In less than a month, millions of shoppers buying their groceries or browsing online will find themselves confronted with advisories that lawmakers say will inform them, but critics argue will only alarm them:
“THIS PRICE WAS SET BY AN ALGORITHM USING YOUR PERSONAL DATA.”
A federal judge has dismissed a lawsuit filed by a retail trade group, which argued that the sentence above is misleading, alarmist, coercive and unconstitutional.
The National Retail Federation filed suit in July, challenging New York state’s recently-passed Algorithmic Pricing Disclosure Act. The measure requires retailers to use the above notice, to let shoppers know when any of their personal data is used to determine the price they’re charged. Critics call it “surveillance pricing.” But the NRF called it a standard, legitimate way to do business, allowing them to offer their customers personalized deals, coupons and promotions.
The NRF argued that being forced to display a notice, online and in stores, that “appears based on a speculative fear that retailers use sensitive data to discriminate and price gouge” violated their members’ First Amendment rights to free speech – not by restricting what they can say, but by mandating what they must say. “The state is free to express its opinion that algorithmic pricing is dangerous,” the NRF argued, but “it cannot force businesses that disagree to do so.”
Yes it can, the judge in the case has ruled.
While acknowledging the importance of the First Amendment and its protections against the government’s “power to compel speech,” Judge Jed S. Rakoff noted that “laws regulating commercial speech are subject to a less-exacting standard of review than are laws regulating other forms of speech.” The law merely requires retailers “to provide somewhat more information than they might otherwise be inclined to present,” he explained, to help serve “the state’s interest in preventing deception of consumers.”
The NRF had argued it wasn’t so much the words themselves, as it was what those words implied. One NRF member argued in an affidavit that “the disclosure would give everyone visiting my website or my product page the categorically false idea that I am misusing their information or not respecting their privacy.”
The group went on to argue that consumers seeing such a notice “will naturally but falsely conclude that an NRF member relied on sensitive personal information” when setting a price, and “used this information to increase the price.”
The judge was not convinced, stating that the NRF’s “assertions about how consumers will react to the disclosure are entirely speculative.”
And besides, no one is banning the practice. Several states have considered it, and the original version of the measure as first proposed in New York would have regulated and restricted algorithmic pricing. As passed and signed into law, the measure at issue merely requires retailers to disclose when they’re charging different prices for different people.
“Every indication is that consumers would not know that a price was set using their personal information without a disclosure,” the judge pointed out. A required notice does not interfere with the fact that NRF members “are free to utilize algorithmic pricing or not, and are free to communicate their own views about the use of such technologies.”
The lawsuit consisted of a whole lot of debate over a simple sign. But retailers worry that New York’s law could be the first step on a slippery slope. Subsequent laws might regulate or restrict algorithmic pricing, which the NRF claims could interfere with retailers’ ability to offer personalized discounts, loyalty deals, or coupons at the checkout triggered by a purchase you made.
Proponents of such laws argue they’re needed, before retailers start surreptitiously using factors like your age, gender, race, income level or location to set prices, discriminating against you by charging you more based on your personal characteristics, without you ever knowing.
New York had agreed to pause enforcement of its law until 30 days after the judge weighed in. That clock is now ticking. Ultimately, time will tell whether the signs lead shoppers to believe they’re getting a deal – or lead them to start looking for a better deal, somewhere else.
