On April 9, 2012, a federal judge in the United States District Court for the Northern District of California issued a preliminary order approving a settlement in a class action suit against GameStop.

Under the proposed settlement, GameStop has agreed to post warnings about the differences between used games and new games that include free downloadable content (DLC).

The consumer warnings, which must be posted in GameStop’s California stores as well as on the company’s Web site for a two-year period, will disclose that there may be a fee associated with DLC. A final approval hearing is scheduled for September 17, 2012.

The proposed settlement stems from a 2010 class action lawsuit filed against GameStop in the Northern District of California. In the complaint, class members alleged that GameStop misled consumers by advertising on product packaging that free DLC came with the purchase of various used games. Plaintiffs contended that the DLC associated with used games often required a fee – sometimes as high as $15 per game. According to the complaint, GameStop advertised free DLC in order to inflate the prices of its used games, which were often priced at only $5 less than that of new games.

In announcing the settlement, class counsel claims the lawsuit will help bring down the cost of used games. Counsel said “The in-store and online warnings are an important benefit under the settlement…because if GameStop discloses the truth to consumers, it is unlikely that they will be able to continue selling used copies of certain games for only $5 less than the price of a new copy. In fact, we already know that not long after the lawsuit was filed, GameStop lowered prices for used copies of many of the game titles identified in the lawsuit.”

The proposed settlement also provides restitution to GameStop consumers. According to the terms of the settlement, consumers with verification (from their own records or GameStop’s sales records) that they purchased a qualifying game will be eligible for a $10 check and a $5 coupon. On the other hand, consumers without verification who submit a claim form under penalty of perjury will be eligible for a $5 check and a $10 coupon. “We are pleased that as a result of this lawsuit, we were able to obtain complete restitution for consumers, with actual money paid out to people who were harmed by GameStop’s conduct,” stated one of the lawyers representing class members.

While the proposed settlement will only apply to California consumers, class counsel is actively “investigating similar GameStop practices in other states” and has encouraged consumers to contact counsel if they have experienced similar allegedly deceptive practices in other jurisdictions.

For copies of Plaintiff’s Notice of Motion and Motion for Preliminary Approval of Settlement and the Court’s Order Granting Preliminary Approval, click here.

Why it matters: The GameStop class action lawsuit is a reminder to advertisers to carefully ensure that their product packaging does not contain any deceptive statements or claims. As is evident by the fact that class counsel is encouraging consumers in other jurisdictions to bring forth similar deceptive advertising claims against GameStop, counsel is always on the lookout for potential class actions to file against businesses. To mitigate the risk of liability exposure in class action litigation, companies should make sure that product packaging and advertisements do not contain misleading statements about products. Such practices may also help to reduce the number of consumer complaints to federal and state regulators, thereby minimizing the risk of an enforcement proceeding by the government.