| OVERSTOCK MUST PAY $6.8M PENALTY IN ‘COMPARE AT’ PRICING LAWSUIT|
By Paul Tassin
June 7, 2017
A California appeals court has denied a request by Overstock.com to avoid a multi-million dollar penalty in a deceptive pricing lawsuit.
The three-judge panel affirmed the trial court’s $6.8 million judgment levied against defendant Overstock.com in a false advertising lawsuit brought in 2010 by the district attorneys of several California counties.
On appeal, Overstock.com argued that the penalty was out of proportion to the damage allegedly done. But the appeals court determined that the civil penalties assessed were not excessive, in light of findings that Overstock.com deceptively overstated the reference price on some of its advertised merchandise.
Overstock.com is an online retailer that offers a broad variety of merchandise at deep discounts. When it began in 1999, Overstock.com was a sort of clearinghouse for businesses with inventory to liquidate. The company now offers goods that it sources from various third-party “fulfillment partners.”
This Overstock.com deceptive pricing lawsuit began over allegations that the company was using a fraudulent pricing scheme designed to deceive customers into believing they were getting a bigger discount with their purchases than they actually were.
According to the court’s opinion, Overstock.com has tagged its merchandise with both its actual sale price and a higher “reference price.” Since before 2003, Overstock.com identified the reference price as a “List Price.”
The website displayed the reference price in strikethrough and would also show the difference between the reference price and the actual sale price, both in dollars and as a percentage. In September 2007, Overstock.com changed the “List Price” label to “Compare at.”
The court says that while 70 to 90 percent of the reference prices on Overstock.com were based on standard industry data, other advertised reference prices were allegedly inflated. Those reference prices ended up being the subject of this deceptive pricing lawsuit.
In the course of this litigation, internal emails between Overstock.com employees revealed those employees’ concerns that the reference prices the company was advertising were “egregiously overstated.” The emails showed that Overstock.com employees were being pressured to seek out the highest possible price for each item, prices that sometimes included ancillary costs like freight.
Following trial, the court found that Overstock.com had made untrue and misleading statements regarding its pricing, in violation of California’s Unfair Competition Law and False Advertising Law.
The court assessed a total civil penalty based on fines of $3,500 per day for each day between March 24, 2006 and Oct. 1, 2008, when Overstock.com used a formula to derive its reference prices. Further penalties were assessed at $2,000 per day from Oct. 1, 2008 through the first day of trial, during which time Overstock.com used a validation team to check its reference prices.
The court also placed restrictions on how the company could determine and advertise reference prices in the future.
The plaintiff counties are represented by attorney Matthew Beltramo of the Alameda County District Attorney’s Office.
The Overstock.com Deceptive Pricing Lawsuit is People v. Overstock.com Inc., Case No. A141613, in the Court of Appeal of the State of California, First Appellate District, Division Four.