A class action lawsuit was recently filed against Gap Inc. alleging that Gap violated California consumer laws by misleadingly suggesting that the goods sold at its Gap Factory Stores and Banana Republic Factory Stores were of similar quality as products sold at its regular retail stores and were previously sold at those stores.
The plaintiffs alleged that by using the name “Gap” and “Banana Republic” as part of the factory story names, Gap represented that the products sold at the outlet stores were in fact previously sold at the retail stores and were of the same quality as the products sold under the Gap and Banana Republic brands. The court disagreed and effectively dismissed the lawsuit without leave to amend. The court was not persuaded that Gap made any misleading representations in violation of California’s Unfair Competition Law (UCL). The court explained that Gap’s decision not to disclose the quality of products sold at the factory stores and the meaning of the three-diamond label on the tags of those products did not amount to a representation by omission. Further, the court disagreed that the act of selling goods at an outlet store constitutes a claim about the quality or attributes of the goods.
The court also held that the plaintiffs’ claim that the defendant’s conduct was unfair in violation of the UCL failed for lack of standing. The court explained that to move forward with that claim a plaintiff must establish that the defendant’s unfair business practice caused the plaintiff actual economic harm. The court concluded that because the plaintiff failed to show that Gap made any affirmative misrepresentations, and only pointed to using “Gap” and “Banana Republic” as part of the names of the factory store names, the defendant’s conduct did not cause the plaintiff sufficient harm.
TIP: This class action was one of several filed against retailers who operate factory outlet stores after four members of Congress sent a letter to the FTC asking it to investigate potentially misleading marketing practices at outlet stores. Retailers should be careful not to make implied claims that cannot be substantiated, but this decision is notable in that it challenges the notion that the name “factory outlet” by itself communicates anything about the quality of the items sold at these stores.