EBay challenged over PayPal rules in Detroit fed court

George Hunter and Doug Guthrie / The Detroit News

Detroit -- A federal court has entered a default judgment in a lawsuit against online auction giant eBay over the company's practice of forcing sellers to use PayPal.

The class-action lawsuit seeks unspecified damages and the right for sellers to accept other forms of payment from buyers.

EBay has required all sellers to use PayPal exclusively since 2008. It purchased the Internet payment service in 2002.

Sellers bitterly complained about having to pay a 3 percent transaction fee to PayPal in addition to eBay's fees for listings and percentage of the final sale price. The lawsuit contends that eBay is violating anti-trust laws.

"When you sell something on eBay, you pay them a percentage; then PayPal gets their cut," said Peter Macuga, the attorney for six eBay sellers, including Dearborn resident Charlotte Smith. "EBay won't even let sellers accept cash, checks or any other method.

"What eBay is doing is the very reason the Sherman Anti-Trust Act was passed."

The company was held in default last week in U.S. District Court in Detroit, after failing to respond to the lawsuit.

Attorneys for eBay on Friday filed a motion asking the court to set aside the default judgment, and requested a 14-day extension to respond to the lawsuit.

"EBay and PayPal did not willfully default," according to the company's motion. "Rather, the parties were engaged in dialogue and negotiations, and at no time had plaintiffs ever indicated their intention to seek entries of default."

EBay's attorneys did not respond to efforts Tuesday seeking comment.

Macuga filed the lawsuit April 12, and said he sent a registered letter to eBay's California offices the following day.

"They had 30 days to answer," Macuga said. "On June 15, they were defaulted by the court -- it was 62 days and they still hadn't responded."

The class action suit could potentially cover tens of thousands of customers and could result in the company paying out a "substantial sum of money" to sellers, Macuga said.

Smith, who uses the eBay screen name "Mydadsdaughter," was out of town Tuesday and not available for comment, her attorney said.

Brian Miller, a Grosse Pointe resident who isn't part of the lawsuit, but has sold vehicles, parts and motoring accessories under the name cariff_giant, said he stopped doing business with the online auction site.

"I haven't sold anything on eBay lately because of all the fees," Miller said. "I've been using Craigslist because it is a way to avoid that cost."

EBay, a publicly held Delaware-based corporation, purchased PayPal in 2002. Since then, according to the lawsuit, eBay and PayPal have tried to "wipe out any competition."

For instance, when Google Checkout announced in 2006 that it would charge 2 percent fees for eBay transactions, as opposed to the 3 percent fee charged by PayPal, eBay announced three days later that sellers were banned from requesting payment from Google Checkout, Macuga said.

Registered users in the United States and the United Kingdom are required to use PayPal. But in Australia, the government stopped eBay from making PayPal the exclusive method of payment.

EBay's first-quarter revenues totaled $2.2 billion, up 9 percent year over year.

There is no timetable for the court to act on eBay's motion to set aside the default judgment.

"It is not an easy matter to win a litigated antitrust case," said Stephen Calkin, a Wayne State University Law School professor and expert in antitrust law.

"Clearly these litigants are protesting against activity they are saying is very unfair and unreasonable, but I don't know if a default judgment will result in any real action against eBay."