Overstock.com Inc. (NASDAQ:OSTK) must pay a $6.8 million fine imposed by a California judge for allegedly posting misleading price comparisons on its website, the company said in a statement.
The case against Overstock began in 2010, when seven California district attorneys charged the company with consistently overstating comparison prices, making discounts seem deeper than they actually were. One customer in the case claimed the site advertised a patio furniture set’s list price as $999.99, and then discounted the set to $449.99. But when the customer received the item, it bore a $247 Wal-Mart sticker, according to the complaint.
Other complaints alleged that Overstock exaggerated jewelry comparison prices at three times the actual list price.
“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 disclosures of the practice,” Judge Wynne Carvill said in a tentative California Superior Court ruling issued Jan. 3.
The ruling prohibits Overstock from setting average retail prices based on anything other than the actual price offered in the marketplace and mandates that Overstock disclose how they compute price comparisons.
Overstock executives said in a statement on Wednesday that the ruling is “unjust” and unfairly singles them out from other retailers.
“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 argued that the new rules would particularly harm the market for unique items, which would be difficult or impossible to peg a precise compare-at price for.
Still, Overstock's penalty is less than the $15 million the district attorneys sought initially.