SAN FRANCISCO (Reuters) - EBay is being sued by a Pennsylvania man who charges that it illegally forces up prices when certain high bidders raise their maximum bid to guard against last-minute offers, an attorney for the plaintiffs has said.

In a proposed class-action lawsuit filed February 17 in Santa Clara County Superior Court, lead plaintiff Glenn Block claims that eBay raised his bid from $111 (58.2 pounds) to $112.50 after he responded to an e-mail from the auction site that said he was the highest bidder for an item.

The email warned that he could be outbid if he did not increase his maximum.

Block alleged that he could have won the auction at $111, and accused eBay of forcing him to overpay by $1.50.

"Based on what we know about what's being alleged, it appears the plaintiff completely misunderstands the functionality of the eBay bidding system," eBay spokesman Hani Durzy said. He said the company had not yet seen the lawsuit.

Durzy told Reuters that eBay only notifies winning bidders that they could be outbid when they have hit their preset maximum bid. Increasing a maximum bid is voluntary.

EBay only increases bids when bidders have raised their maximums and when the prior top bid was between bidding increments. For example, bidding increments on items priced between $100 and $249.99 is $2.50. Durzy says eBay discloses such information on its Web site.

Plaintiffs' attorney Reed Kathrein, of Lerach Coughlin Stoia Geller Rudman & Robbins equated eBay's actions to "shill bidding", and said it forces bidders to bid against themselves.

Shill bidders are often in cahoots with sellers and work to artificially raise the price of auction items they have no intention of buying.

Kathrein said eBay and its PayPal online payments unit receive larger transaction fees as a result of the company's alleged shill bidding.

He said eBay's actions have created substantial unlawful profits for eBay and its online payment unit PayPal. He said required restitution would run in "excess of tens of millions, if not hundreds of millions, of dollars during the past four years."

EBay had net revenue of $3.27 billion in 2004.