Internet Auctions

As of June, it seemed that only Illinois had a law that required licensing of online auctioneers. But industry sources say Pennsylvania is the latest Internet-auction licensing battleground.

Plenty of lawyers have enlisted in the fight against ' and for ' states seeking to license Internet sellers who seem to meet states' description of auctioneers. These attorneys are gaining and honing skills, and drawing revenue, in this lucrative sales channel, which the NAA says cashed $270.7 billion last year.

The NAA (a professional-development outfit besides being a lobby) supports online-auction licensing and says licensing online auctions ' for people who make a business of selling property for others ' will reduce Internet auction fraud, which has been on a steady upswing for several years.

Auctioneers, usually licensed professionals, overwhelmingly favor online-auction licensing, according to the NAA and other industry sources; on the other hand, online sellers and companies they use, with eBay the 800-pound poster-child example, generally oppose licensing for online auctions.

But as Internet connections and use have proliferated, more people are engaging in online auctioning and, as often happens when any activity that promotes a growing exchange of money and merchandise, fraud has become common. Most licensing proponents see licensing as a way to stem fraud, and to offer consumers some redress after being ripped off online.

Says NAA spokesman Chris Longly: 'With licensing, a person who feels he's been taken advantage of can file a grievance against the auctioneer, and have some redress for wrongdoing. Most states have a bonding requirement, and that's important, because we're not talking about just small items, like trading cards and that kind of thing. Auctions involve items like heavy equipment that is very expensive and that's important to protect against fraud, or even damage. When you deal with a bonded, licensed auctioneer, you know that you have an avenue to pursue a complaint, and you know that, with bonding, merchandise ' shipped or consigned ' is protected against damage or loss.'

The Latest Big-State Battleground

To gauge the threat of online-auction fraud, consider figures from just one populous state, Pennsylvania.

In 2004, 2,580 reports of Internet fraud from Pennsylvania were referred for investigation by the Internet Crime Complaint Center ('IC3'), a joint effort of the FBI and the non-profit National White Collar Crime Center.

Seventy-two percent of those complaints ' 1,857.6 ' involved Internet-auction fraud, a number that put Pennsylvania sixth on the most-Internet-fraud-reported list. The next largest Internet crime category in Pennsylvania was non-delivery of merchandise or fraud involving payment, which accounted for 15.2% of complaints, or about 390. Forty-six percent of online auction-related losses reported in Pennsylvania in 2004 amounted to $100 to $1,000, with the median loss at $250 (94.7% of victims were in this dollar range).

In 2005, Internet fraud crimes reported in Pennsylvania sprinted at a 60% increase, to 6,603, with 4,193 auction rip-offs, IC3 says. Auction fraud accounted for 63% of Internet crimes reported in Pennsylvania that year. Other categories saw increases, but not in significant percentages, and the median monetary loss was about the same as in 2004.

2006 statistics were similar, except for the number of online crimes reported ' 7,044; median loss related to online auction fraud jumped to $757.18.

Last year, Pennsylvania generated 6,494 complaints.

Nationally, the IC3 last year received 206,884 Internet-crime reports involving a record $239.09 million in losses.

Legislators Examine the Problem

The Pennsylvania General Assembly has been considering bills that would affect online auctions, including a bill that would require online high-volume sellers of others' goods to get a state auctioneer's license, the same license that motor-mouthed, gavel-swinging 'physical' auctioneers conducting auctions as their livelihood must obtain.

Senate Bill 908, introduced more than a year ago by Republican Sen. Rob Wonderling, a former high-tech think-tank president who represents a district in suburban Philadelphia, would exempt online sellers from auction licensing. In a letter to constituents and the people of Pennsylvania posted on his Web site, Sen. Wonderling wrote:

In our free-market Capitalist society, you would think [that] allowing people to buy and sell items online is a good thing. Yet efforts are underway to put the bureaucratic brakes on all that good holiday trading. The Pennsylvania State Board of Auctioneer Examiners is telling EBayers and other online sellers that selling items online (that are not your own) will now require you to get an auctioneers license. While you may have never seen an auctioneer in person, no doubt you've seen them on TV speaking almost too fast to comprehend, banging on a gavel yelling 'sold'! I don't know about you, but most of my online purchasing doesn't require a gavel.

Wonderling's bill might have removed most conceivable barriers to e-commerce, but the Pennsylvania Auctioneers Association ('PAA') and the NAA thought it was insufficient to guard against the kind of fraud being reported to the IC3. The bill has been in the state senate's Consumer Protection and Professional Licensure Committee for a year.

Favored Legislation

Instead, the NAA and PAA back PA House Bill 1899, introduced by Rep. P. Michael Sturla, a Democrat from Lancaster County. HB 1899 would amend the state's 25-year-old Auctioneer and Auction Licensing Act to recognize electronic auctions and to establish a special licensing requirement for electronic auction brokers. These brokers would have to take a written examination and pay a licensing fee, but would be exempt from the apprenticeship and education requirements to which auctioneers are subject. The bill defines an electronic auction broker as:

A person ' who sells or offers to sell on consignment or by virtue of a fee or commission charged to the consignor personal property at electronic auction. The term includes any person who holds himself out as engaged in the business of selling property by electronic auction for others.

Parsing Roles

The phrase 'selling property by electronic auction for others' in the bill is crucial to the auctioneers' associations, and to people, such as one-time eBay users who auction items of their own online. Even so, by specifying people who sell property for others, the bill addresses the practice of eBay trading posts, or drop-off posts, at which eBay entrepreneurs auction goods online for others on consignment. eBay, while not the only platform on which online auctions are conducted, is by far the most popular with consumers, and is a vocal and active advocate of what the company calls sellers' rights. eBay says it is generally against licensing, although it urges adherents to get licenses when selling on consignment and using the company's logo, and when sellers are designating themselves as an auction company. eBay did not respond to a request for comment for this article.

'We feel that it's important that drop-off posts take responsibility for what they're doing, and to be regulated,' the NAA's Longly says. 'They're auctioning ' it doesn't really matter in the end what they're calling it ' they're running an auction. An auction is a mechanism they use in going about their business. They're doing what an auctioneer does ' they're consigning the item, they're accepting bids on behalf of their 'client,' they're working the contract, and they're transferring the money. We'd like to see that activity regulated. There's great potential for fraud, and the number of fraud cases is rising. We want accountability.'

No one contacted for this article accused eBay or its sellers of any wrongdoing. Longly acknowledged that eBay directs 'assistants,' as sellers are known, who use the company's logo and are operating 'officially' as eBay entrepreneurs, to have sufficient bonding. eBay has also told operators advertising as auction companies that they must obtain auction licenses if their state or local authority requires one for what they do. Sources say it was outcry against a crackdown on trading-post operators by the Pennsylvania Bureau of Professional and Occupational Affairs that provided the impetus for online-auction licensing discussion in the legislature.

Pennsylvania's House Bill 1899 defines an online auction this way: