive and more
favorable bill passed.
"We realized what was there, and we worked with local lobbyists and
were able to get the law reversed," said Tod Cohen, eBay's vice
president for government relations. He oversees the company's efforts
to convince state lawmakers of a core eBay belief: that state
regulation can impede the flow of e-commerce.
The Federal Trade Commission, which has loosened regulations across a
broad range of industries, appears to agree. Late last week,
responding to a request from Mr. Ellington for an analysis of the
Louisiana bill, the agency advised that the bill promoted competition
and increased consumer choice.
Unlike many other Internet companies, eBay has to be especially
fleet-footed when it comes to stopping what it perceives as hostile
regulation, whether it involves the growing number of eBay drop-off
stores places like UPS stores and small shops where people take their
goods to be sold on eBay or the more general category of trading
assistants. Anyone engaged in selling on the site depends on a
relatively friction-free environment in order to make a profit. So
does eBay, because its overall corporate goal is to keep sales volumes
high.
At any given moment, 89 million items are for sale on eBay, and the
mother ship eBay itself gets a fee for each successful transaction. It
also charges its 193 million registered users listing fees for any
products they display on the site. EBay's gross transaction fees for
the first quarter of 2006 alone were more than $500 million, a 30
percent increase over the same quarter in 2005. Keeping regulators at
bay, particularly those whose efforts might slow down sales traffic,
is a particularly high priority for the company.
Regulations are threatening to eBay for another reason as well. They
set precedents. Once a law regulating eBay sellers takes hold in one
state, other states are more likely to follow suit. And not only do
licenses and other regulatory requisites increase the cost of selling
items on eBay, but regulations may deter entrepreneurs who are
thinking of introducing eBay-based businesses. Although regulations
can help rein in con artists and other fraudsters masquerading as
legitimate vendors on eBay which is why most regulators say they favor
strict licensing requirements eBay sees its online community as
self-regulating.
Analysts say the company has little room to maneuver when it comes to
opposing outside oversight.
"EBay doesn't have a choice," said Ina Steiner, editor of
Auctionbytes.com, an online newsletter. "This is such a tight-margin,
price-sensitive business that if there are excessive regulations on
sellers, it will affect eBay dramatically."
Accordingly, eBay fights regulators who try to categorize it as an
auction house despite the fact that for years eBay has used the word
"auction" when describing what takes place on its site. In securities
filings from 1998, the year eBay went public, it said that it
"pioneered online person-to-person trading by developing a Web-based
community in which buyers and sellers are brought together in an
efficient and entertaining auction format." In the annual report last
year, eBay said it provided the "infrastructure to enable online
commerce in a variety of formats, including the traditional auction
platform."
Yet eBay contends that such references are informal and says that
auction laws many of them written long before the Internet and eBay
even existed should not apply to its sellers.
Chris Donlay, an eBay spokesman, said the timed auctions on eBay were
fundamentally different from "someone who holds a live auction in
front of an audience until he has achieved the highest price possible
for the client." Instead, as the company says on its Web site, eBay
merely "offers an online platform where millions of items are traded
each day."
THE headquarters of the Louisiana Auctioneers Licensing Board is a
modest, three-room office in Baton Rouge with two employees and a
dial-up Internet connection. The agency says its mission is to protect
the public from "unqualified, irresponsible or unscrupulous
individuals."
Late last year, the agency's seven-member board, concerned about
possible abuses, decided that eBay trading assistants doing business
in Louisiana needed licenses. Last summer, Jim Steele, a retired
police officer who is the agency's investigator, started paying visits
to eBay sellers around Louisiana who were registered as trading
assistants.
Among those visited by Mr. Steele was Cheryl Brown, who runs a small
eBay business out of her modest one-story home in Hammond, about an
hour's drive east of Baton Rouge. Ms. Brown keeps an eclectic mix of
wares including shoes, belts and Black & Decker laser levels piled
around a bed in a spare back bedroom. Mr. Steele arrived at Ms.
Brown's door last February and told her that she needed to get an
auction-business license or face a cease-and-desist order.
Ms. Brown said she was "blown away" to find herself singled out. After
all, she said, her sales averaged little more than $2,000 a month.
Even so, she paid $300 for the license and an additional $250 for a
surety bond the licensing board required.
