Protection of Consumers in Auction Websites

This paper will look at the current legal process adopted by the auction websites like eBay for consumer protection. This paper will analyse whether appropriate protection is provided to the consumer by the auction websites. It will also analyse whether appropriate protection may be provided if the auction websites like eBay are subjected to the traditional offline auction rules or to a sui generis rules. Today the online auction site like eBay has gained much popularity. Millions of transactions are taking place in this auction site every day. Since it is the place where large transaction takes place it is also the place where dispute arises. In this paper it is discussed which is the better method that provides appropriate level of protection for consumers.

Consumer protection in online auction websites:

In spite of wider economic gloom consumer has been spending large amount of money in the internet. [1] The popularity of the online auction sites for the sale of everyday items has become unprecedented today. [2] A recent survey in UK suggests that online shoppers are much more comfortable with online purchasing. [3] EBay, which is considered to be the famous and largest auction website, has nearly 212 million registered users in the world, reporting in the first quarter of 2006 net revenue in excess of $1.44 billion and over one million auctions held daily. [4] Since internet auction websites like eBay, uBid or QXL is the place where large number of transactions taking place every day, it is also the place where number of legal disputes arises between the buyer and seller. There are number of ways in which fraud may occur during or after e-auction. For example the seller or his accomplice may lodge a dummy bids to price up the e-auction. [5] Several buyers have suffered by this fraudulent act of the seller by buying the items that has been dishonestly pushed up. [6] The buyer may lodge the lowest bid immediately followed by the highest bid by his accomplice and immediately prior to the close of e-auction the buyer’s accomplice will withdraw the highest bid which makes the item to be knocked down to the lowest bid. [7] There is also number of ways in which the dispute arises after the e-auction is over. They are non-delivery of goods after getting money or delivered in an untimely manner or the goods are materially or inferior to that described or the purchaser never receives money after sending goods. [8] Internet fraud watch centre in USA has published internet scam fraud trends for January to December 2005 which shows that auctions complaints for goods being never delivered or misrepresented topped the listing with 42% of complaints. [9] In 2006 federal trade commission figures shows that internet auction are ranked number two of consumer complaints categories, behind identity theft. [10] Although eBay and other similar sites have several mechanisms to reduce the possibilities of fraud, it still takes place. [11]

Since court is not the effective mechanism for many of the dispute arising in the c2c transaction because of low value items, both seller and buyer are in different jurisdiction. Auction websites like eBay provides alternative dispute resolution other than courts such as mediation and arbitration through online to settle the disputes which arise between consumers. EBay contract has the arbitration clause for the disputes arising between the user and eBay. The clause states that

“Disputes between you and eBay regarding our service may be reported to eBay customer support. We encourage you to report all disputes between users to your local law enforcement body. However any controversy or claim arising out of or in connection with this agreement may at our discretion be settled by binding arbitration by reference to an arbitration tribunal designed by eBay. You agree to be bound by the ruling arbitrator.” [12]

The current legal process such as online dispute resolution adopted by auction websites like eBay for buyers seems not to be providing adequate protection for consumers. The current legal set-up adopted by eBay and other similar sites leaves consumer with no direct recourse against the site and in case of seller being disappeared, often with no recourse at all. [13] The dispute resolution adopted by the auction websites seems not providing appropriate resolution for consumers. The most problems complained were of non-delivery, non-payment, inability to reach other party with the item and damage to reputation. [14] One of the main problems for dispute resolution is that many respondents would refuse to participate and only few numbers of cases will be settled where both the parties participated. Since c2c auction websites place onus on the seller for defects under terms and conditions the remedies available to the buyer is very limited. [15] In many cases the chances of recovering the money from the seller may be slim due to difficulties in track down or he may be abroad. [16] Auction websites are careful in stating that the responsibilities of arranging the exchange of money and goods lies in the hands of the buyer and seller, and it is not the responsibility of the sites. [17] This makes the situation worse for the buyers. Thus, the current legal process such as dispute resolution provided by auction websites seems not to be providing the adequate protection for buyers in c2c transactions.

Online auction vs. Traditional auction:

Since buyer is not provided with adequate protection in online auction website rules let see whether this problem may be solved by providing protection to the consumers as in traditional auctions. In traditional auctions, the auctioneer acts as the agent for both the buyer and seller. Once the seller enters into contract with the auction house, appointing it as his or her agent the auctioneer has the duty to act within the scope of agency agreement. [18] Then the auctioneer will enter into contract with the successful bidder as the seller’s agent. [19] The auctioneer will be responsible to supply the goods to the seller after the payment has been made. In normal auction agency agreement, the seller will indemnify the auctioneer for claims that would arise out of their relationship: “if an auction is held liable to the highest bidder when acting on the seller’s instruction, the auctioneer is entitled to be indemnified by the seller for legal liability incurred to the highest bidder”. [20]

But the online auction websites limited their liability by stating that they were acting only as the intermediaries which are usually stated in their terms of use. [21] For example, eBay UK states in their agreement that

“eBay is not an auctioneer. Although, we are commonly referred to as an online website, it is important to realise that we are not a traditional auctioneer. eBay as a the venue which allows the registered user to offer, sell, and buy just about anything, at anytime, at anytime, from anywhere, in a variety of formats including fixed price and auction-style”. [22]

