EBay, the American online auction site, is facing an unprecedented lawsuit in France, where a government watchdog wants it to be declared illegal.

The move could lead to the arrest of the company’s executives if the claim were to be upheld by the High Court in Paris.

The French Council of Sales, which regulates the country’s auction market, filed the case after denouncing eBay for allegedly failing to comply with French consumer protection laws.

Christian Giacomotto, the council’s chairman, told The Times that the e-commerce giant was flouting regulations governing auction houses in France, including a requirement to take out insurance against fraud.

He said that buyers who received faulty or fake goods stood little chance of getting their money back under eBay’s operating procedures.

“This is unfair competition, because other auctioneers have to make sure they are transparent and that they provide guarantees,” Mr Giacomotto said.

The California-based company has dismissed the challenge as “totally unjust”. It said that it acted only as a broker, “facilitating meetings between buyers and sellers”, and not as a public auction house. Auction regulations were, therefore, not applicable and “eBay’s activities and those of the auctioneers are totally separate,” it said.

Mr Giacomotto said: “What is the difference? They charge a commission to the seller and a commission to the buyer. These people cannot say they are responsible for nothing at all. If you rent your house to someone who sets up an illegal casino in it, then you share part of the responsibility. Our ambition is not to regulate the world, but we want groups such as eBay to accept their responsibility.”

The French watchdog said that it had evidence of alleged frauds perpetrated on eBay, including a successful bidder for an 18th-century painting who received a photocopy pasted on to a piece of wood. In another case, a user said that he had paid €9,000 (£6,400) to an advertiser in Austria for a car that was not delivered.

If the lawsuit was upheld, eBay would have to comply with costly and time-consuming French legislation. Any failure to do so could leave its executives open to the sort of legal action that has resulted in the arrest of internet gaming executives on French soil. Under the country’s law, online gambling is illegal.

EBay, which registered annual global revenue of $5.97 billion (£2.9 billion) last year, said that France was its fourth-biggest market with ten million registered users.

The company is also facing legal action in New York, where Tiffany, the jeweller, has accused it of failing to stop the sale of counterfeit jewellery. LVMH, the French luxury goods group, and L’Oréal, the cosmetics giant, have also filed similar lawsuits against eBay.

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