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Online penny auctions have been considered to hide misleading practices under unfair commercial practices legislation so opening to new questions on such auctions.
This a guest post from my friend Nadia Milone, I hope you will enjoy it.
Over the last few years there has been a proliferation of websites offering online penny auctions which are managed by foreign companies trying to gain access to the Italian market. This leads to significant problems with regards to consumer protection in case of usage of messages that can be deemed misleading.
How do online penny auctions work?
In the case of on-line penny auctions several kinds of items are put up for sale, usually starting at an initial price of € 0.01. In order to participate in such auctions, users must register and acquire a certain number of “bids“. So every offer implies a cost for the participant.
Unlike traditional auctions, in which an offer is made for the goods intended to be purchased, in the so-called “penny auctions“, each bid makes the price of the item go up of one cent and at the same time, activates a timer whose duration decreases with every single bid. The auction is closed and the goods are sold to the last bidder having made a bid right before the time is over.
There are websites that allow those who have previously taken part in an auction without being awarded the goods, to buy such goods at a later date, often by discounting from the item’s price the amount spent to purchase the credits. Thus, the person who is awarded the goods ends up paying the final price besides the price of the bids already made, whereas those who were not awarded the goods in question have nonetheless paid the price of the bids they made.
How are online auctions regulated in Italy?
On-line auctions are prohibited by Italian law. Such prohibition was introduced prior to the implementation in Italy of the EU E-Commerce Directive 2000/31 and of the Directive 2011/83/UE on consumer rights that are also applicable to penny auctions. However, the question is whether online auction websites are mere software providers or auction sites.
The misleading advertising case
The Italian Competition Authority (AGCM) has jurisdiction on misleading advertising and unfair commercial practices as well on safeguarding consumer rights in Italy.
Recently the AGCM issued a precautionary measure against the company Flamingo Intervest Ltd operating within the sector of online penny auctions through several websites. The AGCM found our that
- the company running the penny auction sites aimed at increasing adherents to their own websites by means of inviting the public to participate to opinion polls, feedback requests and the like, submitted to consumers through the display of pop-up windows while surfing the Internet, messages sent by email and other methods;
- Once it was receiving a feedback from the customer, the operator reppresented the possibility of giving a “prize” to those adhering to the initiative, upon the payment of a small sum in comparison to the value of the goods, to cover shipping costs and fees;
- Afterwards the company would have never dispatched the promised product and would have used the consumer’s credit card details to charge several amounts, immediately or later, with respect to the amount agreed, and even sent payment notices. As a consequence, by agreeing to receive the prize, consumers had unwittingly concluded a subscription to the on-line auction service.
Such conduct was considered to be misleading and the AGCM issued a fine equal to € 700,000. The attention of the Authority for these events calls for a careful verification of compliance with the Italian legislation.
