Monday, March 16, 2009

eBay Insufficiently Pled RICO Pattern, Enterprise Against Advertising Affiliates

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

Online auction company eBay Inc. failed to sufficiently plead an enterprise and a pattern of racketeering against advertising affiliates that allegedly engaged in a “cookie stuffing scheme” to collect unearned advertising fees from the auctioneer, the federal district court in San Jose, California has ruled.

eBay claimed that Digital Point Solutions, Inc. and other advertising affiliates had engaged in mail and wire fraud by surreptitiously placing, on the computers of third-party users, software that would cause the users’ web browsers to visit eBay’s website, where “cookies” would be placed on their computers.

The “cookies” identified the defending affiliates as the referring advertisers, eBay explained, and therefore permitted the affiliates to collect commissions on auction transactions that were subsequently made by the affected users, even though the users had not clicked on an affiliate’s ad.


According to eBay, Digital Point Solutions was the RICO enterprise through which the other defendants had associated for the common purpose of defrauding eBay of commission fees. eBay failed, however, to state clearly whether one defendant had associated with Digital Point Solutions at all relevant times or had done so during the certain periods only.

Although eBay surmised that this defendant may have functioned as a separate association-in-fact enterprise for certain time periods, the assertion was not articulated in sufficient detail, as required by the heightened pleading standards for fraud in the Federal Rules of Civil Procedure, the court held.

Pattern of Racketeering

eBay failed to sufficiently plead a pattern of racketeering activity, according to the court. Because the auctioneer failed to identify specific incidents of suspected “cookie-stuffing” activity, its claim was dismissed for failure to plead fraud with particularity, as required by the Federal Rules of Civil Procedure.

The February 24 decision is eBay Inc. v. Digital Point Solutions, Inc., CCH RICO Business Disputes Guide ¶11,627.

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