Since online auction websites like eBay acts as a facilitator they state that

“we will not be liable for economic losses (including, without limitation, loss of revenues, profits, contracts, business or anticipated savings), any loss of goodwill or reputation, or any special, indirect or consequential damages (however arising, including negligence ) arising out or in connection with this agreement. ” [23]

Such limitations of liability by the auction websites may not provide appropriate protection for consumer. In physical world, if the principal is undisclosed then the customer can enforce the contract directly against the principal but in sometimes the contract can be enforced against agent. [24] In a situation where the principal is disclosed but unidentified, then it is submitted that the agent should be liable as well as the principal. [25] So it could be argued that the auction websites is acting as the agent for the seller taking his rights and responsibilities. Since the transactions have been taking place with unseen strangers in online auction websites the higher level of dependence is on the auction sites to act as the agent for seller. [26] But the e-auctioneer may argue that the traditional mode of relationship between the parties doesn’t apply to them and they are not agent of any of the parties merely because it is the website and the software is used to establish the contract. [27] It may also be argued on behalf of the auction websites that it would be impractical for the e-auctioneer to be held responsible for the millions of transaction that took place in the website. [28]

In a US case, Gentry vs. eBay [29] the issue of liability of eBay was discussed. In this case the court held that the eBay was not responsible for the gods that are listed in the website since they act only as the facilitator and not as the seller, and that the auction site did not guarantee that the goods listed were of genuine, which is the role of the actual seller. [30] The court also dismissed the argument that eBay is responsible for the customer feedback ratings since the comment are performed by the third parties. [31] In Sturm vs. eBay [32] courts held that eBay could not be held liable for the buyer’s comments in customer feedback. It held that section 230 of CDA provides immunity to the eBay from liability for the buyer’s comments.

So after considering the factors of online auction and traditional auction it may be concluded that the auction websites like eBay has no relationship of agency in the auction process between the seller and site. Without such relationship the auction website cannot be termed as the auctioneer. Hence the auction website such as eBay can be called as intermediary and could not be considered as the traditional auctioneer. Since the auction websites like eBay cannot be considered as the auctioneer, the traditional auction rules could not fit to be applied for auction websites. The auction websites cannot be made held liable for millions of transaction only because it is taken place in the website. So the auction websites like eBay could not be subject to the same rule as of traditional auction, in order to provide appropriate protection for consumer.

Whether sui generis rule for auction website will ensure appropriate protection for consumer?

Since auction website acts only as an intermediary and it may not be held responsible for the transaction that took place in the website. It will encourage the unscrupulous buyer and seller to abuse the website, which leaves the consumer without appropriate protection. In order to protect consumer from the unscrupulous buyer and seller separate legal rules for auction websites may be created. But the question is whether single sui generis rule may fit for auction websites which has no geographical or political boundaries. It is hard to identify where transaction takes place. Laws may vary from country to country. The sui generis may be created uniformly for all transactions taking place in the auction website. This sui generis rule must provide adequate protection to the consumer and also it must ensure that the consumers are indemnified for their losses due to fraud by unscrupulous seller or buyer. The sue generis rule must also ensure that the seller and buyers are identified and the use of fake id must not be allowed and it must be prohibited. It must also ensure for speedy and effective mechanism for settling disputes.

Since the auction websites are only an intermediary buyer will only be able to look to the seller for compensation. [33] The sui generis rule must ensure that they must be able to track down the unscrupulous seller and buyer in order to provide compensation for the loss suffered by consumers. It must also make auction website responsible for tracking the users. But the question is how much time and cost it will consume in order to bring the sui generis rule for the auction websites? Or making reformation to the existing mechanism in the auction sites may provide appropriate and quick remedy to the consumers.

Conclusion:

Even though the current legal process for consumer protection in the auction websites like eBay is not providing complete protection it ensures that the adequate protection is provided. Since auction websites acts only as the intermediary and not as the agent as in traditional auction it may not be held responsible for the million of transaction that took place in the website. This make the situation in which buyer will only be able to look to the seller for compensation. But in many cases it is difficult to track down the other party or he may be abroad. In this case the chances of recovering the money may be very low or slim. Unlike traditional auction there is no agency relationship between the auction websites and the users. So the consumer may not get absolute remedy from the auction sites for the loss suffered by them due to unscrupulous users in the website. Thus the auction websites like eBay may not be subject to same rules as of the off-line auction. Creating sui generis rules exclusively for the auction websites for consumer protection also may not ensure absolute protection for consumers. Again the issue of tracking down the unscrupulous user will arise. The cost and time for implementing the sui generis rules for all online auctions will be more.

The current legal process such as mediation and arbitration provided by the auction websites like eBay for the settlement of disputes provides certain protection to the consumers. Only thing for consideration is that both the parties must actively participate in order to settle the disputes amicably. In order to ensure the participation of the parties the terms and condition for participation in the dispute resolution could be included in the contract, since entrance and participation in auction website is governed by contract. By making certain reformation to the existing legal rules for consumer protection in auction websites will ensure appropriate protection for consumers. The auction website like eBay must provide the way to find the identity of the users. The consumer must also adopt safer mode of transaction like using credit card through intermediary payment system like PayPal. Therefore by making proper reformation to the existing legal rules of auction website will ensure appropriate protection to consumers.

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