Markets

MercadoLibre -- Like eBay -- Fights Customer Lawsuits

By David Phillips

Updated on: November 21, 2008 / 1:41 PM EST / MoneyWatch

The number of civil lawsuits in the United States has tripled since 1960, according to the National Federation of Independent Business. A read of online auctioneer MercadoLibre's third-quarter 2008 10-Q regulatory filing suggests that folks in Latin American countries are litigation happy, too:

From time to time, we are involved in disputes that arise in the ordinary course of our business.
At September 30, 2008, there were 246 lawsuits pending against our Brazilian subsidiary in the Brazilian ordinary courts. In addition, at September 30, 2008, there were more than 1,970 lawsuits pending against our Brazilian subsidiary in the Brazilian consumer courts, where a lawyer is not required to file or pursue a claim. In most of these cases, the plaintiffs asserted that we were responsible for fraud committed against them, or responsible for damages suffered when purchasing an item on our website, when using MercadoPago [online payments business -- similar to eBay's PayPal], or when we invoiced them. We believe we have meritorious defenses to these claims and intend to continue defending them.

Total reserves for proceeding-related contingencies were approximately $0.9 million for 334 legal actions against MercadoLibre (where management determined that a loss was probable).

One legal proceeding worth keeping an eye on, however, was filed by footwear and apparel maker Nike, which requested a preliminary injunction against the Company's Argentine subsidiary in the First Civil and Commercial Federal Court, Argentina. On August 14, 2008. Nike requested a cease and desist injunction, alleging that this subsidiary was infringing Nike's trademarks as a result of sellers listing allegedly counterfeit Nike branded products through the Argentine page of the Company's website. A preliminary injunction was granted on August 11, 2008, to suspend the offer of Nike-branded products until sellers could be properly identified. The Argentine subsidiary appealed the decision on August 22, 2008.

Unfortunately, two trademark infringement decisions involving U.S. online auctioneer eBay offer little precedent as to the outcome of Nike vs. MercadoLibre:

In July 2008, the U.S. District Court for the Southern District of New York ruled that eBay was not liable for contributory trademark infringement against high-end jeweler Tiffany & Company. The court's holding explicitly placed the burden of policing trademarks on trademark owners, rather than on online marketplaces such as eBay or Amazon.com, said lawyers for Arent Fox in a published review of the case.
In marked contrast to the Tiffany ruling, a French court recently ordered the company to pay $61 million to luxury goods maker Louis Vuitton for eBay's online auctioning of counterfeit merchandise. eBay is appealing that ruling.

At September 30, the number of registered users on MercadoLibre grew year-over-year 37 percent to 32 million. With a population of over 550 million people and a region with one of the fastest-growing Internet penetration rates, management expects the number and significance of legal disputes to increase as its e-commerce business platform expands.