The Control of Pre-Contractual Information in Online Auctions

Chapter 3
The Control of Pre-Contractual Information in Online Auctions

The received wisdom is that consumers need to have the right tools at their disposal to make an informed decision.¹ The tool of choice is information. Consumer legislation controls the claims that traders can make when competing for the consumer’s attention. This is pertinent because it is at this stage that they are most likely to inflate the qualities of their offer through potentially misleading auction sales listings and adverts or other unfair commercial practices in a bid to induce consumers into positive buying decisions.²

The importance of information is illustrated in Recital 11 of the Distance Selling Directive (DSD), which emphasises that: ‘the use of means of distance communication must not lead to a reduction in the information provided to the consumer’ and as a result ‘the information that is required to be sent to the consumer should therefore be determined, whatever means of communication used’. This reliance on information was deep-rooted in Article 4 DSD, which lists no less than nine pieces of information that need to be communicated to the consumer, ‘in good time prior to the conclusion of any distance contracts’. Information remains the paradigm under the Directive on Consumer Rights (DCR). This information also needs to be combined with the information required of information society services providers under Directive 2000/31/EC. Article 5 ECD explains that, ‘in addition to other information requirements established by Community Law’, further information about the provider needs to be communicated to the consumer. Out of the information requirements imposed by the DSD and the ECD, some were clearly overlapping, creating some problems in applying the legislations alongside one another. Winn and Haubold note that: ‘more concern could have been given to the information duties themselves of which the Electronic Commerce Directive and the Distance Selling Directive make an almost inflationary use. The lists of information duties in both Directives are long and not very well harmonised.’³ Yet, in the context of online auction this overlap has been useful. Indeed, because there has been controversy as to whether or not Directive 97/7/EC applies to online auctions,⁴ it is often the information requirements in the ECD that have come to fill a gap and provide consumers with some key information they would not otherwise receive.

Empirical research⁵ conducted between May and September 2012 gauged actual levels of compliance with information requirements across 28 online auction platforms operating in the UK (14 proprietary and 14 intermediary platforms).⁶

The information compliance survey looked at the information that the online auction platforms themselves provided to consumers. It also reviewed the information given pre-sales conducted on online auction platforms. This latter part of the survey included a total of 14 sales in the final sample found on proprietary websites (one sale per site). Those sales included a wide range of items (e.g. perfume, an egg maker, a fridge, a set of golf clubs, a number of iPads and other common electrical goods). With regard to sales taking place on intermediary platforms, two to four sales per site were originally included in the sample. The number of sales varied depending on the size of the site. Contrary to proprietary sites where only one sale was used as a reference point, the selection of sales on intermediary platforms was wider to account for potential errors in the selection process, as some sales can be conducted between two consumers or businesses and would be excluded from the scope of the research at a later stage. In total, the survey reviewed 48 sales across 14 intermediary platforms, but the final sample was much reduced when sales that were not clearly falling within the scope of the DSD – i.e. business to consumer (B2C) sales – were excluded. The sales selected featured a variety of products, ranging from a Beano comic book and a set of handmade greeting cards to an ADSL router. As the DSD and the ECD do not differentiate the information that is required to be provided according to the product sold, the variety of the product sales selected on both intermediary and proprietary websites had no impact on the quality of the results.

The survey also included a review of the information about the right of withdrawal, which is fully explored in Chapter 4.

It transpires from the data gathered during the study that information requirements under the DSD or the ECD are not always well complied with, if not ignored altogether. Yet, the main characteristics of online auctions make them prime candidates for strong information requirements to be imposed. They are conducted at a distance, with no opportunity to inspect the goods or services, or for the final price to be known in advance.

Where relevant, the survey compared current information requirements and compliance levels with the changes introduced by the Directive on Consumer Rights. The results point to some severe lack of compliance that cannot be explained by simple misunderstanding about the application of the DSD to online auctions. The results also indicate that the impact that the DCR will have is going to be limited. It is unlikely to change information practices of its own volition and will need to be backed up with further measures, some of which are explored at the end of this chapter and in Chapter 6.

