June 7, 2012

Words to Price By

Seller Beware: Consumer Protection Insights for Industry

At the end of May, a major sporting goods retailer paid $500,000 to settle allegations by the Georgia Governor's Office of Consumer Protection that it offered misleading sale prices by inflating the original or list prices to give the impression that consumers were receiving larger discounts. In the Assurance of Voluntary Compliance, the retailer agreed to not disseminate ads containing false or misleading price savings or comparisons. The $500,000 settlement consists of a $100,000 civil penalty, $350,000 in cy pres restitution, and $50,000 in administrative costs.

This action is a good reminder that the FTC's Guides Against Deceptive Pricing give guidance for avoiding misleading pricing. For comparisons to former prices and list prices, the FTC provides the following guidelines to sellers:

  • The former (i.e., pre-sale) price should be "the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time";
  • No sales at the former price need to have been made, but the price must be "one at which the product was openly and actively offered for sale, for a reasonably substantial period of time, in the recent, regular course of his business, honestly and in good faith";
  • A seller shouldn't represent that a price is a former selling price, as opposed to a former asking price, unless substantial sales were made at that price;
  • If the former price or price reduction is not shown, the sale price should not be "so insignificant as to be meaningless" -- "[i]t should be sufficiently large that the consumer, if he knew what it was, would believe that a genuine bargain or saving was being offered";
  • A list or suggested retail price should be "the price at which substantial (that is, not isolated or insignificant) sales are made in the advertiser's trade area (the area in which he does business)" -- for retailers this means the price at which "a number of the principal retail outlets in the area are regularly engaged in making sales."

The Guides address other price advertising practices, such as comparisons to competitors' prices, comparisons to prices of comparable goods, "Buy One Get One Free" and similar offers, labeling prices "wholesale" or "factory," among others.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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