A class action brought before the Tel Aviv District Court in early June 2011 that claimed most auction websites in Israel adopted fraudulent practices has failed, leaving the plaintiffs to pay unprecedented sums as legal fees to the defendants.

On June 1 2011 the court rejected a request to file a class action against the five leading e-commerce websites in Israel, on the grounds that the request lacked cause. It was hoped that the court's decision would bring an end to a heated and lengthy procedure. However, the plaintiffs have already announced that they will appeal the ruling. Considering the expenses and legal fees that they were made to pay - over $270,000 in total - and the harsh wording of the court's findings, they seem to have nothing to lose by appealing.

The plaintiffs, Assaf Krako and Arthur Frank, brought the claim in 2007. They argued that the respondents had deliberately caused products' prices to rise by creating fictitious participants to bid on the products and thus raise the price, even though they had no intention of purchasing such products. Subsequently, real participants who had won the bid were forced to pay much higher prices than would have been the case had the alleged foul play not occurred. The companies that run the websites - Allsale, Nana shops, P1000, Walla Shops and Getit - and 64 suppliers who offered their products over the websites rejected the claims and denied creating any such fictitious participants. They claimed that had any such foul play existed, they had no knowledge or involvement in it, and that it was despite their attempts to prevent it.

Judge Yehuda Farago rejected the plaintiffs' premise that it was in the websites' interest to intervene in the auction. Conversely, he found in his decision that it was in the websites' interest to prevent such prohibited involvement which could thwart the auction and thus their share in its profits.

Farago further stated that the plaintiffs had not managed to prove that any such intervention had occurred with the endorsement of the websites or the suppliers. He ruled that even in the rare event of someone finding a way to outsmart the websites or the suppliers, it should not be held against them. The judge further found that despite the security measures taken by the website owners - including registration and the provision of bidders' credit card details - it was impossible to entirely prevent the alleged interventions, if such existed, as the bidding was carried out by real people, often thousands at a time. The court added that such alleged rare events of foul play, which were not prevented despite the website owners' attempts and security measures, should be taken into account by participants when participating in the auctions.

Finally, Farago determined that the websites had employed reasonable means in order to prevent the phenomenon by blocking certain participants, cancelling automatic computer participation and charging a participation fee. Additionally, he criticised the plaintiffs, stating that while collecting evidence for their class action request, they had themselves participated in numerous auctions without actually intending to buy the products, and therefore may have caused damage to other participants. The court emphasised that the plaintiffs had copied data from the websites without receiving professional assistance, and that the software with which this was done was insufficiently accurate in order to reach the required conclusions.

For further information on this topic please contact Haim Ravia at Pearl Cohen Zedek Latzer by telephone (+972 9 972 8000), fax (+972 9 972 8001) or email ([email protected]).