1 Basic Information: The Identity and Contact Information of the Provider

1.1 Identity of the Online Auction Provider

Under Article 4(1)(a) DSD, consumers, in good time prior to the conclusion of the contract, must be provided with information on the identity of the supplier.⁷ The Directive, however, remains vague on what constitutes ‘identity’. So does the Consumer Protection (Distance Selling) Regulations 2000 that implemented the DSD into UK law. Understood in its simplest form, identity covers the name of the supplier.⁸ But displaying a brand like ‘Zolanta’, ‘Gems TV’ or ‘eBay’ for a website or a nickname for sellers on intermediary platforms is possibly not sufficient. Indeed, while the brand is useful to consumers and certainly acts as a badge of identity once established and trusted, it does not replace essential information concerning who the trader behind the website (and/or behind the sales profile on intermediary websites) really is. The Electronic Commerce Directive’s requirements seem to go further. If the name of the provider is clearly indispensable it may not be sufficient. Indeed, Article 5(1)(a) requires disclosure of the name of the service provider. However, in addition, Article 5(1)(d), (e), (f) and (g) also require some disclosure of any registration under which the provider may be operating. This includes trade registration, authorisation scheme and VAT number. This is a constraint that proves particularly difficult to fulfil on intermediary websites where ‘pseudonymity’ reigns.

1.1.1 Identity of online auction platforms

Under Article 4(1)(a) DSD, an identity seems to only encompass a trade name. On the 28 websites surveyed, all disclosed a business name. However, fewer actually provided identity details that would allow consumers to know who owns or operates the website. Arguably, this is not a requirement imposed by the DSD. Yet, in the UK, the Business Names Act 1985 modified by the Companies Act 2006 requires the disclosure of the ownership of a business. It also sets out limits as to the names that can be used by businesses. The disclosure rules require information about the names of individuals for individual traders or partnerships, and corporate names for companies. The Act moreover requires the disclosure of an address where documents may be served in relation to each person named.⁹ Here, the purpose of the disclosure is not to give information to consumers to put them on an equal footing with consumers buying from brick and mortar business. It is simply to ensure that consumers are able to take action against a business with which they encounter problems. The study looked for named individuals or company names such as ‘company x trading as y’ on the 28 online auction platforms, leaving aside the requirement for an address in the first instance. It found that 57% of websites did provide the required information. However, 32% did not and 11% disclosed some of the information required but fell short of being compliant. This lack of compliance was because the information, if it existed, could not be found prior to registering (and even making a purchase for credit on penny auction sites) or because the information could not be found after 10 minutes of searching.¹⁰ The breakdown by sector showed a slightly different picture, with a perfect compliance record for the TV auction websites, but the poorest record for intermediary websites. Only 36% of sites displayed the information required under the Business Names Act 1985. On intermediary websites, 50% did not give the information, and 14% gave incomplete information. On proprietary platforms, compliance was much improved, with 70% of sites surveyed displaying the identity of the owner of the site.

With regard to compliance with Article 5(1) ECD, only 33% displayed the required identification. Note however that the survey cannot be conclusive on this point. This is because I was not able to properly test compliance with this requirement because it would have required Companies’ House searches in the UK and abroad. Nevertheless, not all sites in the survey were created equal, and information of the kind could not be found easily on 67% of the sites surveyed. While this was not too surprising for a number of the smaller intermediary auction websites, some blatant anomalies were spotted. For example, it seems that a company the size of eBay would not only be registered but also subject to VAT (in the UK or abroad), and yet I was not able to easily locate such information on its website. By contrast, VAT information and company registration was readily available on the Gems TV website. They were prominently displayed on the front page, an example of best practice on that point.

1.1.2 Identity of intermediary platform users

If identity is understood as a name sufficient to identify the owner/operator of a website, potential problems emerge when focussing on online auction platforms acting as intermediaries. One main issue to determine is if the provision of a pseudonym is sufficient to fulfil the legal requirements imposed by the DSD and the ECD.

