FMI, GMA TO EBAY: CLIP COUPONS

MARK HAMSTRA

WASHINGTON -- Food Marketing Institute and Grocery Manufacturers of America here appear to be headed for a confrontation with Internet-auction site eBay over the sale of grocery coupons on its Web site.

The two associations jointly sent a letter to Meg Whitman, president and chief executive officer, eBay, asking her to add grocery coupons to the list of items that eBay prohibits from its site.

A spokesman for San Jose, Calif.-based eBay said it has "held numerous discussions with the coupon industry," but he maintains that eBay is not responsible for screening the products that independent sellers place up for bids.

"The industry is asking eBay to be the interpreter of language on these coupons, and that is not its role," said Kevin Pursglove, the eBay spokesman.

FMI and GMA maintain that because nearly all coupons are printed with admonitions that they are "nontransferable," selling them through eBay is illegal and may violate the coupon-issuers' intellectual property rights. In addition, many of the coupons offered for sale on eBay appear to be counterfeit, said FMI and GMA.

Pursglove said eBay's policy is to remove counterfeit products from its site when someone demonstrates that the products are indeed counterfeit, but it has no obligation to verify the authenticity of products before they are listed.

Tim Hammonds, president and CEO, FMI, said the association is prepared to take legal action against eBay if necessary. He said FMI and GMA are working with some attorneys who have had experience with eBay in matters related to music-copyright issues.

"We would like to resolve this in a low-key way and not have to file a lawsuit," he said. "But certainly, we are not going to let them say to us, 'Gee, no harm, no foul.' We will follow up with them as necessary."

The auction site has prevailed in similar legal cases before, however. In 2001, a U.S. District Court in Los Angeles found that eBay was not liable for copyright infringement for the auction of pirated copies of a movie on the site. The court ruled that eBay did not have the obligation to determine the authenticity of items sold through its site because it merely provides a technological platform for auctions and is not otherwise involved in the process.

Bob Miller, executive director, Coupon Information Center, Alexandria, Va., said his group, which helps prosecute coupon fraud on behalf of manufacturers, has been asking eBay for several years to stop allowing the auction of coupons on its site.

"As far as needing an interpreter to read these coupons, nothing could be further from the truth," he said in response to eBay's assertion that it is not responsible for reading coupons. "[The warning that coupons are nontransferable] is on 99.9% of the coupons out there."

He said CIC sued one eBay auctioneer earlier this year for selling booklets of counterfeit grocery coupons, and the case was settled out of court.

The recent coupon scam that hit retailers in the Southeast did not involve eBay, but it did bring renewed attention to the issue. That case was still being investigated late last week.

Those seeking to halt the dispersal of fraudulent coupons said they hope that by going after eBay, they will set a precedent.

"I have received communications from some people who have gotten involved in this because they saw it on eBay," said Miller. "They say that if eBay allows it, it must be all right or eBay would do something about it."

Hammonds said the hope is that if eBay can be persuaded to stop allowing the sale of coupons, other sites will follow suit. "If we can have some success with eBay, I think that will be generally useful," he said.

A search on eBay using the word "coupons" late last week revealed nearly 6,000 auctions, many of which appeared to be for grocery products.

Estimates for the total annual value of coupon fraud are in the hundreds of millions of dollars, although it's not clear how much of that occurs through the Internet. Retailers are often the ones who lose out when they accept fraudulent coupons because manufacturers don't reimburse them.

Stephanie Childs, a spokeswoman for GMA, said the Internet has made it easier for people to disseminate counterfeit coupons.

"Because of advances in technology, there are people out there who can change the value on them [coupons] or create their own very realistic-looking coupons that can be downloaded," she said.

According to Matt Moog, president and CEO, CoolSavings, Chicago, the problem of coupon fraud does not lie with coupons printed from the Internet, but with coupons for free products that are copied from newspaper inserts or direct mailings. Moog encourages retailers to be wary in accepting coupons for free products.