California Appellate Court Upholds $6,828,000 Penalty and Injunctive Relief for Overstock’s “Unfair” Pricing Practices

Summary

Facts of the Case. The People of California brought a suit against Overstock, the online retailer, for violating California law by engaging in allegedly unfair business practices and false advertising. Specifically, the People alleged that starting in 2003, Overstock’s use of various pricing terms, such as “Compare At” and “List Price,” were created in an arbitrary fashion and were therefore false and misleading. The trial court granted injunctive relief and imposed $6,828,000 in civil penalties. Overstock appealed.

Holding. In the published portion of its decision, the Court upheld both the $6.8 million fine and the grant of injunctive relief. First, the Court found that Overstock failed to show the trial court had abused its discretion in issuing the large fine. While the Court acknowledged that the “moderate” seriousness of the conduct weighed in Overstock’s favor, all of the other statutory factors, such as “the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant’s misconduct, and the defendant’s asserts, liabilities and net worth,” weighed against it. Overstock also challenged three aspects of the trial court’s injunction on various grounds; the Court upheld the injunction in its entirety. Thus, Overstock is enjoined from:

  1. Using formulas to set average retail prices (ARPs);
  2. From using marketing terms or acronyms unless clearly and conspicuously defined; and
  3. Advertising an ARP for longer than 90 days. 

Impact

The holdings of this case may be limited to the unique facts of Overstock. The trial court record included several internal company communications that cast a negative light on the company’s reference pricing practices over a prolonged period of time. Nonetheless, if a false or misleading advertising case survives a motion for summary judgment, the stakes for defendants, both financially and in terms of restrictions on future business practices, are higher in a post-Overstock world.

The decision by the Court of Appeal of the First Appellate District, Division Four, can be found here.