In June 2007 a study conducted by the OFT found that some businesses trading through online auctions were failing to clearly identify themselves as businesses.¹¹ At the time, most online auction platforms were intermediary platforms hosting sales for consumers and businesses alike. The use of pseudonyms on these platforms precluded being able to evaluate if the seller was a business (subject to information requirements) or a consumer. Indeed, it was common for users to remain quasi-anonymous and only use a pseudonym in their dealings on the site. The historical reason for this, aside from being a trendy gimmick, was that the websites accrued profits from earning commission on concluded sales. This lack of information concerning the identity of the parties was built into the business model. It was designed to protect the site’s revenue stream and stop parties concluding sales outside the site’s environment and avoiding the payment of a seller’s commission to the intermediary platform. As a result, the true identity of the parties was kept secret and only revealed after the close of the bidding process and the acceptance by the seller of the winning bid. Out of the respondents to the OFT survey (who were all online auction shoppers who had bought from online auctions), 60% agreed that they prefer to know if the business is a trader or a private seller, and 65% had made attempts to identify whether or not a seller on an auction site was a business.¹²

Such use of pseudonyms appeared contrary to the legal information requirements imposed by the DSD and the ECD and, in light of these shortcomings, the OFT market study laid out the next steps to ‘encourage sellers to self-assess to ensure they are meeting their obligation’.¹³ The Office of Fair Trading also wanted to ‘investigate how businesses selling via online auctions can be more clearly identifiable to buyers’. It vowed, where ‘businesses are not complying with regulatory requirements, and there is clear consumer detriment’, to ‘take appropriate action to ensure that this is addressed’.¹⁴ The OFT consulted with the top five internet auction sites and obtained an agreement to highlight consumer rights via advice and links to relevant information.¹⁵ Online auction platforms also agreed to inform businesses using their sites of their legal obligations under the Electronic Commerce (EC Directive) Regulations 2002.¹⁶

Despite this action, the survey I conducted in 2012¹⁷ showed that two main concerns subsist: the identification of the legal classification of the user and the continued use of pseudonyms.

While on eBay, users now have to register as business users or as consumers, and their legal classification is also clearly flagged up to users, many other sites still do not require or provide clear identification on the site. Out of the 48 sales on the 14 intermediary sites surveyed, it was only possible to say with certainty that the sale was organised by a consumer in only 6% of the sales observed. In 31% of the sales observed it appeared that the seller was a business, based on the information displayed about the type of account held by the seller¹⁸ or based on the fact that the seller also ran a shop on the same website. It was not possible to determine with certainty if the seller was a consumer or a business in 63% of cases, having observed the information given on the sale page and the links to other sales organised by the seller. This of course is mostly concerning because consumers using intermediary platforms sites are likely to remain unaware of the legal classification of the seller if they are not clearly given this information. Besides, some business sellers can capitalise on the lack of information on their legal status and avoid complying with their legal obligations.¹⁹ Further, all websites rely on pseudonyms to identify users, depriving consumers of vital information on the real identity of sellers. On eBay, however, while the use of pseudonyms is maintained and remains prominent, it is complemented with the disclosure of contact details for each seller. On each listing, a box for business contact information discloses the name and address of the trader.

The aspect of identity on online auction platforms that is most useful to the consumer concerns the legal classification of the seller. However, when the legal status of a user is clear, there is no obstacle to the continued use of pseudonyms so long as they are complemented by information on the real identity of users. Indeed, many online auction platforms are today being used by users who have built a business based on their pseudonym. For many, the pseudonym has become their business name on the online platform. For some sellers it is a pseudonym that they also use across platforms. When it is the case, the use of the pseudonym can be sufficient to fulfil the requirement of an identity under the DSD or DCR. It will need to be complemented by information that indicates what the real identity of the owner of the business trading on the intermediary platform is, as required by the Business Names Act 1985. It will also require disclosures compliant with the requirement of the ECD for businesses subject to registration for VAT.

1.1.3 Impact of the DCR on identity requirements

The requirement for identity disclosure under the DSD is superseded by the entry into force of Directive 2011/83/EC on Consumer Rights. Article 6(1)(b) DCR consolidates information requirements and obliges disclosure, before the consumer is bound by a distance contract or any corresponding offer, of ‘the identity of the trader, such as his trading name’. The wording of Article 6(1)(b) conforms to current practice, since a trading name may be all that is required to satisfy the new legal requirement.²⁰ Yet, none of the obligations under the ECD disappear. Indeed, the Electronic Commerce Directive continues to apply. Article 6(8) DCR states that the information requirements laid down are in addition to information requirements contained in Directive 2000/31/EC.²¹ As a result, information about identity remains dual, finding its source in at least two sets of legislation. In the UK, the Business Names Act also continues to apply. Based on the poor compliance results uncovered by the survey, it is disappointing to find that the most basic information concerning the identity of the traders (understood in its broadest sense) is missing from a large number of websites. The changes brought about by the DCR are unlikely to change this status quo if not backed by enforcement or other coercive mechanisms. There seems indeed to be no real incentive or necessity for platforms to disclose such information.

