EcommerceBytes-NewsFlash, Number 2715 - January 11, 2012     1 of 5

Class Action Lawsuit Targets eBay over Proxy Bidding

By Kenneth Corbin

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An Arizona man is suing eBay over the auction giant's automatic bidding system, claiming that the policy runs counter to the company's user agreement and that it unfairly undercuts the final price paid by the winning bidder.

Marshall Block, a seller based in Phoenix who is leading the class-action lawsuit, alleges that the longstanding system constitutes "tortious interference with the sellers' prospective economic advantage, breach of contract, violations of California's Unfair Competition Law and unjust enrichment."

The complaint, filed Dec. 30 with the U.S. District Court for California's Northern District, seeks monetary, declarative and injunctive relief.

At issue is eBay's policy of automatically determining the winning bid in auctions where multiple bidders have stipulated the maximum price they are willing to pay for the item, a system the plaintiffs allege has resulted in eBay shortchanging the sellers included in the class by more than $5 million.

The allegation of a breach of contract arises from language in eBay's user agreement describing the company as a neutral and hands-off conduit between buyers and sellers, particularly the passage that reads: "We are not involved in the actual transaction between buyers and sellers."

The plaintiffs object that rather than acting as a "neutral middleman," eBay is really functioning as a proxy for buyers (they note in their complaint that the automatic bidding system was previously known as "proxy bidding").

Specifically, they complain that in instances when multiple bidders have set their ceiling for the item, the final selling price should be the highest of those maximum bids. Instead, through its incremental bidding system, eBay automatically raises the bid only by a portion to edge out the previous bidder. That means that the ultimate price that winning bidders pay will often be less than their bid ceiling.

"When you're outbid, we automatically bid on your behalf up to your maximum bid," eBay explains. "We increase your bid by increments only as much as necessary to maintain your position as highest bidder."

Contending that the highest maximum bid offered should in every case be the final selling price, the plaintiffs argue that by allowing items to be sold for less (and keeping the maximum bids offered secret from sellers and other bidders), eBay is intervening in the auction process and shortchanging sellers, despite its claim in its user agreement that it does not act as an agent for either buyers or sellers.

"A seller agrees to list an item for sale through an auctioneer or venue, and that auctioneer or venue owner agrees to act as a neutral middleman for the transmittal of bids from bidders to the seller for the item," the complaint states. "Instead of acting as the neutral middleman as had been agreed to, however, the auctioneer or venue owner turns out not to act neutrally at all, but takes sides with the bidder to ensure that the bidder pays less for the item being sold."

The plaintiffs include in their complaint the example that eBay offers on its help page to explain the process:

1) The current bid for an item is $10.00. Tom is the high bidder, and has placed a maximum bid of $12.00 on the item. His maximum bid is kept confidential from other members.

2) Laura views the item and places a maximum bid of $15.00. Laura becomes the high bidder.

3) Tom's bid is incremented to his maximum of $12.00. Laura's bid is now $12.50.

4) We send Tom an email that he has been outbid. If he doesn't raise his maximum bid, Laura wins the item.

eBay stipulates its automatic bid increments here.

Lawyers for the plaintiffs and eBay did not immediately respond to requests for comment for this article.

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About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.


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