eBay's Indian Sex Scandal

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Though they sometimes forget, investors are generally used to the risks of investing in companies that operate in certain foreign cultures. An extreme example like the farcical auction at YUKOS shows what can happen to stockholders who fail to appreciate the way businesses can be treated by thuggish overseas governments. We've come to expect heavy-handed tactics from countries like Russia and China, but India?

Last Friday, eBay's (Nasdaq: EBAY) country manager for India, Avnish Bajaj, was unceremoniously tossed into jail by the police after traveling to New Delhi in order to try to tame a tempest in a teapot. The episode involved an auction item at eBay's Baazee.com. The offending bit was a pornographic video apparently shot on a cell phone and offered for sale. The item -- in violation both of Indian law and Baazee policy -- was pulled from the auction site upon its discovery, but that wasn't good enough for the Indian authorities, who kept the executive in the cooler. Today, Bajaj was released, but he still faces charges.

eBay issued strong protests in response to the arrest, and with good reason. It's not like eBay is some kind of pornographer's heaven. There are multiple layers of company policy designed to deal with this kind of material. The firm prohibits explicit depictions of sexual activity, as well as all the amateur stuff. It also restricts what we might call "soft core" items to its "mature audiences" section, a portion of the site that's tough to get to -- it wouldn't let me in today. Finally, in order to reduce exposure to international laws regarding explicit material, the mature audience items are inaccessible to international users. Sure, a few items slip through to the main site, such as the Lil Jon & The East side Boyz: America Sex Series Video you can find today, but it's amazing how little there is given the millions of eBay users and the Internet's reputation for porn.

Ultimately, the public outcry from India itself, especially those concerned with maintaining the country's status as a tech- and business-friendly place, should help smooth the current controversy. But the risk overhead is something all Web investors need to consider as they look to foreign markets for expanding revenues, especially in China, where NetEase (Nasdaq: NTES), Sohu.com (Nasdaq: SOHU), Motley FoolStock Advisor pick Sina (Nasdaq: SINA), and even Google (Nasdaq: GOOG) have to conform to the PRC's strict and change-prone standards of acceptable online content.

For related Foolishness:

• This boring-looking business ought to be easier for eBay to handle.
• See why one Fool thinks investors should score a hat trick of Chinese Internet stocks.
• See why one hollow victory couldn't save YUKOS from its ignoble fate.

Seth Jayson has no positions in any company mentioned. View his stock holdings and Fool profile here . Fool rules are here .