Ms. Brown has yet to make a single sale as a trading assistant ("I
don't want to sell people's old clothing," she said) and says she
would rather not have to have a license. But, she said, she also
enjoys the extra credential that a license gives her. Further, she
said, she believes that her transactions on eBay are, in fact,
auctions. "My opinion is that eBay is the one doing the auctioning,"
she said. "They're in control."
Ms. Brown's opinion is shared by Brian Leleux, an eBay seller at the
opposite side of the state and the opposite end of the eBay sales
revenue stream. Mr. Leleux employs nearly a dozen people and sells
some $120,000 each month in recliners, inflatable air beds and other
goods on eBay, making him an eBay "Platinum PowerSeller." He pays eBay
about $12,000 every month in listing and transaction fees and an
additional $2,100 to PayPal, eBay's automated payment subsidiary.
Mr. Leleux operates his business, MassageKing.com, in a large
warehouse near Lafayette, and Mr. Steele visited him there earlier
this year. Mr. Leleux had signed up with eBay as a trading assistant
but done very few consignment sales. Still, he paid the state's fee
and applied for the license. Like Ms. Brown, Mr. Leleux said that he
did not want a license but that it did give him "one more bit of
legitimacy," a notion that appealed to him. And he, too, says he
believes that eBay is an auction house.
Still, not every eBay trading assistant was so compliant when Mr.
Steele came calling. Barry Simpson has a computer equipment store in
Morgan City and sells items on eBay as a sideline. Earlier this year,
Mr. Simpson said, Mr. Steele visited him and insisted that he be
licensed, even after Mr. Simpson said he would prefer to stop being a
trading assistant. Mr. Simpson refused to get a license and complained
to eBay, after which the company stepped up its legislative push in
Louisiana.
"At that point, we decided we needed to act," said Mr. Donlay, the
eBay spokesman.
Mr. Simpson says he believes that complying with certain regulations
just does not add up. "If someone comes in and tells me I need a
license and I'm selling something for someone else, and I don't do
enough of that business, I'll quit," he said.
Unlike most entrepreneurs, Mr. Simpson has a well-heeled and
influential corporation as vigilant about its own interests as it is
about his ready to take on regulators. And eBay appears to be prepared
to contest regulators in almost any state where it feels that its
prerogatives are threatened.
In California last year, a bill that would have subjected eBay
drop-off stores to restrictions now placed on pawnbrokers died quickly
after eBay executives including Meg Whitman, the chief executive met
with leaders of the Republican caucus of the Legislature. "The
Republican votes we thought we had withered away," said Leland Y. Yee,
the Democratic California assemblyman who sponsored the bill.
Last year, after eBay waged a protracted lobbying effort in Illinois,
the state revised its laws to allow Internet auction sites to compete
with licensed ticket brokers and sell tickets for more than their face
value. New York and Florida have passed similar amendments after eBay
lobbied for changes.
Auctioneering laws like those in Louisiana are another focus for eBay.
In Maine and Tennessee, after eBay intervened, laws were changed to
exempt Internet auctions from licensing requirements.
All of this is just a matter of common sense, according to some people
involved in the debate. Ms. Steiner, the newsletter editor, says that
many eBay sellers do their trading part time or in addition to another
job. "If they are overregulated by licensing fees," she said, "they
will abandon their eBay business." For its part, eBay is leaving
little to chance.
Over the last eight years, eBay has built a stable of local lobbyists
in 25 states. Those lobbyists who work on retainers that can reach
$10,000 a month, according to state lobbying registration documents
have also made contributions to individual politicians who sponsor
bills favorable to eBay. For example, Mr. Cowart's political action
committee in Louisiana contributed $2,000 to Mr. Ellington in 2005.
And eBay lobbyists in Illinois have contributed thousands of dollars
to politicians who supported the ticket-scalping bill.
EBay combines its politics-as-usual approach with more creative
grass-roots tactics. It keeps its membership informed about regulatory
issues as soon as they crop up, using mass e-mail messages and a
year-old Web-based initiative called "eBay Main Street," which sends
out "legislative alerts" and provides letters that users can send to
government officials. Bowing to the traditions of ward politicos adept
at turning out the vote, eBay routinely summons its sellers and sends
them on personal visits to statehouses around the country to meet with
legislators.
"What better way to get a response than to get to the grass roots,
which is eBay's members," said Kathy Greer, an eBay seller in New
Hampshire, where there has been continuing debate about regulating
eBay sellers. "Let them go out and fight your battle."