1.2. Contact Details of the Provider

First, the survey looked at the address of the provider, a requirement imposed by Article 4(a) DSD and Article 5 ECD. Second, the survey reviewed the use of other contact details enabling consumers to communicate with the supplier, a requirement originating in Article 5 ECD. Those requirements are maintained under the DCR.

1.2.1 Address of the provider

The Distance Selling Directive only obliges the disclosure of an ‘address’ prior to the conclusion of a contract, in cases where a payment in advance is required.²² There is no indication that this address be geographic, although in common parlance this may well be the meaning that was attached to this requirement from the outset. By contrast, the Electronic Commerce Directive requires disclosure of a geographical address at which the provider is established. It also requires disclosure of the provider’s details, including an email address that allows him to be contacted rapidly and communicated with in a direct and effective manner.²³ The requirements under the DSD and the ECD were tested separately. The survey also distinguished between the disclosure of an address when the supplier is the online auction platform (proprietary sites) and for sellers using intermediary platforms. In all cases, compliance was disappointing, leaving many consumers without contact details sufficient to establish contact or voice complaints should things go wrong.

1.2.1.1 Address of the online auction platform. Because the requirement under the DSD is uncertain as to whether the address has to be a geographic address, I considered that disclosure of a PO Box may be acceptable for the purpose of the DSD. Rather than counting PO Box addresses as non-compliant, they were counted as ‘incomplete information’ provided to consumers. The survey also had to consider if payment was required in advance, since this would be the only time where an address, geographical or not, was required under Article 4(1)(a)DSD.

It was therefore essential to differentiate between completely free sites where an address under the DSD would not be necessary and those where the address was required because payment in advance occurs. One main question was to determine if the payment required was for the use of the online auction platform itself or if it could cover the use of the platform and the forming of a contract that required advance payment. To proceed with this classification, the nature of the auction site needs to be considered in more depth.

Sites using a ‘pay-to-bid’ model are clear-cut cases. Some charge for membership. Payment is thus required simply to access the platform. Further, although joining may be free on most sites, payment in advance is required because bids or bid packages are purchased by consumers before they can take part in auctions. This is the case on penny auction, as well as unique bid auction sites, and those sites that use a mix of pay-to-bid auction models. The survey showed that 62% disclosed the required address and 13% provided incomplete information by only disclosing a PO Box address. However, 25% still failed to provide an address altogether.

On other proprietary platforms, such as TV auction websites, the address is required not because the consumer has to pay to bid,²⁴ but because the consumer provides payment details ahead of the contract being concluded, before knowing if he was successful at the auction. The survey found that, on those websites, compliance was excellent and 100% disclosed an address. Further, on proprietary websites organising their own auctions, payments in advance are also required. The payment details are taken before the consumer knows if he has been successful. Yet, no address could be found, for example, on Comet Clearance, whereas one was easily available on Golfbidder.

On intermediary websites, it is possible for a consumer never to have to pay anything to the platform, and it is therefore possible to avoid disclosing an address. This will be the case only when the site operates on a model that is not based on pay-to-sell (should a consumer also be a seller) or where selling is purely reserved to traders. Indeed, on eBay for example, any consumer can place an advert and organise an auction. As the consumer does this, he will have to pay for this service, and thus disclosure of an address is essential. The survey found that two intermediary sites²⁵, out of the list of 14 did not need to disclose an address, since they were completely free sites and did not charge for listings. They were excluded from the results. On the other intermediary sites, non-compliance remained sizeable: 58% of intermediary websites were not providing the required address. This means that, in effect, only 42% of sites tested complied with the requirement imposed by the DSD. This figure falls to 34% when the sites using only a PO Box address are excluded.²⁶

