Section 5 of the Federal Trade Commission Act prohibits retailers from engaging in “unfair or deceptive acts or practices.”1 Courts consider an advertisement, whether in-store, or on-line, to be deceptive where a retailer: (1) makes a representation, which is (2) material to the consumer’s purchase decision and (3) is likely to mislead a reasonable consumer under the same or similar circumstances. In the 1950s, the FTC began publicizing the specific practices it deemed deceptive through a series of industry guides.2
In 1967, the FTC issued its “Guides Against Deceptive Pricing” (the “Pricing Guides”).3 Among other things, the Pricing Guides discussed the FTC’s views on retailers advertising price comparisons against an item’s Manufacturers Suggested Retail Price (“MSRP”).4 The FTC indicated it may consider a comparison to MSRP to be deceptive if “a substantial number of sales of the article in question” were not made at the MSRP.5 Put differently, “if a number of the principal retail outlets in the area are regularly engaged in making sales at the manufacturer’s suggested price, that price may be used in advertising by one who is selling at a lower price” without engaging in a deceptive practice.6 The Pricing Guides also suggest that if a retailer “in good faith” uses “a list price,” such as a MSRP, its use is not deceptive so long as that price does not “appreciably exceed the highest price at which substantial sales are made.”7
Despite the FTC’s early interest in deceptive pricing, the issue has not been considered a high agenda item for the Commission since the 1970s, and the FTC has pursued very few enforcement actions based on deceptive pricing in recent years. In part due to anemic FTC enforcement, a number of states and municipalities have enacted their own price comparison legislation, some of which confer standing on state regulators and private litigants to bring suit.
Since the enactment of state sale price advertising laws, class action litigation and regulatory investigations grounded in fictitious advertising theories have been on the rise.
Number of class actions filed in the last three years alleging that a retailer’s pricing was deceptive or fictitious.8
Number of class actions filed in 2016 alone alleging that a retailer’s pricing was deceptive or fictitious.9
Largest recent settlement or verdict based upon allegedly deceptive pricing.10
Retailers should consider the following when reviewing their use of MSRPs and their potential exposure to litigation:
- Is the use of MSRP disclosed to consumers? Most states do not expressly require that a retailer disclose that the base price used for discount comparison is the MSRP. That said, in order to avoid allegations that a consumer was confused or deceived by the price used in a sale comparison, some retailers choose to either label the base price as “MSRP,” or to publish a policy which explains that the MSRP may be the basis for certain price comparisons.11
- Did the manufacturer set the MSRP? Retailers are not prohibited from working with manufacturers to jointly set a MSRP. However, some plaintiffs have argued that, if a retailer was involved in setting the MSRP, they should be required to independently demonstrate both that the MSRP is reasonable, and that the item was recently offered at this price in ordinary commerce.
- Is the item sold by other retailers? If an item is exclusively sold at a single retailer, the retailer may have more difficulty establishing that the MSRP is a reasonable comparison price if the retailer itself has not sold the item at MSRP.12
- Is the item exclusively offered at certain locations?If an item is manufactured for, and sold exclusively at, certain locations (e.g., outlet stores), advertising an “original” or “list” price may be considered deceptive if consumers believe it represents the ordinary price for the item in traditional stores.13
- Do you have any reason to believe that the item was not sold at MSRP? Retailers should generally be entitled to rely upon their good faith belief that an item has been offered for sale by others at the MSRP. However, if a retailer has evidence that such a belief is unfounded, it may be difficult to defend against claims that the product was not offered for sale at the MSRP.14