People of the State of California v. Overstock.com, Cal. Unrep., No. RG10-546833

SEVEN DISTRICT ATTORNEYS OFFICES FILE SUIT:

  • Overstock.com (“Overstock”) offers various products for sale on its website.
  • Since its inception, the company has engaged in comparative advertising techniques referred to in the industry as “advertised reference price(s)” or “ARPs.”
  • In 2010, the offices of seven District Attorneys in Northern California filed a civil lawsuit in Alameda County Superior Court against Overstock.
  • The complaint alleged that since January 1, 2006, Overstock "routinely and systematically" made untrue and misleading claims about the prices of its products.
  • Specifically, it is alleged that Overstock’s APRs have been misleading  because, among other things, the company directed its employees to select the highest price that they could find as an ARP or constructed an ARP using a formula that applied an arbitrary multiplier to Overstock’s wholesale cost.
  • The complaint alleged that Overstock had no process or procedure in place to confirm for any given list price that there was in fact at least one instance of a sale at the list price stated in the advertisement.
  • The complaint sought a permanent injunction and $15 million in restitution and civil penalties.

EXAMPLE OF MISLEADING PRICE CLAIMS:

  • The complaint alleged that Overstock often made up a comparison price known as a “List Price” or “Compare at” price based on arbitrary markups. 
  • By doing this, Overstock used a fictitious comparison price when claiming that the consumer was reaping a savings by purchasing on its site.
  • According to the Marin County District Attorney’s Office Press Release, Overstock advertised a patio set for sale for $449.99 and claimed that the “List Price” was $999.00, indicating that the consumer would save $549.01.
  • A consumer who ordered this patio set stated that it arrived with a Wal-Mart price tag of $247.00. 
  • Although Overstock claimed that the consumer was saving 55% off of the “List Price,” the company actually charged the consumer a great deal more than the actual price listed on the product.

SUPERIOR COURT RULING:

  • The court found Overstock liable for violating California’s false advertising and unlawful business practice laws, statutes that are intended to protect consumers.
  • Specifically, the court found that Overstock engaged in false advertising and unfair business practices by: 1) displaying “List Prices” which had been created by the use of formulae; 2) displaying reference prices that were based not on the actual product being offered for sale, but on similar products, without sufficient disclosure to consumers; and 3) displaying reference prices based on the highest possible price that could be found in the market, again without adequate disclosures.
  • Finally, the court concluded that, “Overstock has consistently used [advertised reference prices] in a manner designed to overstate the amount of savings to be enjoyed by shopping on the Overstock site.”

JUDGMENT:

  • The court imposed $6,828,000.00 in civil penalties against Overstock.
  • Further, the court ordered injunctive relief, requiring Overstock to more accurately display reference prices and consumer disclosures.
  • The court also held that Overstock may be ordered to pay the costs of suit that are allowed by law.

TAKE AWAY:

  • State and federal regulators are increasingly policing deceptive advertising claims and practices.
  • In this case, seven district attorneys offices were compelled to bring this suit against Overstock – to protect consumers.
  • Companies that market or sell items must be sure that their practices are in compliance with applicable state and federal laws.