Litigation

Last year, we discussed an early blow to the pink tax theory of liability in Schulte v. Conopco, d/b/a Unilever, et al. In Schulte, the plaintiffs alleged that various personal care manufacturers and retailers violated the Missouri Merchandizing Practices Act (MMPA) by charging more for deodorants marketed for women than allegedly similar deodorants marketed for men. The product lines at issue contained similar, but not identical, ingredients, came in different sizes, and were available in different scents (fifteen “feminine” scents in the line marketed for women and five “masculine” scents in the line marketed for men). The Eastern District of Missouri dismissed the complaint, ruling that “Missouri law does not compel identical products to be sold at the same price” and that the plaintiff’s remedy “lies with legislation, not litigation.” The Eighth Circuit affirmed on the grounds that the plaintiff mistook “gender-based marketing for gender discrimination.” In order to state a claim, the court ruled that the plaintiff would have to allege that the only difference between the products was the price and the intended target of the marketing. Here, because the plaintiff conceded that the products were, in fact, different, thus dismissal was appropriate.

In Lowe v. Walgreens Boots Alliance, Inc., et al., the Northern District of California dismissed another pink tax putative class action, albeit on different grounds. In Lowe, the plaintiffs alleged that the price of Walgreens’ hair regrowth treatment for women (a generic alternative to Rogaine) was almost 1.5 times higher than the male-marketed alternative. The plaintiff alleged that the products had identical active ingredients, and that the only differences were the dosing instructions and the price tag. The court’s justification for the dismissal was twofold. First, the court ruled that the plaintiff’s state consumer protection claims were preempted because, under the Federal Food, Drug Cosmetic Act (“FDCA”), Walgreens’ generic product labels were required to exactly mirror the brand-name label. Thus, to the extent the plaintiff claimed that the products labels were deceptive, such claims were preempted. The court also dismissed the plaintiff’s claim under California’s Unruh Act because the statute does not apply to goods, but rather to “accommodations, advantages, facilities, privileges, or services.” Lowe has appealed the decision to the Ninth Circuit.

While California’s Unruh Act seems to be a dead end for product pricing discrimination claims (at least for now), courts have applied the Unruh Act to claims alleging gender-based pricing discrimination in services. For example, in Department of Fair Employment and Housing v. M&N Financing Corp., et al., the plaintiff alleged that M&N Financing purchased retail installment contracts from used car dealerships, and that the gender of the purchaser of the car factored in to how much M&N would pay for the contract. The Court of Appeal found that this practice was a “per se” violation of the Unruh Act warranting statutory damages even though the plaintiff had not demonstrated actual injury.

State Legislation

In September 2020, New York passed a law prohibiting individuals and entities, including retailers, suppliers, manufacturers, or distributors, from charging a different price for two “substantially similar” goods or services based on the gender for whom the goods or services are marketed. As in the litigation context, this concept of “substantial similarity” is the key. Substantially similar goods are defined as two goods that exhibit no substantial differences in the materials used in production, intended use of the good, the functional design and features of the good, and the brand of the good, and substantially similar services are defined as two services that exhibit no substantial difference in the amount of time to provide the service, the difficulty in providing the service, and the cost in providing the service. An individual or entity charged with violating the law can avoid liability by proving that any price difference is based upon a number of gender-neutral factors including, but not limited to, the additional time or cost of manufacturing such goods or providing such services. While the new law does not provide a private right of action to consumers, it permits the attorney general to obtain an injunction against such prohibited sales, as well as restitution for consumers and civil penalties.

New Jersey also recently proposed a bill that prohibits discriminatory pricing with respect to substantially similar services and consumer products. The definition of “substantially similar” is, on its face, almost identical to the one adopted under the New York law. Under the proposed law, certain services providers (including tailors, barbers, hair salons, and dry cleaners) would be required to clearly and conspicuously disclose to the customer in writing the pricing for each standard service provided, along with a clearly visible sign notifying customers that gender-based price discrimination is prohibited under New Jersey law. This bill is currently under review by the Assembly Consumer Affairs Committee.

A similar bill was introduced in Massachusetts creating a 15-member working group on gender equity regarding the pricing of items marketed towards women in Massachusetts. The group will report its findings and recommend any changes in current law by the end of 2022.

Federal Legislation

In June 2021, California Congresswoman Jackie Speier reintroduced the Pink Tax Repeal Act, a bipartisan bill that seeks to end gender discrimination in the pricing of goods and services. The bill would prohibit the sale of substantially similar goods or services that are priced differently based on gender, allow the Federal Trade Commission to take enforce violations, and permit State Attorneys General to take civil action on behalf of wronged consumers. Currently the bill is before the Subcommittee on Consumer Protection and Commerce.

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On the latest episode of the Ad Law Access Podcast, Advertising and Marketing chair Christie Grymes Thompson and partner Kristi Wolff answer retailer questions regarding pricing, shipping, refunds, customer reviews, and telethermographic cameras (cameras that can detect human temperature).

