New Zealand Court Brings the Gavel Down on Car Company in “Shill Bidding” Advertising Case

The potential routes to deception are many.  In misleading advertising cases, commonly challenged conduct includes false price, performance and other product claims (e.g., omitting key limitations or conditions on products or services).  Some of the advertising practices that are regulated or prohibited in Canada include contests, performance claims, bait and switch selling, ordinary selling price claims, multi-level marketing, pyramid selling schemes, deceptive telemarketing, deceptive prize notices and testimonials and warranties.

In my daily media sweep today, I came across a most curious New Zealand case that serves as a bit of a reminder of the potentially wide application of misleading advertising rules, including in Canada.  In this regard, the New Zealand Commerce Commission announced that an Auckland-based car company has been fined $165,000 under New Zealand consumer protection legislation (the Fair Trading Act) in relation to an online auction “shill bidding” scheme.

In making the announcement, the Commerce Commission said:

“An Auckland-based car company has been sentenced today in the Auckland District Court on 13 charges under the Fair Trading Act. The Auto Co (Millenium) Ltd has been fined $42,000 plus court costs of $1727.57 after pleading guilty to misleading consumers about the price of vehicles auctioned on Trade Me. The fine is on top of over $122,000 already paid in compensation to affected consumers and related costs.

The Commission’s investigation found evidence suggesting that The Auto Co may have misled customers in at least 530 online vehicle auctions between the charge period of June 2011 and July 2012. The investigation was triggered by a complaint made by Trade Me, who raised concerns about $1 reserve auctions conducted by The Auto Co. Trade Me was concerned that The Auto Co was engaging in shill bidding, which breaches the Fair Trading Act and is banned by Trade Me.

In online auctions, shill bidding is the practice of selling goods under one membership, but bidding on them with other memberships controlled by or related to the vendor. Shill bidding is illegal because it misleads the public about the price of goods by manipulating the bids placed by genuine auction bidders.  In this case the shill bidding effectively increased the auctions’ reserves above the $1 reserves represented.”

According to the Commerce Commission, as many as 7,500 bids were placed by people associated with the auto company using as many as 20 different memberships.

While I can’t recall quite a similar case in Canada, the Competition Bureau has from time-to-time challenged allegedly misleading auction claims, which have included false “going-out-of-business” and “final sale” carpet auction claims (where there was no urgent need to sell carpets) and false claims regarding the origin of auctioned goods – in one case, false claims that goods were disposed federal or other government assets, when that was not the case.

In this particular New Zealand case, I would have thought that the general misleading advertising provisions of our Competition Act, which prohibit false or misleading claims to the public to promote product or business interests, could quite easily be applied to false claims regarding auction reserve prices and whether or not some bidders may be related to a seller.  Also, in Canada there is no particular magic or distinction between traditional and online claims, as the Competition Act generally applies in the same way to online claims as more conventional types of marketing claims.

As such, aside from the potentially more straightforward deceptive or potentially fraudulent aspects of an online auction where “in-house” bidders were not disclosed, some common sense precautions to reduce misleading advertising risk for online auctions, not unlike conventional advertising, include accurate and true reserve/starting prices, accurate product descriptions (as well as related photos and images) and clear disclosure of key sale or auction terms (e.g., available quantities, auction time period, additional fees, the source of sold goods and any other important conditions or limitations for sales).

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