A California state court recently issued a preliminary ruling proposing to assess a statutory penalty against online discount retailer Overstock.com in the amount of $6.8 million for engaging in allegedly false and misleading discount advertising.1 Overstock.com was alleged to have advertised discounted prices that were pegged to the company’s own uncorroborated estimate of undiscounted retail value, rather than on actual data. The case highlights the risk that both online and brick-and-mortar retailers face if they advertise “discounts” from “regular” prices that have never actually been offered in commerce, in violation of the Federal Trade Commission guidelines against deceptive advertising (“FTC Guides”). The case also signals a major new threat to retailers engaging in these kinds of marketing strategies, which are common in the industry.

The Overstock.com case began in 2010, when a group of California district attorneys filed a private action under California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act. Their complaint alleged that Overstock.com “routinely and systematically made untrue and misleading comparative advertising claims” by comparing its retail prices to “advertised reference price(s)” (ARPs) that were not the prevailing market prices for its products. The district attorneys claimed that Overstock.com instead used misleading internal formulas designed to “inflate the comparative prices and artificially increase the discounts it claimed to be offering consumers.” The complaint also alleged that because Overstock.com was no longer merely a reseller of distressed merchandise, but was now actively engaged in original design, production and sale of a wide variety of products, it could not possibly advertise a “discount” for such products that were never sold at an undiscounted price.

Continue Reading California Court Proposes to Assess $6.8 Million Penalty Against Online Discount Retailer For Engaging in Commonly Used Pricing Claims

The deadline for complying with new Telephone Consumer Protection Act (TCPA) regulations is on Wednesday, October 16, 2013. The new rules, promulgated by the FCC in 2012, govern the circumstances under which telemarketers can contact consumers. Non-compliance puts both telemarketers and those companies that they act “on behalf of” at potential risk. As of October

On September 3, 2013, the U.S. District Court for the Northern District of Illinois dismissed a class action complaint against Barnes & Noble seeking damages based on a data security incident, finding that the plaintiffs lacked standing to bring the claims. This decision reaffirms that retailers may be able to avoid damages for data breaches

On March 6, 2013, the United States District Court for the Northern District of California held that a putative class of LinkedIn premium users lacked standing to pursue state law unfair competition, breach of contract, and negligence claims resulting from a hacking incident. The court dismissed the complaint, concluding that the plaintiffs failed to establish any legally cognizable injury and any causation between the alleged incident and any alleged economic harm.

LinkedIn, the online community for professional networking, offers both free and premium paid accounts to consumers. The Privacy Policy applicable to both types of accounts provides that user information will be protected with “industry standard protocols and technology,” but notes that it provides no guarantee that LinkedIn’s security will be able to prevent all security breaches. On June 6, 2012, hackers infiltrated LinkedIn’s computer systems and posted 6.5 million user passwords and email addresses. LinkedIn subsequently updated its password encryption method to prevent future breaches.

A putative class of premium LinkedIn users filed an amended complaint alleging unfair competition, breach of contract, and negligence claims. LinkedIn filed a motion to dismiss for lack of standing, which the court granted.

Continue Reading Allegation of Data Breach Alone Insufficient to Sustain Claims Based on Inadequate Cybersecurity Under California Law

Crowell & Moring is pleased to announce two upcoming presentations regarding consumer protection regulation and enforcement and what President Obama’s second turn will mean for retailers (as well as manufacturers and distributors). With the re-election of President Obama, we can expect the government to continue to add to the existing federal regulations. The discussion panel, which includes former agency

On January 24, 2012, the United States Court of Appeal for the Third Circuit ruled that printing just the month of a credit card’s expiration date on a customer receipt violates the federal Fair And Accurate Credit Transactions Act (FACTA). This is the first federal appeals court to address this issue and confirms that retailers

In a pro-business and pro-arbitration decision, the United States Supreme Court on April 27 struck down as preempted by federal law the California rule that class arbitration waivers in consumer adhesion contracts are unconscionable and thus unenforceable.  The Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011), hinged on Section 2 of the Federal Arbitration Act (“FAA”), which provides that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  In a 5-4 decision, the divided Court, in an opinion authored by Justice Scalia, concluded that the FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of class arbitration procedures.  The majority reaffirmed its recent pro-arbitration leanings, while at the same time seeming to reject arbitration as an appropriate venue for class claims.

The named plaintiffs, Vincent and Liza Concepcion, alleged that they entered into an agreement with AT&T Mobility LLC to purchase mobile phone service that was advertised as including free phones.  The Concepcions sought to represent a class of AT&T Mobility customers and alleged that AT&T Mobility had engaged in false advertising by charging sales tax based on the value of the phones it advertised as free.

Continue Reading Supreme Court Upholds Arbitration Agreement Waiving Customers’ Ability to Bring Class Actions

In a decision sure to affect the way retailers do business in California, the California Supreme Court has held that asking for and recording a customer’s zip code during a credit card transaction violates California law. Specifically, in Pineda v. Williams-Sonoma Stores, Inc. (Case No. S178241), the Court held that requesting such information violates the section 1747.08 of the Song-Beverly Credit Card Act of 1971 (the “Credit Card Act”), which, among other things, prohibits businesses from requesting and recording “personal identification information” during credit card transactions.

In the Pineda case, the plaintiff alleged that she was asked for her zip code while making a credit card purchase, which she provided, believing it was required to complete the transaction. She further alleged that the store recorded the zip code in its database together with her credit card number and name, and that the retailer used that information to search databases to find her previously undisclosed address.  (Because the trial court dismissed plaintiff’s claims based on the complaint itself, none of these allegations have been proven.)

Continue Reading California Supreme Court Holds that Collecting and Recording Zip Codes During Credit Card Transactions Violates California Law

This year, the United States Supreme Court is expected to decide whether a retailer can protect itself against class action lawsuits by including a single claim arbitration provision in its contracts with customers.

At issue before the United States Supreme Court is the case of AT&T Mobility v. Concepcion. The question to be decided is whether a retailer can enforce a provision in its contracts with customers that states all disputes will be handled through single-party arbitration, as opposed to class action litigation. This decision is particulary relevant to retailers that commonly use customer agreements to sell products and services, such as banks, fitness clubs, car rental companies, and Internet companies.

Continue Reading Supreme Court To Decide Whether Retailers Can Require Individual Arbitration of Customer Claims

On January 4, 2011, President Obama signed into law the Food Safety Modernization Act (“FSMA”) (Pub. L. No. 111-353, 124 Stat. 3885 (2011)), representing the most substantial overhaul of food safety law in decades. FSMA increases oversight at various points along the supply chain, including production, storage, distribution, and importation. Because the supply chain is essential to efficiency, costs, and ultimately revenues, retailers should stay apprised of developments in FSMA’s implementation.

Continue Reading Food Safety Legislation Highlights Importance of Supply Chain Management for Food Retailers