The U.S. District Court for the Northern District of California recently ruled that BidRack, Inc., a "penny auction" website, must defend against claims of fraud, false advertising, unfair competition and breach of contract. Penny auction sites allow consumers to purchase and place bids to try and buy items at deeply discounted prices. Verna Parino filed a class action suit against BidRack after registering with the site and finding an unauthorized charge for $99 on her credit card. The complaint alleged that users typically reached BidRack's website through a series of sponsored advertisements and fake news stories misrepresenting endorsements by legitimate news organizations such as the New York Times and the BBC. The website heavily emphasized that registration was "free." Consumers were prompted to enter billing information when signing up to pay for any items they may eventually win. The court noted that "BidRack did not require the website user to read terms and conditions or check a box to indicate acceptance of a credit card charge or purchase; the customer simply clicks a button labeled 'START WINNING' to complete registration." BidRack filed a motion to dismiss on all counts and the court denied the motion with respect to the false advertising and fraud in the inducement counts and most others.
TIP: Companies should conspicuously disclose all terms and conditions of an offer to consumers, and should obtain express consent from the consumer for any charge to a consumer's credit card.