eBay LawsuitThe Ninth Circuit Court of Appeals upheld the dismissal of the antitrust class action suit against eBay for its policy for listing certified coins for sale.

The story begins in 2007 when eBay began to set standards for listing coins on its site. As part of its decision as to which coins could be listed as graded with their grade as part of the listing, the policy was created that grading services had to have been rated good or better in the 2006 Grading Services Survey performed by Professional Numismatic Guild and Industry Council for Tangible Assets.

After a lot of protest from the numismatic community, by 2008, eBay changed their policy for listing coins to require coins worth more than $2,500 to be graded and listings that mention grades be graded by an approved grading service. To become an approved grading service the company has had to grade 50,000 pre-1956 coins, provides an online population report, has three professional graders on staff with at least one a member of the Professional Numismatic Guild, provide a written guarantee, encase coins in a tamper resistant holder with anti-counterfeiting measures, and provide an online serial number verification service.

Initially, only coins graded by Numismatic Guarantee Corporation and Professional Coin Grading Service qualified under these rules. Shortly before the ruling was to take effect, ANACS and Independent Coin Graders make the necessary adjustments to have coins in their holders qualify for listing as graded on eBay.

Universal Grading Service (UGS) was a nascent New Jersey-based grading service decided to file an antitrust suit eBay, the American Numismatic Association, then ANA President Barry Stuppler, and PNG claiming that the rules are preventing them from competing in the market. Their claim was that coins in their holders were allegedly banned by eBay claiming that by using the study, eBay was in collusion with the ANA and PNG to prevent them from participating in the market, an alleged violation of the Sherman Antitrust Act.

UGS initially filed the anti-trust case in the Eastern District of New York. The court, based in Brooklyn, determined that since eBay was the lead defendant and the service most impacted by the suit, New York was not the proper jurisdiction. The court ordered that the case be transferred to Northern District of California.

The case was move to the San Jose Division for the Northern District of California and assigned to Judge Ronald M. Whyte. In mid-2011, Judge Whyte granted motions (with prejudice) to dismiss the case against the ANA, PNG, and Barry Stuppler. That left only eBay as the lone defendant.

On January 9, 2012, Judge Whyte granted eBay’s motion to dismiss the case with prejudice. Judge Whyte noted that the case was flawed from the beginning and gave UGS every opportunity over two years to amend the case in order to prove their claim. Judge Whyte agreed with eBay that USG did not provide evidence that eBay violated the Sherman Antitrust Act or other associated laws.

UGS appealed to the Ninth Circuit Court of Appeals saying that Judge Whyte wrongly dismissed the claim and that they met their filing responsibility under the Sherman Antitrust Act and associated state laws. The three judge panel affirmed the Judge Whyte ruled properly and let the dismissal stand.

UGS, who has ceased operations, can appeal the case to the full Ninth Circuit asking for a review. When appealing a ruling to a full circuit court panel, all nine judges assigned to that circuit, including the members of the three-judge appellate panel, will hear the appeal. An attorney familiar with Federal Circuit Courts said that it is rare that a dismissal by a federal district judge that is upheld by an appeals panel will be selected to be heard by the full circuit. He did note that stranger things have come out of the Ninth Circuit and it could be possible that they would hear the case.

After the Ninth Circuit, the next step would the Supreme Court. Sources report that if the full Ninth Circuit refuses to hear the case or the dismissal is upheld, “there is no attorney in his right mind” that would file an appeal to the Supreme Court after two courts uphold a dismissal.

With this ruling, the Universal Grading Service is effectively dead and buried. Whatever the people behind UGS were hoping to get out of this case will not be realized.

One thing this ruling says is that the cost to entry the coin grading market is very high. The court affirmed that eBay can set the market rules and as one of the dominating venues for selling coins, a new grading service would have to meet eBay’s requirements in order to gain market acceptance. The difficult benchmark is to have graded 50,000 pre-1956 coins.

There appears no reason why pre-1956 was picked as the dividing line. For many, it would make sense to select pre-1965 to include all coins that are pre-clad coinage. Calls to eBay to obtain clarification about the policy have not been returned. Since eBay consulted with John Albanese, principal of Numismatic Consumer Alliance and Certified Acceptance Corporation (CAC), contacting him may be an option.

Interestingly, if eBay is to follow its policy to the letter, coins that received verification stickers from the CAC cannot be listed as part of the grade. Titles should not be allowed to indicate that the coins have been verified by CAC nor should the description. As far as I am concerned it would be acceptable for eBay to ban the designation of CAC verification as I am not a fan of the service.

Which raises a thought: considering the CAC’s business model includes only coins certified by NGC and PCGS, and given Albanese’s past associations with both of those services, if the case was limited to eBay and Albanese/CAC would it have been more successful?

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