A federal court judge has ordered Overstock to pay more than $6.8 million for deceptively advertising the original list price of products.
District attorneys in eight counties – Alameda, Marin, Monterey, Napa, Santa Clara, Santa Cruz, Shasta, and Sonoma – filed suit in 2010, claiming that the Internet retailer posted an inflated list price next to the sales price. Consumers were tricked into thinking they were saving more money because the list price was not based on the actual price of the product found elsewhere, but on a formula created by Overstock based on the highest price it could find, the DAs said.
Sometimes Overstock even included the phrase “you save” next to the sales price, further misleading consumers about their potential savings. The complaint cited one incident where Overstock advertised a patio set for $449.99, with a list price of $999. A consumer claimed that when he received the set, it had a retailer sticker on it with a price of $247.
California Judge Wynne Carvill, in a ruling issued last month, found Overstock had violated state false advertising and unfair business practices laws going back to 2006.
“Overstock has consistently used ARPs (advertised reference prices) in a manner designed to overstate the amount of savings to be enjoyed by shopping on the Overstock site,” he wrote.
In addition to issuing a civil penalty of $6.8 million ($853,500 for each of the eight counties), Judge Carvill ordered injunctive relief. Overstock must halt its deceptive advertising practices and achieve compliance with the law within 60 days, he wrote.
Specifically, the retailer cannot use unmodified terms like “compare” as the advertised reference price unless it reflects a “good faith effort” to determine the prevailing market price of the identical product. Pricing for a similar but nonidentical product may be used only if the basis for the advertised reference price is disclosed on the same page in a manner “reasonably designed to alert consumers.” The use of acronyms such as “MSRP” or other marketing terminology must include a “clear and conspicuous” hyperlink that both provides a definition and states that the term may not be the prevailing market price, the court said.
Overstock is also prohibited from relying upon an advertised reference price for longer than 90 days from the day on which it was verified and must maintain documentation of the reference price (like a screen shot) for two years.
Why it matters: According to a statement from Napa County District Attorney Gary Lieberstein, the verdict is “one of the largest of its kind for consumers across California.” Overstock has indicated its plans to appeal, however, and president Story Simon called the ruling “unjust.” “Since 2008 I have been an integral part of the process by which we log, verify and advertise ‘compare-at’ prices. I am aware of the lengths we have gone to get this right on the millions of products that flow through our website,” he said.