Seven district attorneys in California have filed a joint lawsuit against online retailer Overstock.com, claiming that the company overstated its discounts.
The DAs allege that the company listed comparative prices at other sites that were inflated, making its claimed discounts look larger. The lawsuit seeks $15 million in fines and restitution, as well as an injunction against the retailer’s use of price comparisons.
The complaint, filed in California state court, cited an incident where Overstock.com allegedly 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.
That incident was typical, according to the complaint – Overstock.com didn’t actually present the prevailing market price when it advertised the “list price” or “compare at price” for a product, but used either the highest price for which the product was selling in the marketplace or applied a preset formula incorporating a hefty profit margin over its wholesale cost without ascertaining whether or not the product had actually been offered at that price.
The DAs also alleged that the company would sometimes advertise “free shipping” at times when it had already factored shipping costs into its price for the product, inflating the price to include a hidden shipping charge.
Overstock.com also misrepresented to consumers that it was a liquidator and therefore able to undercut competitors’ prices, but failed to disclose that the majority of its products were offered by Overstock’s invitation and shipped from third-party vendors’ warehouses, the complaint alleged.
In addition to injunctive relief, the suit seeks $15 million in damages, noting that each use of the term “you save” when Overstock claimed to offer a lower price constituted violations of California state law.
Responding to the suit, Overstock.com President Jonathan Johnson said in a statement that the company follows standard industry practices and was singled out.
“Overstock.com stands by all our advertising practices, including providing comparison values which we thoroughly explain on our site. We have been singled out for standard industry practices, which we look forward to demonstrating in court,” he said.
To read the complaint in California v. Overstock.com, click here.
Why it matters: If proven, the allegations that Overstock.com “routinely and systematically” made untrue and misleading claims could result in large damages and significant changes to the way Overstock advertises. If Overstock’s claims are true, it could also impact how others in the online liquidation industry advertise their prices. The DAs have been investigating the company for several years and tried to settle the allegations for $7.5 million earlier this year.