The National Retail Federation (NRF) has filed a lawsuit against New York Attorney General Letitia James, alleging that the New York Algorithmic Pricing Disclosure Act, which Gov. Kathy Hochul signed into law in May, is unconstitutional because it infringes on retailers’ right to free speech.
The law, set to take effect Tuesday, stipulates that retailers that have used algorithmic pricing, which the state defines as prices set by an algorithm that has ingested and uses individual consumer data, will need to disclose that to New York consumers.
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The companies will be required to add a label that says, “This price was set by an algorithm using your personal data” to product listings, advertisements and other consumer-facing communications when algorithmic pricing has come into play. If retailers violate the law, they will face a fine per violation of up to $1,000.
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The NRF, in a complaint filed in the Southern District of New York on July 2, contends that such a practice would be “misleading and ominous” to consumers and could negatively impact sales because of incorrect perception.
In that complaint, the organization states its belief that the act violates the U.S. Constitution’s First Amendment because it requires companies to do the bidding of the government, calling the necessitated label a “government-scripted opinion without justification.”
It seeks a preliminary and permanent injunction to halt the law from going into effect.
“If the act is not enjoined, NRF members will be forced to endorse a baseless government opinion at war with their own convictions and that misrepresents their actual practices,” the organization wrote in its complaint.
The trade group alleged that such labels could “mislead consumers about the type of data NRF members use to set prices and the effect of personal data on prices.”
“Many if not most consumers will naturally but falsely conclude that an NRF member relied on sensitive personal information…in setting the price. Second, many if not most consumers will naturally but again falsely conclude that the NRF member used this information to increase the price offered,” NRF stated in its complaint.
It maintained that those kinds of consumer perceptions could negatively influence the trust shoppers have with retailers, even if “innocuous information like ZIP codes or loyalty program status” is actually the way companies identify who’s using their sites.
It also said the idea that companies unfairly ramp up prices on consumers with algorithmic pricing is far from the actuality of the situation; the NRF stated that “algorithmic pricing mechanisms lower overall consumer prices in the aggregate,” in part because they help provide personalized offers to consumers interested in specific products and deals. That is to say, if a consumer has held a pair of sneakers in their cart for two weeks without purchasing, a retailer might use algorithmic pricing to offer that consumer a 15 percent discount on the shoes — or, if a consumer has previously purchased cotton T-shirts from a brand, that brand may use that consumer’s shopping history to offer a discount on long-sleeve cotton shirts in the winter.
Stephanie Martz, the NRF’s chief administrative officer and general counsel, said the law infringes on retailers’ rights.
“This law interferes with retailers’ ability to provide their customers with the highest value and best shopping experience they can,” Martz said in a statement. “Algorithms are created by humans, not computers, and they are an extension of what retailers have done for decades, if not centuries, to use what they know about their customers to serve them better. It’s just done at the scale of the modern economy. Stigmatizing tools that drive prices down turns offering deals into a liability, and consumers will end up paying more.”
The organization noted in the complaint that the requirements set forth in the law are “based on speculative fear that retailers use sensitive data to discriminate and price gouge — practices the law already prohibits” and stated that the conclusion that algorithmic pricing could hurt consumers is “unsupported by any facts.”
The NRF also argued that the process by which the legislation passed gave little time for lawmakers to do their due diligence on the potential ramifications it would have on businesses. The organization called the act’s history “sparse” and argued that it “arbitrarily exempts” certain subsets of retailers, including insurance companies, rideshare apps, consumer financial products and subscription-based retail items.
As of Monday, court records show that a judge had not issued a preliminary injunction in accordance with the NRF’s request.
James’ office did not immediately return WWD sister publication Sourcing Journal’s request for comment on the complaint.