I'm a little surprised this hasn't already been posted, since it's been around a few days and has now gone viral. This appears to be the blog which started it all:

Regretsy

The difficult question seems to me what is "counterfeit". It's one thing to identify a fake Rolex, but it's an entirely different situation with antiques and musical instruments where mislabelling and misattribution is more common, and may be no more than a difference of opinion which even experts disagree on. To order the destruction of an item, apparently without expert evidence from both sides in the dispute, seems unacceptable to me.

Even if an item were clearly identified as "counterfeit", what authority has Paypal to order its destruction? I fail to see how putting in their T&Cs gives them authority. Paypal does not own the item, and neither does the recipient since they have raised the dispute. It may be both illegal and undesirable to return fakes to the original seller, but surely in that case they should be passed to the police to investigate a possible criminal case. Surely destruction of an item can only be ordered by a court, or some other legally empowered authority, based on evidence that the item actually is a fake. But I'm not a lawyer.

Dealers are usually careful to describe something as "labelled as ...." rather than making definite claims, unless there is clear provenance. A private seller may be less cautious, but this is more likely to be naivety than a deliberate attempt to deceive (and most definitions of "counterfeiting" require dishonest intent).

Paypal are now investigating. My guess is that they'll decide it was a regrettable mistake either by the computer or an overzealous employee. That won't give me any reassurance that it couldn't happen again.

The message seems to be, don't sell instruments or other unique and irreplaceable items via Paypal. Unless they're bodhrans, of course :)