Reverse Auctions

27 February 2004

Alexander Duisberg

(BGH of March 13, 2003 – I ZR 146/00; I-ZR 212/00)

In a landmark decision, the Federal High Court (Bundesgerichtshof - BGH) has established that reverse auctions on the Internet are lawful and do not breach German unfair competition rules, even in a B2C context. The BGH expressly overrules its former doctrine which regarded reverse auctions as unlawful. In particular (i) when encompassed by unfair and/or misleading pricing (doctrine of "rocket-prices") to start off the reverse auction, or (ii) when "gambling elements" had a compelling effect on the consumer with the result of shifting the consumer's attention from taking an "objective, facts-based" purchase decision towards merely endeavouring "to win the prize/auction".

With regards to high-priced consumer goods such as cars, the BGH’s former highly protective position was based on the legal concept of the German consumer as a "superficial/careless and uncritical consumer". Commentators have long since criticized this doctrine of the "stupid consumer" as being generally inappropriate, over-protective and ultimately depriving the consumer of its freedom to contract and blocking-off new E-commerce business models from the German market.

In accordance with what the European Commission has incorporated into its law-making on consumer protection, the BGH establishes the legal concept of a mature consumer "that has an average level of information and that is adequately attentive and knowledgeable of the specific situation".

The BGH limits its general caveats to "exceptional circumstances" where a reverse auction may still be held unlawful. But is also makes it clear that the mere value of the transaction (a car purchase) cannot, per se, constitute such exceptional circumstances: any consumer will already be careful in participating in a car auction given the substantial investment and will thus refrain from participating in a reverse auction if he was not actually intending to purchase.

As a further consequence of this change in legal doctrine, other E-commerce business models such as, for example, power-shopping systems should now be considered permissible to the extent that German courts had declared them in breach of unfair competition rules and incompatible with consumer protection laws based on the former German consumer legal concept.


Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.