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eBay to Pay out $4.75 Million in Class Action Lawsuit Settlement

It took almost 2 years, but a seller who filed a class action lawsuit against eBay over its Featured Plus optional listing upgrade has reached a court-approved preliminary settlement with eBay. The company, while denying the allegations and not admitting fault, has agreed to pay $4.75 million to settle the lawsuit, including $7,500 for the seller who initiated the lawsuit. And it stopped offering the feature earlier this year.

But sellers should not necessarily expect to receive a check in the mail – the default method for distributing funds to class members with active eBay accounts will be to give them account credits, according to the court order granting preliminary approval of the settlement.

Custom LED LLC had sued eBay in January 2012 over Featured Plus, a premium feature that buyers could purchase for up to $39.95 per listing to boost their visibility. Custom LED, which sold on the eBay Motors channel, alleged that eBay promised Featured Plus listings would appear at the top of search results on eBay’s core site as well as the stores section. “eBay charges a high price for Featured Plus listings because it knows sellers value listing priority in search results,” according to the complaint.

But Custom LED said Featured Plus items would only appear at the top of search results for queries that were initiated from a Motors page and those that were confined to Motors listings, while also excluding certain sorting criteria, such as price, listing date and geography.

The plaintiff also claims the feature was entirely non-functional for some period of time.

The court rejected an earlier settlement proposal in part over the use of credits as opposed to cash, with the offsetting of credits based on amounts that class members owed to eBay. Now, sellers can choose to receive a check instead by providing notice to the claims administrator – though the default method remains a credit to sellers with active accounts. The court approved the settlement on November 20th, and sellers began receiving instructions late last week.

Terms of the Settlement 
Under the terms of the revised settlement agreement, eBay has agreed to pay $4.75 million to settle the claims. The following amounts will be subtracted from the Gross Settlement Fund:

  • Custom LED’s “enhancement award” of $7,500;
  • Attorney’s fees of “up to 25%” of the Gross Settlement Fund, plus costs and expenses, which counsel for Custom LED estimates to be $1,212,500;
  • The costs of administering the settlement, which are not itemized in the proposed settlement but counsel for Custom LED estimates to be “approximately $300,000.”

The remaining funds, estimated at $3,230,000, will be distributed to the class, which the parties define as:

“All natural persons and entities who are United States residents and who, from January 23, 2008 to the present listed items for sale on eBay’s websites with the Featured Plus! upgrade, and incurred Featured Plus! Fees in connection with such listings.”

However, the settlement fund will be bifurcated by time period: one-third of the fund will be allocated to the time period ranging from January 23, 2008, to September 28, 2009 (period 1), and the remaining two-thirds will be allocated to the period ranging from September 29, 2009, to February 4, 2013 (period 2).

The justification for this bifurcated allocation is eBay’s contention that Featured Plus! worked exactly as described prior to September 29, 2009, and that any alleged problems arose only after that date, when eBay made certain changes to the descriptions and functionality of Featured Plus!.

Specifically, eBay has evidence showing that Featured Plus listings were shown in Featured Items sections for all searches in period 1, regardless of where the buyer originated the search or how the search results were organized, according to the court, and no such evidence exists with respect to the listings in period 2. “As such, the class members’ claims in period 1 are significantly weaker than those in period 2.”

Class members who receive credits can apply for a refund in accordance with eBay’s refund policy, and any class member with an active eBay account who does not want to receive a credit may choose to receive a check instead by providing notice to the claims administrator no later than the deadline for filing objections.

The default method for distributing funds to class members with closed eBay accounts will be to send them checks to the name and address in eBay’s records or to any other name or address that the class members provide to the claims administrator

Sellers will receive approximately 1.8% of what they paid for Featured Plus! in period 1, and will receive approximately 16% of the total they paid for Featured Plus! in period 2.

A seller forwarded the letter he received containing instructions and pointing to a website to learn more. Sellers who used Feature Plus anytime since January 23, 2008 may or may not have to do anything in order to receive a credit from eBay:

  • Active eBay Accounts: You don’t need to do anything unless you wish to receive a check instead of a credit.
  • Inactive eBay Accounts: You don’t need to do anything unless your current address information on your account is incorrect.
  • Closed eBay Accounts: You must provide your current address information in order to receive a check.

Sellers who must update their information or wish to request a check instead of credit have until March 20, 2014 to do so. The court will take a final look at the settlement in June before funds will be disbursed.

Note that sellers should be wary of spoof emails from scammers pretending to represent the Settlement Class Administrator – and it will not be asking for personal or financial information aside from, in some cases, your address.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.