The Price Is Not Right: Class Action Risks of Comparative Price Advertising

Farella Braun + Martel LLP

“Was that retail ‘bargain’ you received really a bargain?” That is the question being asked by a recent spate of lawsuits filed against prominent retailers. Most of these actions have been brought as private party class actions, but price discount claims have also attracted renewed regulatory attention in recent years. The facts and circumstances of these cases have varied. Some actions have challenged as false a retailer’s assertion that a product is “on sale” or has been “discounted” from the retailer’s former or regular price. Others have challenged a retailer’s supposedly favorable price comparisons to prices of a competitor’s same products or to prices of other “similar” products that are not actually of like grade and quality. Still others have challenged a retailer’s supposed “discount” from a list price or MSRP at which the product has never sold. Despite these differences, the gravamen of the claim in each instance is typically the same: the retailer is allegedly misleading consumers into believing they are receiving a bargain when they are in fact paying the price at which the product normally sells.

While the majority of these cases have been brought in California (with the benefit of California’s liberal consumer protection laws), cases are appearing nationwide and the publicity surrounding them suggests their numbers will only grow. That is especially true given the proliferation of internet price searching tools and the resulting pressure that retailers feel to compete on price and to respond to “bargains” being offered by their competitors. The risk to retailer clients is substantial: some of these claims have resulted in multimillion dollar settlements and/or regulatory fines. Even where cases are terminated early, defense costs can be significant.

In this article, I first summarize the historical background and legal bases of these “false discounting” claims. I review how the FTC, which had developed deceptive pricing guides and then vigorously pursued such claims in the 1960’s, had – most likely for policy reasons – all but abandoned enforcement actions related to pricing by the 1980’s. I also mention generally various state law deceptive pricing provisions, most of which derive from the FTC model. I next discuss the recent resurgence of these claims over the last few years, primarily via private class actions, but also by regulatory (primarily state regulatory) enforcement actions. After summarizing some of the cases and their outcomes, I conclude by suggesting a few measures that retailers can take to mitigate the risks.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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