VP Cohen Testifies Before U.S. Congress

May 1, 2009

eBay Vice President and Deputy General Counsel for Government Relations, Tod Cohen, has been busy making sure eBay\'s voice is heard in Congress. On May 19, Cohen addressed the Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy, and Consumer Rights. On April 28, Cohen presented before the United States House of Representatives Committee on the Judiciary, Subcommittee on Courts and Competition Policy.

Both times Cohen spoke about the impact of the Supreme Court\'s 2007 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. The decision has begun to undermine many of the consumer benefits, such as intrabrand price competition, generated by the open nature of the Internet. Consumers are not the only group hurt by this decision — small and mid-size Internet retailers are also at a disadvantage, as the decision empowers traditional businesses to curtail the efforts of smaller sellers to offer lower prices. Cohen\'s oral testimony to the House can be read below and a PDF of his full written statement to the Senate is also available for those interested in a more detailed discussion of the Leegin decision and the issues with Retail Price Maintenance (RPM).


Tod Cohen\'s House Statement:

"Chairman Johnson, Ranking Member Coble, and Members of the Subcommittee, I am Tod Cohen, Vice President and Deputy General Counsel for Government Relations at eBay Inc. Thank you for the invitation to speak today about the impact of the Supreme Court’s Leegin decision, in particular on small and mid-size retailers who use the Internet.

Founded in 1995, eBay Inc. connects hundreds of millions of people around the world every day. The company\'s online platforms empower individuals and small businesses to meet and engage in open trade on a local, national and international basis.

We believe that the efficiency and consumer benefits of the open Internet can be immense. Businesses use it to offer lower prices, greater choice and great values to consumers. Consumers use it to more easily find, compare and purchase products. Unleashed, it can be a game changer. And we are still in the innovation stage of retail on the Internet, with new retail business models benefiting consumers, retailers and the overall economy.

The Internet is part of every serious 21st Century retail strategy – whether massive “brick and click” retailers with web sites and big box stores, large “remote” Internet and catalogue retailers with nationally known brand names, or small businesses who are building new Internet businesses or integrating the Internet into an existing small shop to survive and grow in today’s highly competitive retail environment.

The Internet is also used by manufacturers, including the most elite and specialized, to reach customers with information, and more and more, with products. And the Internet is critical to more consumers every day. It is the greatest source of product information ever created.

I mention these facts because sometimes people paint this issue as being about Internet retailers on one side and non-Internet retailers on the other. Nothing could be farther from the reality of 21st Century retail. In short, everyone in retail uses the Internet.

But there are big differences in how the Internet is used. On one side are established networks of manufacturers and retailers who want to reinforce or enhance established and highly profitable retailing business models. They are threatened by the Internet when it is harnessed to offer consumers better deals and more information outside the established incumbent retail networks.

On the other side are innovators with new business models. They are almost always small to mid-size businesses. They use new technologies to offer consumers better deals, more information and new services. They use the Internet as a tool for innovation and change, and they threaten traditional retail networks.

We believe that the Leegin decision is undermining consumer benefits delivered by innovative retailers, especially on the Internet. There is evidence that small and mid-size Internet retailers are a primary target of aggressive RPM policies.

eBay’s own experiences confirm that many large, established businesses attempt to limit low price intra-brand competition by continually scanning our platforms to identify sellers offering their products at a lower price. They then use a range of tools to identify the seller and stop low price competition, using different tactics depending on the circumstances of the seller. The Leegin decision has clearly been interpreted as a legal “green light” to more aggressively thwart low-price competition.

Established retailers and manufacturers attempting to enforce traditional business models contend that innovative Internet retailers are able to offer lower prices to consumers because they “free-ride” on their traditional retail counterparts. The traditional “free-rider” argument contends that small and mid-size remote retailers depend on the existing retail infrastructure to provide pre-sale information through product demonstrations and other methods. They then divert “educated” consumers away through lower prices. The largest global manufacturers, and their established mega-retail partners, claim that RPM policies protect them from this “unfair” competition.

The truth is that the Internet turns the traditional free-rider justification for RPM on its head. Internet retailers and services provide significant pre-sale information to consumers. The open Internet has completely revolutionized the consumer information experience. Consumers regularly turn to the Internet to search for product information, make product comparisons and check prices before visiting and purchasing from established retailers. In fact, it could even be argued that the largest and most established manufacturers and their largest retail partners are free-riding on the tremendous consumer information tools created by Internet innovators.

From a competition policy and consumer benefit perspective, the traditional free-rider argument for RPM policies as applied to Internet should be put to rest. Innovative Internet retail models simply expose incumbents to new competitive threats and more innovative forms of retailing. Protection from new and innovative retail models was always a likely reason for RPM, and we think that is even more true in the Internet Age. Therefore, this committee should aggressively scrutinize the Leegin decision and adopt appropriate measures to protect consumers and retail innovators.

Thank you Mr. Chairman and members of the Subcommittee."