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For more information on these and other topics, visit the COVID-19 Response Resource Center and Advertising and Privacy Law Resource Center.

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The proposal was prompted by a study conducted by the New York City Department of Consumer Affairs, which analyzed prices of toys, clothing, personal care products, and home health products and concluded that, 42 percent of the time, products marketed towards women are 7 percent more expensive than those targeted towards men. Consumer products fared even worse in the study results, which reflected a 13 percent price difference for products marketed towards women.

Governor Cuomo’s proposal is another step in a series of actions taken to reduce the gender wage gap. In 2016, he signed legislation prohibiting a tax on menstrual products, making New York one of the first states to ban the “tampon tax,” and in 2019, he signed legislation mandating equal pay for substantially similar work.

New York is not the first (or the only) state to engage on this issue. For example, California law prohibits businesses from gender-based pricing discrimination for services such as haircuts, alterations, and dry cleaning. A bill that sought to extend that law to pricing of goods was withdrawn after opposition from retail and manufacturing companies.

There are, of course, various gender-neutral considerations that factor into pricing decisions, such as cost of materials, cost of manufacturing, packaging, tariffs, and advertising expenses. Moreover, as the NYC study acknowledged, men’s and women’s products are rarely identical, making exact comparisons difficult and, in many instances, misleading. But it remains to be seen how (and if) these differences will be factored in to the scope of the bill.

The plaintiffs’ bar has already identified the “pink tax” as a theory of liability under state consumer protection laws. For example, in Missouri, putative class actions have been filed against dry cleaning services and various consumer product manufacturers and retailers alleging gender-based pricing discrimination. There has also been litigation in multiple jurisdictions claiming that the “tampon tax” violates the equal protection clause of the U.S. and state constitutions. With growing media coverage over the pink tax generally, as well as Governor’s Cuomo’s recent attention to the issue, we expect to see more class actions being filed in this space.

The Attorney General stated that “comparison price advertising only works if businesses are clear about their prices and how they compare to competitors.” As part of the settlement, Hobby Lobby is required to more clearly disclose the basis of its price comparisons, in accordance with Virginia’s Comparison Price Advertising Act. In addition, the company must pay $8,000.

Regulators in other countries are also focusing on these issues. For example, earlier this year, Canada’s Competition Bureau announced that Amazon had agreed to pay $1.1 Million to resolve an investigation into the company’s use of “list” prices. Amazon would frequently advertise a list price with a line through it, followed by the selling price and a savings claim. For example:

The Bureau picked a sample of 12 products and investigated the prices at which those products were sold by Amazon and its competitors over a two-year period. According to the Bureau, those items were rarely sold at the advertised list price. Amazon stated that it required its suppliers to provide accurate price information, and had relied on this information, without independently verifying it.

The Bureau noted that Amazon had initiated various changes to its pricing practices, including (a) suppressing the list prices of certain products, (b) adopting policies and procedures to ensure compliance with the requirements the Competition Act, and (c) including the requirement that list prices be set in good faith for all products offered for sale by Amazon for Amazon Retail.

Based on recent trends, we expect to see more of these types of investigations in 2017. Retailers need to pay close attention to these developments and pricing laws, particularly when they advertise discounts, sales, or other price reductions.

As we have previously reported, the plaintiffs’ bar has increasingly focused on retail sale prices, particularly those for outlet and discount stores, and Congress and the FTC have even taken action, with a January 2014 letter by four members of Congress to the FTC Chairwoman expressing concerns that consumers are being deceived by pricing at retail and outlet stores and asking the FTC to investigate potential violations of Section 5 of the FTC Act and the FTC’s Guides Against Deceptive Pricing. State regulations also contain complex rules on how sale prices can be advertised to consumers, with many specifying how long an item must be sold at its “non-sale” price, or how retailers must disclose a source of comparison.

The court in Mulder found that, even accepting plaintiff’s allegations as true, she had “not suffered an economic injury” cognizable under Massachusetts law: “among other things, she has suffered no loss, and there is no sum of money that could be awarded to her that could ‘compensate’ her without providing a windfall.” Put simply, the court found that the plaintiff had purchased goods for an advertised price, and that it appeared those goods were, in fact, worth the advertised price she paid. The court applied this same “benefit of the bargain” logic to plaintiffs’ claims for fraud, unjust enrichment, and breach of contract. In dismissing the case with prejudice, the court also denied plaintiffs’ motion to amend and motion to certify questions relating to legally cognizable injury to the Supreme Judicial Court of Massachusetts.

The Mulder decision is a welcome interpretation of injury in deceptive sale price class actions for retailers in Massachusetts and other jurisdictions with strong “economic loss” or “ascertainable loss” requirements. Last year, the District of Massachusetts granted dismissal of similar claims brought against Nordstrom Rack on the grounds that the plaintiff had insufficiently pled injury, a decision which is currently on appeal in the First Circuit.

