People v. Overstock.Com, Inc., A141613M

Background

Overstock.com, an online retailer, displayed advertised reference prices (ARPs) like “List Price,” “Compare at,” and later “Compare” alongside its sale prices; many ARPs were derived from similar products, formulas, or the highest online price rather than verified sales of the identical item.
Internal documents and emails showed employees sometimes sought the highest market price or asked suppliers to raise MSRPs to inflate perceived savings; customers complained that ARPs were inflated.
After a multi-county investigation and a tolling agreement (as of March 24, 2010), the People sued (Nov. 17, 2010) under the False Advertising Law (§ 17500) and the Unfair Competition Law (§ 17200).
Trial produced expert testimony about ARPs’ effects on consumer perception and ample documentary evidence of Overstock’s practices; the trial court found ARPs were untrue or misleading and that Overstock knew or should have known of the risk of deception.
The trial court ordered injunctive relief (restrictions on ARP practices, validation, disclosures) and assessed $6,828,000 in civil penalties.
On appeal, the court affirmed: it upheld the four-year UCL limitations period, found substantial evidence of false/misleading advertising and knowledge, affirmed penalties and the injunction.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Proper statute of limitations for UCL penalties	Section 17208 (four years) governs any UCL action.	Code Civ. Proc. § 340(b) (one year for penalties to the People) is more specific and should apply.	Section 17208’s four‑year period controls; specific/gravamen analysis and precedent favor § 17208.
Sufficiency of evidence that ARPs were false or misleading	ARPs (List Price/Compare) were presented as bona fide prices but often based on formulas, similar items, or highest prices—likely to deceive.	Many consumers don’t notice ARPs and defense expert evidence undermines likelihood of deception.	Substantial evidence supports that ARPs (when inflated, based on formulas/similar items/highest price) had capacity/likelihood to mislead.
Knowledge (mens rea) required under §17500	Overstock knew or should have known ARPs were misleading given internal practices, complaints, FTC guidance, and its sales objectives.	No direct proof Overstock knew consumer expectations from expert studies; hyperlinks/disclosures show awareness.	Knowledge can be proven circumstantially; record supports that Overstock knew or should have known.
Appropriateness/excessiveness of penalties and injunction	Penalties up to $2,500 per violation justified by persistence, willfulness, number/duration of violations; injunction tailored to prevent recurrence.	Penalty is excessive, punitive for long-past conduct, and some injunction terms exceed necessity (e.g., formulas discontinued).	Court did not abuse discretion: penalties within statutory bounds and proportional; injunction reasonably tailored given recurrence risk and ongoing practices.

Key Cases Cited

Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163 (explaining § 17208’s four-year bar applies to any UCL action)
Kasky v. Nike, Inc., 27 Cal.4th 939 (false advertising violations also constitute UCL violations; consumer deception standard)
Chern v. Bank of America, 15 Cal.3d 866 (intent/knowledge of disseminator irrelevant to likelihood-to-deceive standard)
Hale v. Morgan, 22 Cal.3d 388 (limits on cumulative mandatory penalties; caution in construing penal statutes)
People ex rel. Bill Lockyer v. Fremont Life Ins. Co., 104 Cal.App.4th 508 (upholding substantial civil penalties and restitution in consumer protection enforcement)
People v. JTH Tax, Inc., 212 Cal.App.4th 1219 (standard of review for UCL/FAL penalties and injunctions)
Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663 (advertising itself is primary evidence to determine whether it is misleading)