There has been a new lawsuit against penny auctions. I have previously reported on a class action lawsuit against Quibids. This lawsuit is different - it isn't class action.
The lawsuit was filed on February 11, 2011 by Theresa Bryant, Jill Manning, Susan Snyder and Diane Elliott, individually and for the benefit of others.
The defendants are the companies running these penny auctions: Swoopoo, oohilove, BidCactus, Quibids, Beezid and BigDeal.
The charges are that penny auctions are gambling. This is going into a legal gray area because it is not easy to determine whether penny auctions are gambling. Consider this, the lawsuit says: "Defendants’ auctions are illegal gambling because, among other things, they charge consideration for a chance to win a prize."
The problem with this accusation is that gambling is inherently a chance process. At penny auctions, it is more than a chance: You could greatly improve your winning chances if you followed my Penny Auction Strategies. This is unlike say a lottery where there is no strategy but pure chance.
Quibids can always argue that it gives a chance to win but you don't really need to pay: there is always the buy it now feature if you want. This is a great feature that can insulate at least Quibids against many of the charges. Gambling casino will never use your money lost to buy something else!
However, the plaintiffs also seem to have a point when they argue that you are paying $0.60 or whatever else the amount is to bet on the possibility that no one else bids in the next 10-15 seconds. Seen this way, it does seem something similar to gambling. One argument against this argument might be that your bidding strategy and an understanding of penny auction dynamics can help you predict, to some extent, whether you will be outbid or not.
What are your thoughts on this issue? The results of these lawsuits should shed some light. Hopefully, the jury finds fault with illegal practices in the model (bot bidding, not shipping winning items etc.) instead of finding fault with the auction model itself.
You can find the whole text of the lawsuit here.