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Court of Appeal:
eBay’s ‘Daily Deals Program’ May Form Basis of Liability
Opinion Revives Action by One Precious Metals Dealer Against Others, Saying Plaintiff Sufficiently Alleged That Competitors Accepted ‘Secret Payments’ in Form of Subsidies From Online Giant for Lowering Prices
By Kimber Cooley, associate editor
Div. Five of this district’s Court of Appeal yesterday reinstated a civil action by one precious metal dealer against certain of its competitors based on the defendants allegedly accepting “subsidies” from eBay Inc. under a program designed to promote certain products as “daily deals,” saying the complaint adequately alleges that the system amounts to “secret payments” in violation of a California law targeting anti-competitive business practices.
At issue is Business and Professions Code §17045, which provides:
“The secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of a competitor and where such payment or allowance tends to destroy competition, is unlawful.”
In an unpublished opinion by Justice Dorothy Kim, the court rejected the defendants’ assertion in their appellate brief that the program does not amount to “rebates” on service fees for a certain class of vendors but rather the selected sellers are simply “conduit[s] for a discount provided by eBay to a consumer to encourage the consumer to purchase a product through eBay’s e-commerce platform.” Kim wrote:
“Even assuming the Subsidy Payments were reimbursements for discounts that defendants passed on to their consumers (in the form of lower purchase prices for defendants’ products),…the subsidies ultimately enabled defendants to ‘offset the…fee[s]’ they paid to eBay and to pass on those savings to the consumer.”
Bullion Marketplace
The challenged payments were part of an “eBay Bullion Market” in which sellers paid transaction and payment processing fees to the online giant in order to offer their products for sale on the platform.
According to the plaintiff, A-World Trade Inc., some of its competitors were invited to participate in eBay’s “Daily Deals Program” beginning in January 2009, agreeing to offer select items at a discounted price for a time in exchange for promotion of the products by the marketplace. Under the agreement, the companies were allegedly paid a “Subsidized Payment…to apply towards the discounted price” of certain sales.
Sellers agreed that they would “not disclose to any third party” the terms of the “Daily Deals Program” and A-World claimed that “eBay denied the existence of any such payments, subsidies, discounts and/or rebates” when the plaintiff inquired about the program.
In 2022, A-World filed a complaint against APMEX Inc. and 13 other competitors based on their participation in the marketplace’s subsidy program, saying they were “effectively run out of business in the sale of precious metal bullion in the eBay online bullion marketplace.” Asserting a single cause of action in the operative complaint, the plaintiff alleged:
“This case involves the receipt of secret payments by Defendants in violation of the California Business and Professions Code section 17045, a competition-protection statute. Beginning in or about 2009 and continuing through the present, Defendants agreed to lower the price of certain precious metal bullion on the eBay online bullion marketplace, at certain designated times, in exchange for receiving secret payments from eBay—payments not known to other sellers in the market—and certain other marketing services.”
Joint Demurrer
The defendants filed a joint demurrer to the operative complaint, arguing that the pleading failed to allege a violation of the statute. On Oct. 17, 2023, Los Angeles Superior Court Judge William F. Highberger sustained the demurrer, saying that the Daily Deals Program was not a secret but was instead a “regular feature of how [eBay] operates.”
Highberger declined to allow the plaintiff leave to amend, as he had earlier sustained a demurrer to a previous complaint.
Yesterday’s opinion, joined in by Presiding Justice Brian M. Hoffstadt and Justice Lamar Baker, reverses the ensuing defense judgment.
Kim noted that a plaintiff seeking to state a claim under §17045 must allege:
“[T]he defendant secretly received payments of rebates; the plaintiff was harmed by the defendant’s conduct; and the payment had a tendency to destroy competition.”
As to secrecy, she rejected the view that the payments were out in the open because eBay regularly advertised daily deals on its website, remarking:
“[E]ven if plaintiff was presumptively aware of the existence of the Daily Deals Program through the eBay website, it sufficiently alleged that the Subsidy Payments were nevertheless secret because the essential terms of the Daily Deals Agreement describing those payments were subject to a confidentiality provision and, when confronted about them, eBay denied their existence. Accordingly, plaintiff sufficiently alleged the secrecy element.”
Subsidy Payments
Turning to the nature of the subsidy payments, she opined:
“[A]s alleged by plaintiff, the Subsidy Payments defendants received on each Daily Deal transaction enabled them to both purchase eBay’s services for a reduced fee and sell their products to their customers at a reduced price. This is the type of secret payment that section 17045 was primarily intended to prevent.”
Adding that “[b]ecause section 17045 must be liberally construed to effectuate its purpose…and we must also liberally construe plaintiff’s factual allegations,” she concluded that “plaintiff has sufficiently alleged that the Subsidy Payments were ‘rebates’ within the meaning of section 17045.”
Addressing whether the plaintiff sufficiently alleged a “tendency to destroy competition,” she commented:
“Defendants contend that plaintiff failed to allege a tendency to destroy competition because the eBay Bullion Market is but a single store and plaintiff was not prevented from competing for sales of precious metal bullion products in any other marketplace.”
The justice continued:
“Plaintiff has alleged that the Subsidy Payments have a tendency to destroy competition. And that is enough at this early stage of the litigation….Only as the litigation progresses will plaintiff be required to define the contours of the relevant market, consistent with its claim that the Subsidy Payments were improperly paid by an online retail platform to defendants as the purchasers of that online retail service, and to come forward with evidence that the Subsidy Payments tended to destroy competition in that relevant market.”
The case is A-World Trade Inc. v. APMEX Inc., B335733.
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