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Amazon settles claims of false advertising, unfair competition for $2M

Civil action centered around e-commerce giant's use of 'reference pricing'

On March 24, Amazon was ordered to pay $2 million to settle a lawsuit over false advertising. Embarcadero Media file photo.

Santa Clara County was part of a six-county alliance of prosecutors who worked together to wrest a $2 million settlement from Amazon.com Inc. over alleged false advertising.

The dispute concerned Amazon's use since at least 2014 of so-called "reference pricing" on its website where the current price was shown together with a generally higher price described as a "was price" or "list price."

The complaint alleged that in some cases where the "was price" was used, there were not a sufficient number of prior sales to properly establish the stated former price, and the methodology of determining the "was price" was not adequately disclosed to the consumer.

Similarly, some advertising allegedly did not sufficiently disclose that the "list price" was not "necessarily the prevailing market price or the regular retail price for which the product could be purchased."

In effect, consumers were misled, prosecutors contended.

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"List prices must be clear and accurate, whether they are found on a mom-and-pop website or Amazon," Santa Clara County District Attorney Jeff Rosen said in a statement. "People rely upon them to comparison shop and spend their hard-earned money."

Prosecutors brought the civil action under the false advertising and unfair competition sections of the California Business & Professions Code.

The settlement will result in the payment of $1.7 million in penalties along with restitution and reimbursement of the costs incurred by prosecutors.

"By statute, the penalties portion of the settlement must be used for future consumer protection activities," Alameda County Deputy District Attorney Nancy Tung said. "So the more cases of this nature that we bring, the more we can continue to protect California consumers from false advertising or unfair business practices."

Because restitution to individual consumers is impracticable, the sum of $100,000 will be paid to the California Consumer Protection Fund, a trust fund used for future consumer protection investigations. Amazon will also pay $200,000 to reimburse investigative costs of the counties.

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While Amazon did not admit any violation of law, in addition to the monetary payments it agreed to a three-year injunction against it.

Under the injunction, Amazon may not do anything "in connection with the advertising of any advertised reference price (ARP)" within California "that results in the ARP being false or misleading in any particular, or results in the ARP having the tendency or capacity to deceive or mislead."

Amazon is also adding a hyperlink on its website next to the reference price that will provide details about how it determines that price.

A disclosure page on a product randomly selected on the Amazon website says, "The Was Price is determined using the 30-day median price paid by customers for the product on Amazon."

The same page states that "Amazon will only display a List Price if the product was purchased by customers on Amazon or offered by other retailers at or above the List Price in the past 90 days except for books. List prices may not necessarily reflect the prevailing market price of a product."

While the complaint was filed on March 17 and resolved only a week later by stipulated judgment, there had been more than a year of discussions with Amazon behind the scenes, according to San Diego County Deputy District Attorney Stephen Spinella who was involved in the matter.

Spinella characterized Amazon as "very responsive, very cooperative, very proactive."

District attorney's offices from Riverside, Santa Cruz and Yolo counties were also part of the investigation that came together informally and shared the work, according to Spinella.

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Amazon settles claims of false advertising, unfair competition for $2M

Civil action centered around e-commerce giant's use of 'reference pricing'

by / Bay City News Service

Uploaded: Tue, Mar 30, 2021, 12:05 pm

Santa Clara County was part of a six-county alliance of prosecutors who worked together to wrest a $2 million settlement from Amazon.com Inc. over alleged false advertising.

The dispute concerned Amazon's use since at least 2014 of so-called "reference pricing" on its website where the current price was shown together with a generally higher price described as a "was price" or "list price."

The complaint alleged that in some cases where the "was price" was used, there were not a sufficient number of prior sales to properly establish the stated former price, and the methodology of determining the "was price" was not adequately disclosed to the consumer.

Similarly, some advertising allegedly did not sufficiently disclose that the "list price" was not "necessarily the prevailing market price or the regular retail price for which the product could be purchased."

In effect, consumers were misled, prosecutors contended.

"List prices must be clear and accurate, whether they are found on a mom-and-pop website or Amazon," Santa Clara County District Attorney Jeff Rosen said in a statement. "People rely upon them to comparison shop and spend their hard-earned money."

Prosecutors brought the civil action under the false advertising and unfair competition sections of the California Business & Professions Code.

The settlement will result in the payment of $1.7 million in penalties along with restitution and reimbursement of the costs incurred by prosecutors.

"By statute, the penalties portion of the settlement must be used for future consumer protection activities," Alameda County Deputy District Attorney Nancy Tung said. "So the more cases of this nature that we bring, the more we can continue to protect California consumers from false advertising or unfair business practices."

Because restitution to individual consumers is impracticable, the sum of $100,000 will be paid to the California Consumer Protection Fund, a trust fund used for future consumer protection investigations. Amazon will also pay $200,000 to reimburse investigative costs of the counties.

While Amazon did not admit any violation of law, in addition to the monetary payments it agreed to a three-year injunction against it.

Under the injunction, Amazon may not do anything "in connection with the advertising of any advertised reference price (ARP)" within California "that results in the ARP being false or misleading in any particular, or results in the ARP having the tendency or capacity to deceive or mislead."

Amazon is also adding a hyperlink on its website next to the reference price that will provide details about how it determines that price.

A disclosure page on a product randomly selected on the Amazon website says, "The Was Price is determined using the 30-day median price paid by customers for the product on Amazon."

The same page states that "Amazon will only display a List Price if the product was purchased by customers on Amazon or offered by other retailers at or above the List Price in the past 90 days except for books. List prices may not necessarily reflect the prevailing market price of a product."

While the complaint was filed on March 17 and resolved only a week later by stipulated judgment, there had been more than a year of discussions with Amazon behind the scenes, according to San Diego County Deputy District Attorney Stephen Spinella who was involved in the matter.

Spinella characterized Amazon as "very responsive, very cooperative, very proactive."

District attorney's offices from Riverside, Santa Cruz and Yolo counties were also part of the investigation that came together informally and shared the work, according to Spinella.

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