139/10    15 December 2010

The OFT has secured undertakings from Scriptmatix, a software developer, to prevent it from promoting an artificial bid function in the penny auction software packages it supplies.

Penny auctions are a popular online shopping method where players pay a small non-refundable fee (often of just one penny) each time they place a bid on an item.

The OFT believes that if used in 'live' penny auctions the artificial bid function is unlawful as it can mislead consumers into bidding against one or more fictitious 'players', so incurring costs in placing a bid and also in upping their bid.

Scriptmatix, the manufacturers and suppliers of the phpPennyAuction software package, has provided undertakings not to promote the artificial bidding functionality and to clarify that such functionality is to be used only for testing purposes in the absence of any human subscribers.

The OFT found that Scriptmatix encouraged the use of the artificial bidding via marketing on its website by using phrases such as, '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'.

Scriptmatix has contacted the 561 businesses and individuals that purchased phpPennyAuction informing them that the artificial bidding function should not be used on a live penny auction website and should be disabled before people are invited to participate in an auction.

The OFT will continue to monitor penny auction websites to see whether consumers are being misled by artificial bids.

Jason Freeman, Legal Director in the OFT's Consumer Group, said:

'We can see no lawful basis for the use of an artificial-bidding function on a live penny auction website. People expect to be competing only against other human participants, and the use of fake bids fundamentally undermines the integrity of the auction process.

'The internet offers many opportunities for novel and exciting businesses to flourish, and for consumers to get some great deals, but it is important that people are able to make properly informed decisions, and are not misled by technical trickery.'

The OFT has also closed its parallel investigation into UK Penny Auction Limited, which was trading as www.battybid.com. The OFT investigation found that this auction site was actively using the artificial bid function and following consultation with the OFT, the Battybid website has closed and UK Penny Auctions Limited voluntarily dissolved.

NOTES

1. Scriptmatix has a registered office at Unit 1223, Fortenay House, Ongar Road, Brentwood, Essex, CM13 9GB. 
2. As a result of its investigation, the OFT formed the view that Scriptmatix was operating in breach of Consumer Protection from Unfair Trading Regulations 2008 (CPRs); Business Protection from Misleading Marketing Regulations 2008 (BPRs); and Fraud Act 2006.
3. 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 one penny) when visitors to the site 'click' on dedicated areas on the webpage. 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 placing each individual bid may vary between 40 pence to as much as £1.50 or more. 
4. View the Scriptmatix case closure summary in respect of this investigation on the OFT's website
5. View the Battybid case closure summary in respect of this investigation on the OFT's website
6. Download the OFT's e-Protection strategy (pdf 658kb) which sets out its long-term strategy to protect consumers shopping online in the UK.
7. This enforcement action is part of the OFT's increased internet enforcement capability. From 1 December the OFT took the lead on a common activity with 11 other EU Member States under the Consumer Protection Cooperation (CPC) network to improve investigation and enforcement of consumer protection issues online. The activity is partly funded by the European Commission. 
8. Further information for businesses on their obligations under the CPRs is available on the Consumer Protection from Unfair Trading Regulations 2008 page.
9. The OFT does not provide advice or resolve individual complaints for consumers. Consumers who are concerned they have been unfairly treated or want advice on their personal circumstances can contact Consumer Direct.