In the UK, law states that you must be legally entitled to sell a product, goods or services and that if you are not, you may be liable to prosecution. As a buyer, if you receive goods that are clearly not the seller's to sell, you are legally obliged to notify the authorities and, if possible, the legal owner of the goods. You may then sue the seller for the costs involved and the value of the goods.
On eBay you would think that if you follow the law, you'd be protected - especially if you use PayPal to complete the transaction, but unfortunately you would be completely wrong.
PayPal's dispute process is specifically designed around securing eBay's and PayPal's financial status and is NOTHING to do with protecting the buyer or the seller.
A case in question is this. A buyer sees an electrical product on eBay from an allegedly reputable seller (in excess of 1000 feedback). The buyer uses the advertised Buy It Now process and wins the item which is described as NEW. Seller receives payment through PayPal and buyer is told that this is a PayPal protected payment. Item arrives in UK and all is well until the buyer attempts to register the item on the manufacturer's web site. The web site rejects the serial number of the unit and refers to an e-mail system for further information. Having given all personal information, the manufacturer contacts the buyer explaining that the item is a prototype and is not for resale. Furthermore it specifically states on the item that it is the property of the manufacturer (hidden by the seller's sticker) and that it must be returned to the manufacturer as soon as possible. Buyer notifes seller and opens dispute with PayPal using the 'fraudulent item/item not as described' process.
eBay basically doesn't want to know as the transaction has completed and it is now out of their jurisdiction.
PayPal's dispute process specifically states that in order to get a refund, the item must be returned to the seller - this defies UK law. This means that it is impossible for the buyer - the innocent party in this scam - to (a) keep the product that they paid for without becoming party to receiving stolen goods which is a criminal act in UK law (and most other countries); (b) get their money back from the seller OR PayPal because you cannot legally return the item to the seller. This makes PayPal's alleged buyer protection scheme a complete waste of time, money and effort if you are the innocent victim of a seller's fraud.
Worst of all - there is no way that you can complain or make a legal representation to either organisation as they refuse to discuss cases on the 'phone or offer a UK address to refer legal documents.
You have all been warned!
UPDATE --> Since writing this guide, PayPal has stood by their decision NOT to refund the buyer's money despite proof being given. This has now been referred to the UK Financial Services Authority for review. More as it unfurls.