Shill bidding and the law
In 2010 Paul Barrett became the first person to be prosecuted in the UK for bidding against himself on eBay (a practice often referred to as “shill bidding”). He was fined £3,500, ordered to pay costs of £1,456 and ordered to carry out 250 hours of unpaid work. On sentencing him Judge Peter Benson, sitting at Bradford Crown Court said that he only escaped a prison sentence because he had no previous convictions for dishonesty.
The prosecution was brought under the Business Protection from Misleading Marketing Regulations 2008 and the Consumer Protection from Unfair Trading Regulations 2008.
How do the Consumer Protection from Unfair Trading Regulations 2008 protect consumers from shill bidding?
The Consumer Protection from Unfair Trading Regulations 2008 prohibits unfair commercial practices.
The Regulations classify unfair commercial practices in two ways, those which are unfair where the practice causes a consumer to take a different decision and those which are always unfair.
The Regulations specifically ban 31 types of commercial practices. Such practices are always unfair. Certain other practices may be unfair. These are as follows:
Commercial practices which are in general unfair
Under the Regulations a commercial practice will be unfair if it contravenes the requirements of professional diligence and it materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product.
This general prohibition will apply where a trader’s practice is unacceptable and had or was likely to have an effect on the economic behaviour of the average consumer.
In deciding whether a practice is unacceptable a Court will consider the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers which is commensurate with either honest market practice or the general principle of good faith in the trader’s field of activity. This is an objective test by which traders are required to act professionally and fairly as judged by the standards of a reasonable person.
A consumer’s behaviour will be materially distorted if the practice impairs the average consumer’s ability to make an informed decision, for example where the average consumer would not have otherwise bought the product or would have exercised cancellation rights.
Since the practice of shill bidding artificially increases an item’s price or apparent desirability it will be difficult for a trader to convince a Court that the practice is not unfair. Given that most consumers do not like to pay over the odds and like a bargain it will be difficult for a trader to convince a Court that the average consumer would have still bought the product had they known that the price had been artificially increased.
Misleading actions and omissions
A commercial practice is misleading if it contains false information and is therefore untruthful or if it or its overall presentation in any way deceives or is likely to deceive the average consumer even if the information is factually correct and it causes or is likely to cause the average consumer to make a transactional decision he would not have taken otherwise. A commercial practice is also misleading if it creates confusion with the products of competitors.
A commercial practice can also be misleading where there is a misleading omission.
A commercial practice will be treated as being an aggressive practice where a trader harasses, coerces (whether by using physical force or not) or unduly influences a consumer and significantly impairs, or is likely to significantly impair the average consumer’s freedom of choice or conduct concerning the product and the average consumer takes, or is likely to take, a different decision as a result.
Freedom of choice is not limited to decisions as to whether to purchase a product or not. A consumer may, for example, be coerced to purchase a product at a much higher price or on disadvantageous terms.
Where a trader sells a product on eBay and bids on the product himself it could be said that his act of bidding amounts to the use of coercion and/ or undue influence as it artificially increases the apparent desirability of the product and, therefore, persuades the consumer to purchase the product for a certain price.
What is the relevance of the Business Protection from Misleading Marketing Regulations 2008?
The Business Protection from Misleading Marketing Regulations 2008 prohibit misleading advertising. Whilst the Regulations are not relevant to the practice of shill bidding Mr Barrett’s prosecution under these Regulations as well serves as a reminder of the importance of ensuring that that advertising is not misleading.
Advertising is treated as being misleading if it in any way, including the manner in which it is presented, deceives or is likely to deceive the traders to whom it is addressed or to whom it reaches; and by reason of its deceptive nature, is likely to affect their economic behaviour or injures or is likely to injure a competitor.
The relevance of the Fraud Act 2006 to shill bidding
Whilst Mr Barrett was prosecuted under the Business Protection from Misleading Marketing Regulations 2008 and the Consumer Protection from Unfair Trading Regulations 2008 a person bidding against themselves on eBay could also be prosecuted under the Fraud Act 2006.
Where people agree to bid on each other’s items the parties could be prosecuted for the offence of conspiracy to defraud, which makes it a criminal offence for parties to agree to defraud another party.