It has been a week for the OFT to focus on some of our home-grown questionable online activities.
Penny Auctions
On 15 December, the OFT announced that it had 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 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 web sites are raised 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.
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 web site 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 web site 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.
Promotional Blogging Disclosures
On 13 December, the OFT announced that it had received undertakings from Handpicked Media, an operator of a commercial blogging network, requiring them to clearly identify when promotional comments have been paid for.
In taking this enforcement action the OFT has confirmed its view that online advertising and marketing practices that do not disclose they include paid-for promotions are deceptive under fair trading laws. This includes comments about services and products on web site blogs and microblogs such as Twitter. The OFT say that online promotional activity, just like any other promotional activity, must clearly identify when promotions and editorial comment have been paid for, so that consumers are not misled.
Handpicked Media operates a network of bloggers and niche web sites across a variety of sectors. Through the signed undertakings, it has agreed not to engage in promotional activity unless bloggers within its network prominently disclose, in a manner unavoidable to the average consumer, that the promotion has been paid for or otherwise remunerated. Handpicked Media cooperated with the OFT throughout the investigation.
Heather Clayton, Senior Director of OFT’s Consumer Group, said:
‘The internet plays a key role in how people purchase products and services and the importance of online advertising continues to grow. The OFT has bolstered its expertise in this area and is taking targeted action to ensure that the law is clear, increase business compliance and empower consumers. The integrity of information published online is crucial so that people can make informed decisions on how to spend their money. We expect online advertising and marketing campaigns to be transparent so consumers can clearly tell when blogs, posts and microblogs have been published in return for payment or payment in kind. We expect this to include promotions for products and services as well as editorial content.’