For such a basic requirement, it appears that compliance levels across websites are rather low. The research explored whether the possibility for low compliance is linked to the fact that the application of the DSD is disputed and, depending on what interpretation is preferred, auctions are excluded from the scope of the DSD. To do this, the survey tested compliance with the ECD. This is because the ECD is not the subject of similar controversy and clearly applies to all online auction platforms as well as ‘professional’ users selling on intermediary websites.²⁷ Further, the information requirements contained in the ECD apply to all information society services regardless of whether or not a payment in advance is required. In fact, the requirements under the ECD are the most stringent because the address has to be geographic and further contact details (including an email address) also need to be disclosed. Higher levels of compliance with the DSD should therefore have been found, since there is a clear overlap between the two directives. Yet, the survey showed that compliance levels were there again disappointing. The lack of compliance with the DSD cannot therefore be down to the ambiguity about the scope of the DSD and its application or non-application to auctions.

The survey tested compliance with the ECD, distinguishing here again between the auction websites themselves and users of intermediary platforms. Rather than looking for an address of any description, I looked specifically for a geographic address in all the websites tested (as per Article 5(1)(b) ECD). A geographical address was understood to be one that would enable a consumer to physically find the location where the trader is established.²⁸ Therefore, Post Office Box numbers and other alternatives that withhold the physical location of the trader were considered insufficient to fulfil the requirements of the ECD. Although there is no case law that deals with this issue, the fact that the wording in the ECD does directly require a ‘geographic address’, rather than just an address, is a clear indication that the legislator intended for the address to reflect geographical location. This is especially so because Article 5(1)(b) concerns a ‘geographic address at which the provider is established’. Strictly speaking it would not be possible for the provider to operate a business from a PO Box, since the place of establishment conveys the idea that the address needs to reflect the place of operation, a place where business is be conducted. This interpretation is in line with that of the OFT in its Web Sweep Analysis from 2008, where it noted: ‘We estimate therefore that around 14 per cent of the sites may not have been complying with the regulations, by providing no physical address or only providing a PO Box number.’²⁹

Out of the 28 online auction websites surveyed, a geographical address was only present in 50% of cases.³⁰ Compliance with the disclosure of a geographical address under the ECD was best in the TV auction sector, with 100% of sites surveyed displaying the required information. Compliance levels were lower amongst other proprietary websites, with 60% of sites disclosing a geographic address, while 40% did not provide an address at all. By contrast, compliance was worse on intermediary platforms, with only 29% of websites complying with this basic requirement. As a result, 71% of the intermediary online auction sites surveyed were in contravention of this obligation.

1.2.1.2 Address of intermediary platforms users. Purchases on intermediary platforms require the winner of the auction to pay in advance for the goods or services they will receive and, as a result, those sales need to disclose the address of the seller under the DSD. As we have also explained, in any case, the geographical address needs disclosing under the ECD.

Out of the 48 sales sampled on intermediary platforms, only those positively identified as being between a business seller and a consumer were included. This left a sample of 15 reliable B2C sales across 10 intermediary websites. Many platforms do give an indication of geographical location by asking traders to disclose where they are based. Most only require a town or postcode and country. This information does not enable a consumer to make direct contact with the seller. As a result, the survey looked for addresses satisfying the requirements of the ECD. It thus excluded all PO Box addresses as well as postcodes. This is because, while postcodes cover a reduced geographical area, they do not actually enable one to address post without a street name and number.³¹ Using those criteria, an address was only present in 20% of cases, all of those sales being conducted on eBay. This means that in 80% of the sales surveyed on other platforms the address of the seller was not found.

Sellers are mostly dependent on the format adopted by the intermediary platform. For some sites, disclosing additional information would result in the seller being banned for trying to transact outside the platform. EBay is the only site that allows, and even requires, that the seller discloses address and other contact details. It follows that such lack of compliance is not only lack of compliance on the seller’s part but is very much reliant on the platform templates allowing such disclosure. Part of the reason for this lack of compliance was born out of a desire to avoid users transacting outside the platform environment and missing out on commissions. Yet, it seems that on eBay the exodus once feared did not happen, most possibly because the service provided by the platform outweighs the benefits of avoiding the payment of a commission and concluding sales outside the platform environment.

