It was bound to happen eventually. But the world’s #1 online auction website has now been struck with a lawsuit over comments that were left in its “feedback” section.

The lawsuit, filed by Robert Grace from Los Angeles, states he was personally libeled in eBay’s “feedback” section. Grace, who is an attorney and publishes a Los Angeles legal newspaper, is suing the popular online auction website because they have refused to remove negative statements made by a seller about him that he says damaged his reputation.

Grace is also suing that seller, Tim Neeley, who is a Hollywood memorabilia dealer who sold Grace some vintage Hollywood magazines from the 40s and 50s.

Neeley asserted in the feedback section that Grace “should be banned from eBay” and was “dishonest all the way” for his allegations that the magazines arrived late and were in worse condition than they were listed for. Grace apparently did not attempt to contact Neeley prior to leaving the feedback about him (as eBay encourages their buyers and sellers to do if a problem arises with an order). This was the basis for the lawsuit filed by Grace.

For those of you who are unfamiliar with popular online websites such as eBay that allow people to purchase and sell items to each other over the Internet, the feedback section is an essential part of the process. As a seller, your feedback is crucial to your success. If your feedback is mostly positive, then you are likely to attract customers to the products you are selling when they are looking for something you have for sale. Feedback is also important for a buyer because sellers want to do business with buyers they can trust. It is a competitive market and the feedback could be the deciding factor about who to purchase from.

I have personally been selling items on eBay’s sister company, Half.com, for over a year and a half and on Amazon.com for the past six months. My number one concern is to make sure my customers are taken care of throughout their transaction. If they are not completely satisfied, then I will do whatever it takes to correct the problem they may have with their order. This is common business sense to most people, but there are some sellers who do not seek to achieve these standard customer service rules for themselves. They are usually the ones who often receive poor feedback.

However, as much as I have tried to please every customer I have had, I have been the victim of some poor feedback before. A couple of months ago, I received a poor rating from one of my customers on Amazon.com. Amazon.com allows buyers and sellers to rate each other on a scale of 1-5, with 1 being the worst and 5 being the best.

The buyer who gave me a poor rating ordered a CD from me and I shipped it to him on the same day he ordered it from me. A few weeks later, I was surprised to see that I had received a 1 rating from this buyer with the simple message that he “never got it.” Since I have received a 5 from every other customer I have had on Amazon.com, I had to inquire with this buyer to find out what happened. When I contacted him via e-mail about the rating he gave me and his alleged “poor” experience with me, I never received a reply from him.

If he had informed me of the problem, then I would have happily refunded his money in full. But he never gave me that opportunity. To this day, that is the only blemish on my feedback. It made me mad at the time because I work hard to satisfy my customers 100%. Thankfully, though, this has not prevented other buyers from being willing to purchase items from me on Amazon.com.

As for the monetary damages sought by Grace in this lawsuit over feedback, he is asking for $2.5 million in punitive damages from eBay and $100,000 from Neeley.

Neeley defends himself by saying that Grace started the feud by registering a complaint in his feedback about the condition of the magazines he bought. Grace said when he asked Neeley for a retraction of the feedback he believed was libelous, Neeley replied, “Get a life, dude.”

Most online auction sites warn users about leaving feedback that may be deemed libelous. On eBay, a warning clearly states that “you (the person leaving the feedback) are responsible for your own words. You should be careful about making comments that could be libelous or slanderous. You will not be able to retract or edit feedback you left.” And this is true. Once the feedback is entered, it cannot be erased. However, follow-up feedback may be left if clarification needs to be made about the original feedback left.

Grace’s lawsuit is challenging eBay’s non-retractable feedback policy. He believes it needs to be revised to prevent false information from being disseminated against law-abiding people. Grace believes eBay is being arrogant for not controlling the content in the feedback section. The lawsuit asks a judge to force eBay to filter certain words such as “fraud, liar, cheater, scam artist, and con man” from the website or to warn users about the specific possible legal ramifications of the feedback they leave about a seller.

Although eBay has successfully defended itself from similar lawsuits in the past, this battle over the feedback system will challenge the reliability of the system in the future. Most of the success attained by eBay is due in large part to the feedback section. If that is taken away from buyers and sellers, then it will be like going grocery shopping blindfolded. You won’t know who or what you are going to get!

One other interesting stipulation in Grace’s lawsuit is that buyers and sellers should be forced to register their screen name with the state of California as a business and that eBay should be forced to collect state sales taxes. The topic of taxing Internet purchases opens another can of worms that may be worthy of discussion later.

One thing is for sure: Grace is on a one-man crusade to challenge how eBay runs its business. If he is successful in his endeavor, then I will personally be affected by the outcome. Nevertheless, I am confident that eBay will prevail in this lawsuit. Regardless of what happens, it looks like e-commerce is here to stay for a very long time! Bring on the lawyers.