In the United States, deceptive pricing class actions are currently en vogue. Generally, plaintiffs in these cases claim that they were deceived into purchasing a product by a misleading comparison price that signals a misleading value. These prices are often labelled “compare at,” “manufacturer’s suggested retail price,” or something similar. The most common targets of these lawsuits have been outlet stores, but the trend could expand to any retailer (or manufacturer) who communicates a price comparison to consumers. The guidance below may help avoid such lawsuits altogether, or, failing that, might help you escape if you find yourself ensnared in this trend.
Close monitoring of labelling practices is the best way to avoid liability. The Federal Trade Commission has provided helpful guidance in this regard. While the regulations do not insulate retailers from lawsuits, following these parameters will help minimize risk. Specifically, the FTC divides price comparisons into three categories:
- Former price comparisons are the most strictly construed. They are interpreted to mean that this specific retailer formerly offered the specific good at the listed price. Typical language includes formerly sold at, regularly, and reduced to.
- Retail price and manufacturer’s suggested price comparisons are a middle ground. These labels are interpreted to mean that this particular item is sold by a reasonable number of other retailers in the area at the listed price. Typical language includes price elsewhere, our price, and MSRP.
- Comparable value comparisons are afforded the most latitude. These are interpreted to mean that merchandise of “like grade and quality” is sold by the advertiser or others in the area at the listed price. This need not be the same product or the same retailer. Typical language includes comparable value, compared to, and compare at.
If a lawsuit is filed, all is not lost. Several California federal courts have recently granted motions to dismiss claims for false advertising and unfair competition based on allegedly deceptive price tags. These opinions teach four important lessons.
First, plaintiffs must meet the heightened pleading standard applicable to fraud claims by alleging specifics of when, where, and how they were deceived. Second, plaintiffs must convince the court that a reasonable consumer would be deceived by the challenged pricing. Here, the FTC guidance above is particularly helpful, as courts have suggested that a reasonable consumer would react to the price labelling in a manner similar to that predicted by the FTC guidance. Third, plaintiffs must establish reliance on the allegedly false advertising—in other words, that they were truly deceived. Finally, plaintiffs must prove they suffered an economic injury, presumably by buying a product that they would not otherwise have purchased. If the plaintiffs fail to satisfy any of these requirements, a motion to dismiss may allow an early escape.
To avoid finding themselves in the cross hairs of a pricing class action, retailers are well-advised to study their price tags closely and ensure that the prices have a rational relation to the message they convey. While no silver bullet, complying with FTC guidance may help in this regard. If a lawsuit is filed, the case may be escaped with a well-crafted motion to dismiss. Stay tuned to this space for the latest developments in the evolving world of consumer class actions.
