Tuesday, March 29, 2011

Penny Auction Lawsuits Against Biggest Players

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.


  1. I’ve been to many live auctions in person and find the penny auctions to be very similar in fashion, more so than the eBay “time limited” auction that people conceive to be what happens in real live auctions. I’ve paid fees to attend auctions and/or fees on the final purchase of the item, upwards to 10% or more at times. Some auctioneers also charge the seller of the items in combination with a percentage to each buyer.

    When you indicate a bid in person at a live auction you are taking a “chance” on winning the auction. Keep in mind that you paid an admission fee to attend the auction house. This lawsuit is trying to make such a fee to be construed as a wager or bet in some gambling scheme. Because the penny auction is digital and bidders may click or leave at any time, the fee is based on a per bid basis. There is never any guarantee implied at any auction that you are going to be a winner of the lot you are bidding on. Additionally, nobody is forcing anyone to bid on items. Every auction is a "chance".

    The folks who filed the lawsuit are also donating part of the proceeds (pending a win in court) to some great non-profit organizations. That alone shows that having a fair trial will be impossible, as who would not want to see a nice donation go to Misericordia, or Cancer for College as stated in the lawsuit! Anyone on the jury associated with the non-profit organizations to receive a donation, their families, or if they ever donated should not be permitted to be on the jury. The lawsuit has become a donation quest to fund some non-profit organizations and make the accusers seem noble in the court.

    Certainly I agree that there are probably sites out there that are not operating ethically by using bots or shill bidders. You also have thieves on ebay and thousands of websites around the world. That may be the case with some of the defendants in the case, or not. The reputation of the auction house would quickly falter if such activity was taking place. Stating that bidding on an auction is gambling because you paid auctioneer fees and perhaps didn’t win or was outbid is quite a stretch. If the court would rule that paying auctioneer fees is gambling, then I think there will be quite a few hundred thousand auctioneers across the USA marching up on Capitol Hill.

  2. Thanks a lot for such a detailed reply and analysis. The part about donating to charities being mentioned in the lawsuit struck me as a little odd too and I hope the jury isn't biased because of this. Ironically, the charitable plaintiffs want to claim all the "losses" incurred by the bidders on penny auctions for themselves, quoting a law on gambling!

    I think we do need better regulation of sites that employ illegal/unethical practices like shill bidding. This certainly harms the whole industry. That being said, penalizing the whole industry for a few bad apples doesn't seem like a great solution either.

    It will be interesting when the verdicts are out on these lawsuits. They can either strengthen legitimate penny auctions or be a big blow to the whole industry.


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