The continued rise of deceptive pricing class actions: What online retailers need to know

Federal Guidance and Nationwide Class Actions

The Federal Trade Commission’s (FTC) Guides and Trade Practices Rules provide the core framework for assessing reference pricing practices. Under these standards, a former price used as a comparison must be a “bona fide” price at which the product was “openly and actively offered for sale, for a reasonably substantial period of time, in the recent, regular course of business.” When retailers rely on artificial or inflated prices to create the impression of a discount, consumers may not receive the expected value, and the practice may be deemed deceptive.

Relying on the FTC’s guidance, the plaintiffs’ bar has developed reference pricing class action litigations under state consumer protection or deceptive trade practices statutes.

California Leading the Way

California has been and remains the most active jurisdiction for reference pricing class actions and imposes some of the most detailed statutory requirements. California Business and Professions Code Section 17501 mandates that any advertised former price must have been the “prevailing market price” within the three months preceding the advertisement, unless the retailer clearly discloses when that former price was in effect. As a result, plaintiffs frequently target retailers whose advertised discounts reference prices that were not recently or regularly offered.

California is also notable for its damages framework. Damages are measured as the difference between the price a consumer paid and the actual value of the product received, a determination that often relies on expert testimony about comparable products or average market pricing. See Chowning v. Kohl’s Dep’t Stores, Inc., No. 16 56272, 2018 WL 3016908, at *1 (9th Cir. June 18, 2018). For high volume retailers, this approach can rapidly escalate exposure into the millions of dollars. California continues to serve as the central filing venue for reference pricing class actions.

Other State Reference Pricing Statutes

A few states outside of California have imposed reference pricing requirements and damages models that pose similar litigation risk.

For example, Oregon requires that products promoted at a sale price were sold at the regular price within the preceding 30 days. The Oregon law bases damages on “ascertainable loss” to the customer. The Oregon Supreme Court has recently taken a liberal view as to what constitutes “ascertainable loss.” The court held that a consumer’s decision to purchase a product based on the retailer’s misrepresentation as to price history or sales price, even without showing a misrepresentation as to some characteristic or quality of the product, can constitute an “ascertainable loss” under the Oregon statute. Clark v. Eddie Bauer LLC, 371 Or. 177, 532 P.3d 880 (2023).

New Jersey prohibits the use of a former price unless the advertiser can show that the price was offered for at least 28 of the preceding 90 days. Like in Oregon, damages are based on “ascertainable loss.” Unlike Oregon, however, New Jersey has taken a narrower view as to what constitutes an ascertainable loss. In a 4-3 ruling, the New Jersey Supreme Court determined consumers received “exactly what they knowingly purchased – functioning and usable pants, sweatshirts, and t-shirts” and therefore had not suffered an “ascertainable loss” simply because a reference price was used. Robey v. SPARC Grp., 256 N.J. 541 (2024).

General Consumer Protection Laws 

Plaintiffs also bring reference pricing claims in states without specific statutes by relying on broader consumer protection laws that bar false or misleading advertising, such as under New York’s General Business Law (NY GBL) Sections 349 and 350. The NY GBL and similar laws in other states do not define “former price” standards but have been used to pursue class actions along the lines of the reference pricing theory cases in California, Oregon, and New Jersey.

Other Risks – Email Advertising

Use of reference prices may also expose an online retailer to claims under other consumer protection laws, such as anti-spam laws.

Several states, including California and Washington, have anti-spam laws that provide a private cause of action to recipients of unsolicited email advertisements containing false or misleading subject lines.¹ Plaintiffs have pursued actions alleging that email subject lines that advertise an allegedly false reference price in violation of state statutes give rise to an actionable violation of state anti-spam laws.

The anti-spam laws in California and Washington allow for recovery of statutory damages of $1,000 and $500 per email, respectively. This could give rise to significant liability for advertisers that run afoul of reference pricing statutes in broadly distributed email marketing campaigns.

Key Takeaways

Deceptive pricing litigation shows no signs of slowing, and some retailers that previously settled reference price cases find themselves being sued again. 

Importantly, plaintiffs’ damages theories often go untested. The majority of reference pricing cases settle before, or soon after, the motion to dismiss stage, and no such case has yet gone to a jury trial.

Even so, the cost of defending these lawsuits can be substantial. As a result, even companies with strong defenses may find it more cost effective to settle early rather than litigate through summary judgment or trial.

In reviewing their pricing practices in light of this litigation risk, companies can consider factors such as whether: 

• strike-through prices listed on websites and emails include a reference price that was genuinely offered for a meaningful period as contemplated in applicable state law
• the website’s product page and the retailer’s terms and conditions specify whether a product’s price is based on a prior sales listing
• marketing agents are using approved and accurate information in email advertisements 
• prices offered as “limited time” discounts are, in fact, offered for a limited time
• records accurately reflect a product’s pricing history

Thoughtful attention to substantiation, disclosure, and documentation can be key to a retailer’s defense should litigation arise.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.

_{1 Cal. Bus. & Prof. Code § 17529.5; Rev. Code Wash. § 19.190, et seq.}