E-retailers must focus on their specific goals and examine a vendor’s reputation and market expertise, not referrals.
The court says the web-only mass merchant has to change how it shows and calculates comparison prices.
Overstock.com Inc. says it will challenge the ruling and $6.8 million penalty issued by a California trial court last week in a civil case that claimed the e-retailer systematically made false and misleading claims about the prices of its products.
The case takes issue with how Overstock.com determines and displays comparison pricing on Overstock.com—for example, the “compare at” price or list price shown on product pages next to the e-retailer’s price. District attorneys in seven California counties filed the civil lawsuit in 2010, saying Overstock had been making the misleading claims since at least 2006.
An example in the original complaint says Overstock advertised a patio set for $449, displaying a comparative list price of $999.99. The complaint says Wal-Mart Stores Inc. was selling the same patio set for $247 on Walmart.com. “Overstock’s misrepresentations about its pricing were likely to mislead consumers into believing that Overstock’s prices would always be significantly lower than the prices offered by other merchants of identical products,” the complaint says.
Overstock chairman and CEO Patrick Byrne says that on products that display a “compare at” price, its standard practice is to find at least one example of another retailer selling the same product at that price. He says Judge Wynne Carvill’s ruling says Overstock must use other methods, such as using the highest price among five sellers or an average price among three sellers, to determine comparison prices. “I freely confess that I had no sense that the word ‘compare’ was replete with so much arcane meaning, nor that our reading of ‘compare’ to mean ‘it is selling somewhere else at this price’ would prove so odd an idiosyncratic in the eyes of California law,” Bryne says.
The ruling would also require that product pages include more disclosures about how Overstock determined the comparison price displayed, Overstock says.
Overstock executives say that if the court’s ruling stands and is enforced, the restrictions it sets forth can affect other online and store retailers, requiring them to use the same calculations and disclosures that the court is requiring. “Respectfully, we believe this ruling goes so far it harms the marketplace, and we don’t believe that it was the intent of this California law to reconstruct entirely the manner in which retailers advertise prices,” says Mark Griffin, general counsel at Overstock.
Overstock.com is No. 31 in the Internet Retailer Top 500 Guide, with 2012 sales of $1.099 billion.