According to the complaint, in July 2012, the plaintiff, Patrick Camasta purchased six shirts for $167 after seeing an ad publicizing “sales prices” in a JAB Illinois retail store. Pursuant to the terms of the promotion, he purchased one shirt for $87.50 and one shirt for $79.50, and received two free shirts with each purchase. Camasta alleged that he later learned that the sale was not a temporary price reduction, but was the normal retail price at which JAB offers the items and advertises them as “sales” to Illinois consumers.

In July 2013, the U.S. District Court for the Northern District of Illinois dismissed the lawsuit in its entirety, with prejudice, determining that Camasta failed to adequately plead the circumstances constituting the alleged fraud and to demonstrate that he had suffered actual pecuniary loss as a result of the transaction – i.e., that he paid more than the value of the shirts he purchased. The court concluded that the complaint was predicated on speculative statements about the allegedly deceptive ad and JAB’s pricing practices, and that Camasta would not have purchased the shirts had he known the “sale” price was actually the normal retail price. The Seventh Circuit agreed, noting that Camasta had neither satisfied Rule 9(b)’s heightened pleading requirements for claims of fraud nor pled facts sufficient to support his claims for actual damages. Furthermore, the court concluded, “[s]ince Camasta is now aware of JAB’s sales practices, he is not likely to be harmed by the practices in the future . . . [and] not entitled to injunctive relief.”

While Jos. A. Bank emerged from this fight victorious, other retailers have not been so lucky. Kohl's, for example, was involved in a similar action in California, and, on appeal, the Ninth Circuit concluded that the plaintiff had adequately alleged economic injury under California law by claiming that the advertised discounts conveyed false information about the goods and that he would not have purchased them absent the misrepresentation. The Kohl's case, and others, serve as a reminder that promotional pricing is a hot topic for class action plaintiffs, and we recommend that retailers review their sale policies to make sure they are in compliance with applicable state laws.

As the Federal Trade Commission’s Guide Concerning Use of the Word “Free” and Similar Representations (“Free Guides”) points out, “free” offers typically require that consumers purchase one product at the regular price in order to receive a second product or service free of cost, and consumers typically believe that they are purchasing one product at regular price and paying nothing for the second. To prevent deception, the Free Guides therefore prohibit sellers from advertising a product or service as “free,” but then recovering the cost of the “free” product or service by marking up the price of the product that must be purchased.

Although the court’s decision might not sync completely with the FTC’s Free Guides, for companies already using or considering a “free shipping anytime” model, the decision could give them some comfort.

The complaint alleged that Overstock made false and misleading price comparisons to products’ “advertised retail price” (“ARP”), in violation of California’s False Advertising Law and Unfair Competition Law. Specifically, the state alleged that Overstock exaggerated the Overstock discount by referencing the highest price found for the ARP or constructing an ARP using a formula that applied an arbitrary multiplier to Overstock’s wholesale cost. Additionally, the company allegedly failed to disclose that some ARPs were based on the retail price of a similar, but non-identical, product. The court concluded that comparisons to ARPs identified as “list prices” and based on a formula or the price of a different, non-identical product were false and misleading representations, and every such ARP was an untrue statement because those ARPs did not actually exist. The court dismissed Overstock's argument that its pricing strategy caused no consumer harm because customers always received the lowest price available on the internet, ruling that harm is presumed when an ad is demonstrated to be false, deceptive, or misleading.

Pursuant to the tentative ruling, Overstock is enjoined from: (1) posting an ARP without verifying the reference price and documenting that verification; (2) using ARPs based on a formula, multiplier, or other method that would set the ARP on any basis other than the actual price offered at the time the advertisement is first placed; (3) using ARPs based on a similar but non-identical product, without disclosing the basis of the ARP; and (4) using the highest price found to set ARPs without regard to whether that price reflects a substantial volume of recent sales, without disclosing the basis of the ARP. Additionally, if the ARP is indicated by an unmodified term like “compare,” it must reflect a good faith effort to determine the prevailing market price. No ARP may remain posted for longer than 90 days past the date on which the ARP was validated, and that date must be noted on the product page or by hyperlink to “ARP.” Determining that it was impossible to discern how many California consumers saw the advertisements at issue or were harmed by them, the court imposed a daily civil penalty, totaling $6,819,000. The court considered that the “seriousness of the misconduct” was moderate, mitigated in part by the fact that Overstock’s prices were lower than its competitors’ and that the conduct did not affect all product categories. However, the court also found that the violations were “numerous” and “persistent” and that Overstock’s conduct was willful and inconsistent with FTC guidance or “what prudent counsel would have advised.”

Retailers and manufacturers often struggle with how to advertise the value or savings associated with a particular price and should keep this case in mind when making any comparison to a list price, competitor’s price, or the company’s own previous price because it demonstrates the aggressive posture that regulators are taking. This case is one of several we continue to watch.