ReverseAuction.com out of Gear?

The Federal Trade Commission today announced that ReverseAuction.com, an Internet auction house, has settled FTC charges that it illegally harvested data from eBay, the leading online auction site, in an attempt to siphon eBay's customers. Meanwhile, eBay says it has filed a lawsuit against ReverseAuction in federal court in San Jose, Calif., seeking unspecified monetary damages for "misleading and deceptive practices causing harm to eBay's reputation."

According to the FTC, ReverseAuction, based in Washington, registered on eBay's site last year, under the terms of a user agreement that forbids the use of other eBay users' personal information. The FTC says ReverseAuction sent e-mails to eBay users, with a "deceptive subject line" warning that the user's eBay identification was about to expire. The message invited the recipient to register with ReverseAuction under the same user ID in order to preserve their "carefully built reputation(s)." The commission alleged that ReverseAuction violated federal law by sending "deceptive spam" that was misrepresented as being sanctioned by eBay.

"The FTC takes consumers' online privacy seriously and will act quickly against those who violate privacy policies," said FTC Chairman Robert Pitofsky in a statement. "Confidence that privacy will be protected is an important element in consumers' decisions where to shop on the Internet."

Under the terms of the settlement filed today in federal district court here, ReverseAuction must send a notice to eBay users who registered with ReverseAuction, making it clear that the eBay user IDs aren't about to expire, and that eBay didn't authorize ReverseAuction's solicitation. Furthermore, the settlement requires ReverseAuction to get rid of all personal data it collected from eBay.

A ReverseAuction spokesman disputed the FTC's charges, saying that eBay "ran to the FTC like a scalded cat" to preserve its dominance of the online auction industry. EBay reported 7.7 million users during the third quarter of 1999. By contrast, ReverseAuction says it registered 36,000 users in the six weeks following its Nov. 1 launch. The spokesman said ReverseAuction agreed to the settlement, which contains no admission of guilt, to prevent bad publicity from smothering the fledgling auction site.

"This caught us right in the middle of closing a major round of financing," says the spokesman, ReverseAuction executive Jack Horton. "We had to have this behind us. We didn't have a choice."

In a statement, ReverseAuction said the FTC complaint "propounded novel legal theories" that would have been knocked down in a court of law. EBay's lawsuit, should it go to trial, might afford ReverseAuction just such an opportunity.

"We want to make sure they never never engage in this type of activity again," says eBay spokesman Kevin Pursglove. "This lawsuit will send a very clear message to spammers that such activity cannot be tolerated."

Horton says that ReverseAuction targeted 80,000 of eBay's "power sellers" last November in an effort to woo their business. Thirty thousand of the sellers expressed interest in registering with ReverseAuction, according to Horton, who says that eBay's privacy policy is "increasingly restrictive every month."

The subject line in ReverseAuction's e-mail did include a telltale "Adv" designation. A disclaimer at the end of the message said that "eBay is a registered trademark owned by eBay, Inc., which does not authorize or endorse ReverseAuction.com."

Nevertheless, the message amounts to deceptive marketing, according to the FTC.

"We look at the overall impression," says FTC spokesperson Jessica Rich. "We think the title line really grabs you."

Later today, eBay president Meg Whitman will post a statement on the company's site announcing its lawsuit against ReverseAuction and defending eBay's legal position.

Horton says eBay's policy is "a clear barrier to the growth of the industry."

He dismissed eBay's lawsuit as little more than a frivolous legal challenge.

"These guys are going to sue anybody who threatens their monopoly," Horton says. "We'll see them in court."

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