WHEN eBay sent e-mail messages in April to its Louisiana members to
tell them their livelihoods could be threatened by the state's
intention to require licenses and urged them to take action Ms. Wilks,
the licensing agency's sole administrator, was besieged with phone
calls and e-mail messages from angry eBay sellers. After she explained
that the board intended to require that only about 460 registered eBay
trading assistants be licensed, the hubbub died down.
But some sellers who joined in the campaign say they felt that eBay
had misled them by making it appear that the proposed regulations were
more sweeping. "They approached it in a very underhanded way," said
Stephen Dille, a Baton Rouge accountant who sells items intermittently
on eBay but received the alert and sent an e-mail message to Ms.
Wilks. "I always thought of them as a good company, but now I'm
questioning their culture, and their ethics."
Anna Dow, a lawyer for the Louisiana licensing board, put it more
forcefully. "They're being deliberately misrepresentational of what's
going on," she said.
For their part, eBay officials say that the licensing board has
repeatedly refused to give the company a clear answer on whom it plans
to regulate, so it has sent e-mail messages to a wide variety of
recipients. EBay's anti-regulatory stance extends to storefront
drop-off centers, which have been proliferating rapidly around the
country. Vendors welcome the company's help.
Debbie Gordon, the owner of Snappy Auctions, a nationwide chain of
eBay drop-off stores that is based in Nashville, says she believes
that all eBay consignment stores should follow certain practices to
make sure that customers are protected. But she was outraged two years
ago when Tennessee regulators told her that she would have to get an
auctioneer's license and attend a week of auctioneering school.
Ms. Gordon paid $700 for a license and other fees and spent what she
called "five days I'll never get back" at a training course for
auctioneers. "Ninety-nine percent of the course had nothing to do with
our business," she recalled. "It was about traditional auctioneering,
cattle and land and firearms."
Soon after a local newspaper publicized Ms. Gordon's experience, eBay
stepped in. It convinced lawmakers that not only did outfits like Ms.
Gordon's have no relationship to hog calling, but also that because of
the timed nature of an eBay auction, the transactions were altogether
different and thus not subject to auctioneering laws.
"We fundamentally believe that auctioneering laws are not applicable,
are detrimental and are being used to harm competition," said Mr.
Cohen of eBay in an interview. "They protect entrenched incumbents
rather than enhancing competition, consumer choice and entrepreneurial
spirit."
BUT Ms. Wilks of the Louisiana licensing board says that if trading
assistants on eBay are not required to have licenses, people like
Linda Williams will have nowhere to turn. Earlier this year, Ms.
Williams, who lives near Baton Rouge, gave an antique couch to someone
to sell on consignment on eBay, she said. The couch was sold, Ms.
Williams said, but she did not see a penny of the proceeds.
Ms. Williams called the licensing board, which found that the seller
was an auctioneer who was already facing a separate investigation. A
bank seized his assets which included a warehouse filled with items he
had taken on consignment from dozens of people, including Ms. Williams
and his license was revoked, according to Ms. Wilks and Ms. Dow. "They
were very helpful, and told me to call any time," said Ms. Williams of
her experience with the licensing board. "If it wasn't for them, there
would be nothing I could do."
EBay executives say that stories like this do not mean that more laws
are required. They point out that law enforcement agencies are set up
to investigate Internet fraud. "Regulators regulate that is their
job," Mr. Cohen said. "But we have an obligation as a company to
protect our community."
Shortly after the first legislative hearing on Senate Bill 642 in
Louisiana, eBay sent out another e-mail alert, this time to its
biggest sellers in the state. The company asked sellers to attend a
meeting late last month to update them on the bill and to brief them
on other potential impediments to their businesses. Some 50 sellers
from around the state attended the meeting at a Baton Rouge Marriott.
Michelle Peacock, eBay's director of state government relations, flew
in from California to join Mr. Cowart, the lobbyist. Large colorful
billboards outlining "barriers to e-commerce" decorated the room.
Ms. Peacock discussed the proposed revisions to Louisiana's auctioneer
statute and talked about a bill supporting the elimination of
restrictions on the resale of tickets on the Internet. After the
meeting, several attendees piled onto a shuttle bus that eBay provided
and drove to the Capitol to talk with their state representatives
about Senate Bill 642.
The next day, the Commerce Committee of the Louisiana House of
Representatives took up the bill, which the State Senate had already
passed. The bill received unanimous support in the committee. Mr.
Ellington, the state senator, said in an interview last week that he
expected to see the bill pass the full House this week without a
hitch.