A class action suit was filed against eBay February 18th in Santa Clara, California Superior Court.

eBay, an online company based in San Jose, California was founded in 1995 as an automated bidding system for buyers and sellers of all types of items. The company has been accused of shill bidding against its customers to increase prices, fees, and service charges. The case was filed on behalf of Glenn Block, a Pennsylvania man who claims that he was cheated out of $1.50 for a Xerox copy cartridge.

According to the lawsuit, Block received e-mail confirmation stating that he was the highest bidder. Though there weren’t any other competing bids, eBay increased Block’s bid. By doing this, the company acted as an invisible shill bidder to inflate the auction price.

Block’s small sum appears to be minute; but it can add up to millions of dollars because eBay has over 100 million confirmed registered user accounts, according to Lerach, Coughlin Stoia Geller Rudman & Robbins, LLP, attorneys for the plaintiffs.

"Shill bidding is the practice of bidding on the seller’s behalf, with no intention of purchasing the product, for the sole purpose of increasing the bid price of real bidders," according to the lawsuit.

"This price increase occurs because eBay acts as a shill or puff against the current high bidder to artificially inflate a winning bidder’s offer when he accedes to eBay’s request to increase his maximum bid. This inflation can be seen as an undisclosed fee imposed for the use of eBay proxy bidding tool."

eBay also acts as an auctioneer and auction house in California, without complying with the terms of the California Civil Code.

The lawsuit goes on to say that during the bidding process, after a bid is introduced a buyer will enter the maximum amount he/she is willing to pay for a product. The computer will place bids on the buyer’s behalf and increase the bid to the buyer’s maximum amount.

After a new high bid is submitted, that bidder is notified that he/she is the highest bidder. eBay will send a warning telling that bidder that he/she is one bid away from being outbid, and if another customer places a bid, the highest bidder will not win.

The warning also tells the high bidder that if he/she wants to increase the chances of winning, they must enter their highest maximum bid. When the bidder does so, eBay becomes the shill bidder on behalf of the seller because it’s forcing high bidders to pay more.

Buyers and bidders can examine their bid history to ensure that they have not been cheated during the process. When viewing their history, they can see if they or another buyer was listed as the last two bidders for the auction.

Hani Durzy, eBay spokesman, publicly denies cheating customers. He also stated that the plaintiffs in the case simply aren’t familiar with eBay’s bidding practices, and that eBay is not an auctioneer.