One of the cheapest places to buy software is on eBay, where merchants sell programmes that come directly from manufacturers, saving them from paying a mark-up to distributors.

But it may also be a risky place to shop, as it can be tough to discern good values from scams.

Consumers' Union - which tracks Web retailers and advises consumers on Internet shopping through its ConsumerWebWatch.org service - urges buyers to use common sense.

"If it sounds too good to be true, it is," says Beau Brendler, director of Web Credibility for the site.

A Reuters reporter bought four popular software titles through eBay stores, which, unlike auction operators, sell products at fixed prices. Three of the titles worked flawlessly; the fourth was dead on arrival.

The reporter was able to install and register bargain-basement copies of Adobe Photoshop Elements, Microsoft FrontPage and Trend Micro PC-Cillin Internet Security. The average discount on those programmes was 75 per cent.

The fourth programme was a dud. The downloaded copy of Nero Ultra Edition Enhanced, a suite of music and video software that retails for $100, cost only $7.

THE GRAY MARKET

Much of the new software that is sold on eBay is what is known as 'gray-market' product, - items that have somehow made their way out of the normal distribution chain.

They are also known as 'OEM' software - a term that frequently appears on eBay listings. OEM stands for original equipment manufacturer and simply means it is an authentic version of the product, not a copy.

One of the most common types of OEM software are programmes intended to be sold with another product.

For example, a camera maker might bundle copies of Adobe Photoshop Elements when its products leave the factory.

A retailer or distributor removes the software, then sells it to a third party who lists it on eBay. The packaging on that software might not be the same as the full-price version, but the functionality and support are identical.

Software makers contend that gray-market sales violate the terms of the licenses that control the use of their products.

SOFTWARE TRADE GROUP

The industry's main trade group, the Software & Information Industry Association, has sued five eBay merchants who sell OEM products, but has no plans to go after consumers who buy them, says group Vice-President Keith Kupferschmid.

His group has tried to persuade eBay to shut down OEM software merchants, but the online marketplace has resisted.

eBay will remove a listing if the software appears to be an illegal, pirated copy, says company spokeswoman Catherine England. But Ebay won't go after merchants selling OEM products, she said.

While the software industry has sued merchants, it has taken a more gentle approach with consumers, cautioning them to stay away from OEM software because there is a high risk of getting virus-tainted products or being scammed.

"People generally think 'It's okay ... It's so cheap," says Kupferschmid. "But people who are trying to make a quick buck (selling OEM software) are usually involved in a lot of illegal things."

Consumers' Union confirms there is a higher incidence of fraud among OEM software deals than other typical eBay transactions.

It is possible to sharply reduce that risk by only providing financial information such as credit-card numbers and bank-account data to the PayPal payment service, never directly to sellers. But buyers must still turn over personal data like a mailing address.

It is possible to seek out reputable dealers by looking at feedback from previous buyers asked by eBay to rate their experience as 'positive' or 'negative'.

"The more feedback the better," says Brendler.

A dealer with ratings from 500 or more customers, with at least a 95 per cent positive response rate would seem safe, he said.

Other tips from Consumers' Union:

New software sold on eBay's online stores, which generally offer multiple copies of the same product at fixed prices, tends to be more reliable than auction titles.

Consumers should read each listing carefully for signs of potential fraud, misspellings, overseas sellers, products sold 'as is' or products that are not returnable.

If there is a problem, eBay's PayPal Buyer Protection plan provides some insurance for potentially dissatisfied customers (http://tinyurl.com/2mdhkq).

To avoid any surprises, bone up on the terms of that plan before buying. "eBay can be a really good place to buy merchandise - just watch for the obvious pitfalls," says Brendler.