Investigation into the supply of software components that facilitate the illegal use of artificial bids on ‘penny auction’ websites.
Case reference: CRE-E-26458
Complainant: OFT own-initiative investigation.
Investigation against Scriptmatix Limited.
Scriptmatix Limited (Scriptmatix) has been supplying a software package described on one of its websites as 'phpPennyAuction' (the Software). The Software comprises a bundle of scripts and other features that are intended for use by Scriptmatix' customers to create 'penny auction' websites. It includes functionality that may be used to create artificial bids that could be put to unlawful use to mislead consumers visiting penny auction websites. The OFT investigated Scriptmatix's promotion of the use of this functionality.
Consumer Protection from Unfair Trading Regulations 2008 (CPRs) Business Protection from Misleading Marketing Regulations 2008 (BPRs)
This investigation was opened by the OFT on its own initiative in connection with a separate investigation it had undertaken into the activities of a trader whose business activities comprised online 'penny auctions'.
The penny auction commercial model offers consumers the opportunity to make real-time bids against other consumers for products displayed on dynamic web pages. As with conventional auctions where bids for items are raised by signaling from bidders, bids on penny auction websites are raised (typically by an increment of 1 penny) when visitors to the site 'click' on bidding buttons. Commercial online penny auctions 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 40 pence to as much as £1.50 or more.
Scriptmatix promoted the Software in a 'Promotional Brochure and Features List' (the Brochure) published on its website. According to the Brochure, the Software is delivered with an "auto-bidding feature, included as standard". This auto-bidding feature afforded Scriptmatix' customers the option of artificially raising the auction price of an item for sale on a penny auction website. This is effected through the on-screen presentation of what appears to a consumer to be competing bidders.
In the case of such artificial bidding, the OFT's view is that a consumer using an auction site is likely to be misled into believing 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. As a result the consumer is likely to spend more of their bids than they would otherwise have done, and consequently pay more for the items being auctioned.
Scriptmatix's brochure promoted the auto-bidding functionality in the following terms:
'Never make a loss. You decide when your auctions finish. Price too low? Use the auto-extend feature. Not enough bidders? Use the auto-bidding feature. Making a profit has never been more easy.'…
'Auto-bidding. Worried about making a loss? Don't be! With the autobidding feature, included as standard, your products will be bid up to the level you set. Note: autobidding feature can easily be disabled.'…
'Testing & automated bidding bots. phpPennyAuction takes away the need for a constant supply of visitors. - a lifeline when you're just starting out. Create bots to bid up to the price YOU want (can be disabled)'.
Consumer Protection from Unfair Trading Regulations
The 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.
The OFT considers that, by advertising and supplying the Software with the automated bidding feature described above, Scriptmatix' commercial practices were not commensurate with honest market practice or the general principle of commercial good faith. In the OFT's view, the use - as advertised in the Brochure - of the auto-bidding feature by Scriptmatix' customers 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.
Business Protection from Misleading Marketing Regulations
The BPRs prohibit advertising that misleads traders. Regulation 2 defines 'advertising' in this context as "any form of representation which is made in connection with a trade, business, craft or profession in order to promote the supply or transfer of a product." The OFT considers the statements made in the Brochure to fall within this definition.
The OFT considers that such advertising contained in the Brochure (as described above) is misleading because it is likely to deceive traders about the legitimate use of the auto-bidding functionality. In the OFT's view, traders targeted by the advertisement are likely to consider the auto-bidding feature to be commercially advantageous functionality when deciding whether or not to purchase the Software. Therefore, by reason of what the OFT considers to be its deceptive nature, the advertising in the Brochure in respect of the auto-bidding feature is likely to affect traders' economic behaviour.
The OFT wrote to Scriptmatix on 26th October 2010 to set out the OFT's view of the relevant facts and to present the OFT's view on Scriptmatix's promotion of the auto-bidding function. The OFT's letter consulted Scriptmatix on a proposal that it give undertakings to desist from and not repeat the promotional conduct described above.
The OFT also proposed that Scriptmatix send to each of its customers a corrective statement in terms suggested by the OFT to clarify the position that statements it had made in its promotional literature - as set out above in this document - were untrue and misleading.
Scriptmatix and its officers returned the signed undertakings on 16 November 2010. By the target date of 30 November 2010 set by the OFT, Scriptmatix submitted that it had sent the corrective statement to all the customers it listed on an attached spreadsheet.
The OFT will continue to monitor penny auction websites to see whether consumers are being misled by auto-bids.
Press release, 'OFT tackles fake online auction bids', 15 December 2010