Interestingly, this survey’s results differ from consumer perceptions of the information provided on online auction sites as reported by the OFT. In 2009, the OFT conducted a survey asking respondents who had bought from an auction site in the last 12 months if they thought the online auction sites generally provided enough information on a range of items, including the name and address of the seller. The survey targeted intermediary online auction platforms: 55% of respondents thought they had enough information on the identity of the supplier and address, while 32% though they did not and 12% did not know.³² The difference in results between the two surveys can be explained by the fact that the OFT survey only targeted users of the biggest online intermediary platforms: eBay, QXL, eBid, Bidz accounting for 98% of the respondents at the time. The respondents using other websites accounted for a mere 2%. The survey I conducted, however, focusses on a different sample. First, it does not include a number of big sites such as QXL (now closed) or Bidz, a jewellery auction specialist solely based in the US. Second, my sample does include a larger number of intermediary auction sites, many of which are small sites. Those smaller sites tended to all be designed using a common software package, and accounted for the largest proportion of the sample. In part, the size of the site can explain why compliance levels are lower. This is because larger websites have more resources and incentives to maintain high compliance levels. My survey, however, tested all sites operating at the time in the UK, regardless of size, since consumers should not expect less protection because a trader is running a smaller operation.

In Bundesverband³³ the CJEU had the opportunity to interpret this requirement. Deutsche Internet Versicherung (DIV), an automobile insurance company offering its services exclusively online, provided a postal address, an email address and an online enquiry template as means of communication. Consumers using the online template received an answer within 30 to 60 minutes. The German Federation of Consumer Associations brought an action claiming that in order to satisfy the requirements of the ECD, a telephone number needed to be given to consumers prior to the conclusion of a contract. This was because only the telephone could guarantee ‘direct communication’ between the parties. According to the Court of Appeal, the online form did not transit via an intermediary (it was direct) and allowed rapid communication since answers were sent within a maximum of 60 minutes. The case progressed to the Bundesgerichtshof. It considered that although Article 5(1)(c) ECD does not specifically require the provision of a telephone number, there was sufficient uncertainty to refer the matter to the CJEU. The Court of Justice of the European Union had to determine whether Article 5(1)(c) ECD could be interpreted to mean that the provider:

must provide [the] recipient of the service, in addition to its electronic mail address, other information giving access to an additional means of communication and, if such obligation exists, whether that information must necessarily include a telephone number or whether an online- enquiry template is sufficient.³⁴

The necessity to provide an email address was thus not at stake. According to the CJEU, it was:

clear from the wording of Article 5(1)(c), and in particular the word ‘including’ that the Community legislature intended to require the service provider to supply recipients of the service, in addition to its electronic mail address, with other information in order to achieve the result intended by that provision.³⁵

Under Article 5(1)(c) the service provider needs to offer a direct and effective means of communication in addition to his electronic mail address.³⁶ Based on this interpretation, the survey first tested the presence of such email addresses on all platforms. It then proceeded to explore what other forms of communication could be deemed direct and effective and were in fact used.

1.2.2.1 Presence of an email address on online auction platforms.Out of the 28 websites surveyed, 54% of sites (a total of 15 websites) did not disclose an email address.³⁷ The best compliance was found on proprietary auction sites, with 70% disclosing an email address. On intermediary platforms, in 64% of cases an email address was not disclosed.

Interestingly, this lack of compliance may be to the detriment of auction providers. A survey from the OFT found that 57% of shoppers looked for a contact email address before deciding to buy from a website.³⁸ It is therefore possible to infer that the lack of disclosure of such email addresses on both proprietary and intermediary platforms may also have an impact on the way consumers behave. It would be in the interest of platforms to ensure such contact details are disclosed. Yet, more than half of the sites surveyed leave money on the table by not disclosing an email address.

1.2.2.2 Use of additional form(s) of direct and effective communication on online auction platforms. In Bundesverband,³⁹ the CJEU went on to explain what is meant by ‘direct’ and ‘effective’ communication. For the Court, ‘the adverb “directly” does not necessarily require communication in the form of an exchange of words that is an actual dialogue, but only the absence of an intermediary’.⁴⁰

Furthermore, effective communication does not mean that the response given to a question posed must be instantaneous. On the contrary, a communication is to be regarded as effective if it permits adequate information to be obtained within a period compatible with the needs or legitimate expectations of the recipient.⁴¹