Overstock.com Fined $6.8 Million for Allegedly Misleading Price Comparisons

Discount website Overstock.com has been fined $6.8 million by a California judge because of allegedly misleading price comparisons on its website, the company said in a statement.

But the company called the ruling “unjust” and vowed to appeal. 

Seven California district attorneys first brought the case against Overstock in 2010, charging the company regularly overstated comparison prices on its site. In one example, the site allegedly advertised a patio set for $449.99, claiming its list price was $999. The customer received the item with a $247 Walmart sticker, the complaint said.

During the proceeding, it was alleged that Overstock regularly listed jewelry comparison prices at three times its cost, court papers said.

In a tentative California Superior Court ruling issued Jan. 3, Judge Wynne Carvill said “[it is] misleading to set [average retail prices] based on the highest price that can be found without regard to the prevailing market price and without disclosure of the practice.” 

It enjoins Overstock from, among other things, setting ARPs based on a “formula, multiplier, or other method that would set the ARP on any basis other than the actual price offered in the marketplace.” It also mandated that Overstock provide more information on how price comparisons were derived.

In a statement, Overstock executives complained they were being unfairly singled out.

“Since 2008 I have been an integral part of the process by which we log, verify, and advertise ‘compare-at’ prices,” said Overstock.com president Stormy Simon. “I am aware of the lengths we have gone to get this right on the millions of products that flow through our website. We will follow the ruling, while noting that the effects on our current practices will be small because, as we are the gold standard, we are already fanatical about getting this right.”

Overstock.com general counsel Mark Griffin complained the ruling could “reconstruct entirely the manner in which retailers advertise prices by creating a new and radical expansion of the standard regarding industry practices.” 

“Traditional retail stores will have to make lengthy disclosures on paper price tags disclosing their methods of price comparisons,” said the Overstock statement. “The ruling also could prohibit a retailer from using common reference terms like ‘compare,’ without going through a prohibitively difficult and often impossible validation process.”

CEO Patrick Byrne also argued that the new rules would hurt the market for “unique items,” as opposed to items like brand-name televisions. 

“When we go to Nepal and buy some Tibetan singing bowls from an NGO that serves women at risk, bring them home, and sell them with the tiniest markup possible, it can be really, really hard to say what the precise compare-at price is,” he said.

The penalty imposed covers each day Overstock advertised price comparisons not in accordance with court’s mandated practices. From March 2006 to September 2008, the court imposed a penalty of $3,500 per day, and from September 2008 through September 2013, the penalty is $2,000 per day. The total amounts to $6.8 million—less than half of the $15 million originally sought by the district attorneys. 

JCK News Director