People v. Overstock.Com, Inc., A141613

Background

Overstock, an online retailer, displayed advertised reference prices (ARPs) on product pages using labels like “List Price,” “Compare at,” and later “Compare”/“MSRP,” showing savings versus Overstock’s price.
Prior to 2007–2008, Overstock lacked reliable verification procedures; ARPs were sometimes set by formulas, by prices of similar (nonidentical) products, or by the highest available marketplace price.
Customer complaints and internal emails showed awareness of inflated ARPs and practices to manipulate comparisons; a district attorney investigation followed.
The People sued (UCL § 17200 and FAL § 17500) in 2010 (tolling agreement from Mar. 24, 2010); a bench trial in 2013 resulted in findings that Overstock’s ARPs were untrue or misleading, Overstock knew or should have known, and injunctive relief plus $6,828,000 in civil penalties were appropriate.
Trial court ordered specific injunctive rules (e.g., no formula-based ARPs without market basis, disclosure if using similar products, 90-day reverification, defined hyperlink for MSRP).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Proper statute of limitations for UCL penalties	§17208 provides a four-year limitations period for any UCL action; thus penalties may reach back four years from tolling	One-year statutory limitations (Code Civ. Proc. §340(b)) for actions by the People for penalties should apply	Four-year period under §17208 controls; trial court correctly applied it
Whether ARPs (List Price/Compare) were false or misleading	ARPs set by formulas, similar-product comparisons, or highest-market prices were untrue/misleading and likely to deceive a reasonable consumer	ARPs were fair estimates, consumers do not form expectations, and many customers understood terms like MSRP/Compare	Substantial evidence supported that unqualified ARPs were likely to mislead and thus violated the FAL and UCL
Whether Overstock knew or should have known ARPs were misleading	Overstock’s marketing purpose, internal communications, FTC guidance, customer complaints, and internal studies showed it knew or should have known	Overstock lacked direct proof it knew consumer-expectation studies and provided definitional hyperlinks on pages	Knowledge can be inferred circumstantially; court reasonably found Overstock knew or should have known the practices were misleading
Appropriateness and magnitude of penalties and injunction	Penalties up to statutory maxima per violation, and broad injunctive relief needed given persistence and willfulness	Penalty excessive, delayed prosecution inflated penalties, injunction overbroad because some practices had ceased	Penalties ($6.828M) and injunction were within trial court’s discretion and not constitutionally excessive; delay/no-restoration arguments waived or unpersuasive

Key Cases Cited

Cortez v. Purolator Air Filtration Prods. Co., 23 Cal.4th 163 (UCL §17208 four‑year limitations applies to any UCL action)
Aryeh v. Canon Bus. Solutions, Inc., 55 Cal.4th 1185 (standard of review for statute of limitations questions)
Kasky v. Nike, Inc., 27 Cal.4th 939 (FAL violations necessarily violate UCL; likelihood of deception standard)
Chern v. Bank of America, 15 Cal.3d 866 (intent and consumer knowledge irrelevant; liability based on likelihood of deception)
Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663 (primary evidence is the advertising itself; applying words to facts determines misleading character)
People ex rel. Bill Lockyer v. Fremont Life Ins. Co., 104 Cal.App.4th 508 (examples of substantial civil penalties and restitution in consumer protection cases)
People v. JTH Tax, Inc., 212 Cal.App.4th 1219 (standard of review for civil-penalty awards under UCL/FAL)
R.J. Reynolds Tobacco Co., 37 Cal.4th 707 (constitutional proportionality factors for civil penalties)
United States v. Bajakajian, 524 U.S. 321 (excessive-fines proportionality analysis)
Hale v. Morgan, 22 Cal.3d 388 (limits on accumulating mandatory penalties and narrow statutory construction where appropriate)