Feb. 27 (Bloomberg) -- German police used tips from EBay Inc. to score the biggest success in their probe of a counterfeiting ring, snaring 20 tons of knock-off La Martina dress shirts, Ed Hardy tank tops and other brands last month.

EBay, the world’s largest Internet auctioneer, is helping such investigations as part of a larger effort to rid its site of fakes the San Jose, California-based company says damage its reputation as a trusted shopping place. EBay spends $20 million a year on “trust and security,” including anti-fraud measures.

“EBay is only as good as its worst seller in the minds of its customers,” said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co. in New York.

The dangers fakes pose go beyond EBay’s reputation. Brand owners claim EBay doesn’t do all it can to ensure only genuine articles are sold. L’Oreal SA, the world’s largest cosmetics maker, is among the latest to sue over fakes, seeking damages in five European countries. A Paris court will rule in one case March 10, and a London trial opens March 9.

LVMH Moet Hennessy Louis Vuitton SA and Hermes International have already won rulings in France that EBay bears some responsibility for stopping counterfeiters. EBay was ordered to pay 40 million euros ($51 million) in damages to LVMH and 20,000 euros to Hermes. Its appeal is pending. A federal judge in New York threw out similar claims by Tiffany & Co. in July.

A German court this week found EBay had stopped sales of fake Rolex watches after being alerted by the brand owner. The ruling ended an eight-year fight with Switzerland’s Rolex Group.

EBay fell 58 cents, or 5.1 percent, to $10.87, at 4 p.m. New York time in Nasdaq Stock Market trading, the lowest price since April 2001.

German Raid

EBay coaches sellers and ignores the risk that they’re offering copies, L’Oreal lawyer Isabelle Leroux told the Paris court in December. The Paris-based company claims 60 percent of perfumes sold on EBay purporting to be L’Oreal products weren’t. EBay denies the claims.

Police in Wetzlar, Germany, a town of 54,000 about 60 kilometers (36 miles) north of Frankfurt, had gotten a complaint about holograms on La Martina shirts washing off, exposing them as fakes. They contacted EBay after discovering the shop that sold the shirts also sold items on the site. EBay’s counter-fraud team swung into action, providing bank- account numbers, shipping addresses and computer-tracking codes.

EBay has been “very cooperative” in the seizure of more than 150,000 items in 10 raids, said Uwe Braun, the Wetzlar prosecutors’ spokesman, in an interview.

EBay understands knock-off goods hurt customers, said Julia Goeken, of EBay’s European Rights Team in Dreilinden, Germany.

Banned Items

“If buyers don’t trust the site, it results in lower bid prices, so that hurts sellers, and it hurts EBay,” Goeken said.

The company says monitoring programs help keep fakes down to 1 percent of total listings. New postings are checked around the clock to block banned items like pornography, weapons and ivory, and to flag possible copyright or trademark infractions.

Monitors like Stefan Jugel can review 350 to 400 flagged auctions in six hours. He works off two screens, one with the proposed sale, the other a list of reasons why it might be nixed. Criteria like the absence of the word “original,” earn you one point. Others, like misspelling brand names to foil keyword searches get three, enough to take down an auction.

Complaints of misleading postings are referred to as SNADs, for “significantly not as described.” When buyers report the problem, EBay’s Web site asks them questions to determine whether items were fake and help EBay track down the seller.

‘Reversal’

Brand owners can also monitor listings with EBay’s Verified Rights Owner program, or VeRO. Participants tell EBay what to look for, get alerts if suggestions snare an item and can request a delisting.

Wolfgang Weber, EBay’s head of European law enforcement, says the rights owner program is “very useful” because the brand owner is in the best position “to tell whether the item is real or not.”

L’Oreal and other brand owners say the onus shouldn’t be on them. L’Oreal lawyer Leroux said VeRO is “a reversal of responsibilities.”

“EBay’s job is to look at listings and see that they’re authentic,” said Leroux by telephone. “They tell the brand owner to do that.”

“When we manage to signal that a listing is suspicious, most often, the cited items aren’t taken down,” said LVMH, the world’s largest luxury-goods maker, in an e-mailed statement.

Some of the 31,000 participants in VeRO also say the program asks too much.

Never-Ending Debate

“VeRO is very good for EBay, but for us we have other needs,” said Carole Aubert, head of the Federation of the Swiss Watch Industry’s Internet unit in Bienne, Switzerland, which represents 90 percent of the country’s watchmakers.

The group spent more than two months developing a database to fully cooperate and one fulltime worker monitors online sales. The work has seen results as the number of Swiss watch auctions on EBay fell to 3,000 last year from 10,000 in 2007, said Aubert.

Quilate Servicos LDA, the Portuguese owner of the La Martina brand in Europe, has worked with VeRO since 2005. Auctions of the brand are down to about 1,800 on average from 3,000 a year ago, said lawyer Thorsten Wieland, of Frankfurt firm Heuking Kuhn Luer Wojtek.

Even so, “99.9 percent of any La Martina sale is fake,” Wieland said in an interview. “I was never able to find a single authentic La Martina item on my test buys.”

Quilate is “not looking at suing EBay, but we want more aggressive measures taken,” Wieland said. He criticized privacy clauses shielding account details from brand owners and EBay’s allowing registration of multiple usernames.

The debate will never end, said Graham Robinson, managing director of London-based Farncombe International Ltd., which investigates intellectual-property violations. “Brand owners I doubt will ever be fully convinced that EBay is doing enough.”

To contact the reporter on this story: Heather Smith in Paris at hsmith26@bloomberg.net

Last Updated: February 27, 2009 16:05 EST