Overstock.com Defends Itself After Court's Deceptive Pricing Ruling

PHOTO: Boxes move down a conveyor belt before being shipped from an Overstock.com warehouse in Salt Lake City, Utah, April 29, 2010.

In response to a 2010 lawsuit claiming Overstock.com gave false and misleading prices of products, the company is defending itself by saying that e-commerce has made pricing laws outdated and that consumers know the difference between street, retail and list prices. The discount online retailer faces $6.4 million in penalties.

Overstock, based in Salt Lake City, says it sells items below the retail list price and shows customers how much they are saving. In response to the lawsuit, the company claimed that most customers understand that a list price tends to be the full retail or manufacturer's suggested retail price. This week the company said it would appeal a court ruling saying that pricing diverged "widely from industry standards."

A judge's tentative ruling last week levied civil penalties of about $6.4 million total -- specifically, $3,500 for every day from March 2006 through Sept. 2008, and $2,000 per day from Sept. 2008 through Sept. 2013. The judge mandated that Overstock.com explain its pricing more clearly on its website. Overstock.com said it will appeal the decision within 60 days after the court ruling becomes official.

A group of California district attorneys sued Overstock in 2010, saying the company "routinely and systematically" gave false and misleading prices of products. On Dec. 3, 2013, California Alameda County Superior Court's Judge Wynne Carvill dismissed some of the suit's claims but said Overstock's pricing comparison violated the state's laws on unfair competition and false advertising.

"Generally speaking, buyers knew what the street price was for products in their category because their objective was to set Overstock's price 'aggressively' - that is, below standard retail or street price," Judge Carvill wrote in the ruling. "Overstock buyers would thus do comparative pricing online to determine a product's street price so they could try to price below that and also discuss that issue with its suppliers."

Mark Griffin, Overstock.com's general counsel, said Overstock's price comparisons use actual prices used by competitors.

But he said the judge was concerned about the price of one patio in 2007 that listed a higher competitor price than what a competitor was selling.

Griffin said the comparison price for the patio set was close to $900 while Overstock.com's selling price was about half of that. Another competitor was selling the patio set for a lower price, but Griffin said the original manufacturer gave Overstock.com its retail price.

"We didn't know another manufacturer sold the price elsewhere," Griffin said, explaining that retailers face challenges in a dynamic online pricing environment.

And with its one million or so products that include books, music, video and apparel, it would be a "high compliance burden" to know the all prices in the online retail space, he said.

At the heart of Overstock.com's business is that customers know they are paying a "solid, low price," Griffin said.

Overstock.com president Stormy Simon called the ruling "unjust."

"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 fanatic about getting this right," Simon said. "However, if fairly enforced, this ruling will force other retailers to change their processes dramatically (which makes one wonder why we are the ones who were targeted). We are an honest company committed to bringing justice to all our customers and suppliers, and that's a promise. If this tentative ruling becomes final, we will file an appeal as soon as possible."

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