As many retailers and manufacturers that sell directly to their customers know well, sale and similar promotional pricing practices have been the targets for regulators and class action plaintiffs for several years, and Amazon is back in that spotlight, this time in a lawsuit filed by the state of California. There has been a wide range of results with these "reference price" cases. While courts have dismissed some, such as the "Compare At" case against Ross Stores, a California court issued a $6.82 million civil penalty against Overstock.com for deceptive comparative price advertising, and many companies have settled for significant monetary payments to avoid the costs of litigation.
While Amazon has been named in several class actions in the last few years alleging deceptive reference prices, the most recent complaint was filed by the state of California. Notably, the six-page Complaint states that the parties agreed to a tolling agreement that has been effective since August 30, 2018 which indicates the focus may be on Amazon's prior practices. The Complaint filed last week contains the following allegations:
- Since 2014, Amazon uses a "Was" or "List" price when advertising a product that suggests that the product's price is regularly sold by another seller at a higher price.
- A "material number" of these reference prices were misleading or had the capacity to mislead consumers.
- There were "insufficient temporal constraints" and/or "number of sales" to support the advertised reference price.
- In some instances, Amazon "insufficiently disclosed that the reference price was not necessarily the prevailing market price or regular retail price."
The state alleges Amazon's actions violated California's False Advertising Law and Unfair Competition Law, seeking injunctive relief, restitution, and legal costs, similar to what several California District Attorneys sought in the Overstock.com case. In 2017, in response to a complaint filed by a consumer advocacy group, the FTC reportedly was reviewing Amazon's reference pricing practices as part of the review of Amazon's agreement to buy Whole Foods, but the FTC did not confirm the existence of any investigation.
As retailers think about the frequency, duration, and nomenclature used for reference pricing, they should continue to keep in mind the myriad of state statutes governing these practices and the consequences of a misstep. We will continue to monitor the progress of this case and other important reference price matters.
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