Case reference: CRE-E-26458
Investigation against UK Penny Auctions Limited
Complainant: OFT own-initiative investigation.
Issue: The use of 'auto bidder' software to introduce computer generated bids against genuine consumers bidding in the course of online auctions.
Relevant instrument: Consumer Protection from Unfair Trading Regulations 2008 (CPRs)
UK Penny Auctions Limited (UPAL) was the proprietor of a website, 'www.battybid.com', which operated a commercial model that has come to be widely described as a 'penny auction'. It offers consumers the opportunity to make real-time bids for products displayed on its dynamic web-pages.
As with conventional auctions where bids for items are raised by signalling from bidders, bids on penny auction websites are raised when visitors to the site 'click' on a 'bid' button. Commercial on-line penny auctions such as those operated by the Website require consumers to buy in advance a fixed number of bids that can be used to compete for the acquisition of an item on offer. Such bids are generally bought in packs of between 10 and several hundred bids. The cost of each individual bid may vary between some 40 pence to as much as £1.50 or more.
Therefore each time the consumer bids, s/he is actually incurring a cost, whether or not s/he goes on to 'win' the item.
The OFT was made aware of a body of concern, expressed on various internet sites, that some penny auction websites used a function commonly termed as auto-bidding (artificial bidding). This is a means whereby a consumer is led to believe that s/he is bidding against other human subscribers who are simultaneously incurring similar risks and costs each time they decide to offer a higher auction price whereas, in fact, artificial bids are being placed automatically by the site operator. Such automatic bids bear no relation to the value that a human subscriber places on the item for sale. Furthermore, such artificial bids incur no risk or cost to the penny auction operator. The consumer is therefore unaware of the risk-free and cost-free bids that are artificially generated. This enables the penny auction operator to unfairly inflate the on-screen auction prices of articles on sale.
The OFT wrote to a number of penny auction websites on 2 July 2010 in order to establish that their penny auction selling processes comprised the placing of legitimate bids by real consumers rather than auto-bidders.
In its reply of 4 August 2010, UPAL stated that the software package that runs the Website incorporates an 'auto bidder service' and that UPAL had used artificial bidding to make computer generated bids against genuine consumers in the course of penny auctions facilitated by the Website.
Where the artificial bidder service is in use, there are several consequences: in order to be successful, a natural bidder must place more bids than would otherwise have been required; the total price that the successful bidder must pay is greater than would otherwise have been the case; the natural bidder appears to be bidding against other natural bidders, who have an interest in purchasing the item, and it is not apparent that bids are being placed artificially. In particular, it is our view that each bid placed artificially is a false representation by the site operator that they are a consumer.
In the OFT's view, the use of such an automated bidding service is therefore misleading. In light of its admissions, set out in its letter of 4 August, and of the comments we make above, the OFT considers that UPAL has committed breaches of consumer protection law, in particular the Consumer Protection from Unfair Trading Regulations 2008 ('CPRs'). Such infringements may be amount to criminal offences under the CPRs, but they may also be dealt with under the Enterprise Act 2002 ('EA').
The Consumer Protection from Unfair Trading Regulations (CPRs) prohibit unfair commercial practices which distort consumers' decisions. They place a duty on business not to trade unfairly when dealing with consumers. They place a prohibition on misleading consumers by act or omission. They also contain prohibitions against aggressive practices, as well as identifying 31 specific practices that are always considered unfair.
In the OFT's view, UPAL's use of the auto-bidding was likely to appreciably impair the average consumer's ability to make an informed decision (namely whether or not to buy packs of bids from a penny auction operator and/or to continue to raise the auction price of a particular item) thereby causing that consumer to take transactional decisions that s/he would not have taken otherwise.
In its letter of 4 August 2010 UPAL and its officers offered undertakings both to close the Website and dissolve the company. The OFT accepted these.
Having verified that both these undertakings have been fulfilled, the OFT has decided that no further action is warranted.
The OFT will continue to monitor penny auction websites to see whether consumers are being misled by auto-bids.