NRF sues to block New York Algorithmic Pricing Law
The National Retail Federation is seeking to block the implementation of a New York state law that would require retailers to tell customers that they use algorithmic pricing.
The NRF asked a federal court to block the New York Algorithmic Pricing Disclosure Act set to go into effect July 8 week that requires retailers to disclose the use of “algorithmic” pricing, saying the measure would unfairly malign a system that helps merchants give customers lower prices and personalized offers.
The law, which was passed with little debate as part of the state’s budget bill and signed by Governor Kathy Hochul on May 9, is set to take effect July 8. The measure requires any retailer that sets prices using virtually any information about its customers to place a disclosure next to each affected product saying, “This price was set by an algorithm using your personal data.”
“This law interferes with retailers’ ability to provide their customers with the highest value and best shopping experience they can,” stated NRF chief administrative officer and general counsel Stephanie Martz. “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 suit argues that the law, which is “replete with arbitrary exemptions,” violates both the First and 14th Amendments and asked for both preliminary and permanent injunctions blocking its enforcement.
“This act compels NRF’s members to impugn their pro-consumer practices against their will,” NRF said in the lawsuit filed in U.S. District Court in Manhattan.
“Retailers use algorithmic pricing to help customers save money by using their purchase history, items in their online shopping cart, zip code and other information customers voluntarily share rather than any personal sensitive data," the complaint said. “Despite this, the State of New York will soon require many retailers to affix a misleading and ominous warning to any price set by an algorithm using any information that could be linked to a customer. Although the state is free to express its opinion that algorithmic pricing is dangerous, it cannot force businesses that disagree to do so.”
The lawsuit said the law “is unsupported by any facts” that algorithmic pricing is inherently harmful and based instead on “speculative fear.” Any discrimination or price gouging that might inadvertently occur is already prohibited by other state laws, the suit said.
The suit explained that grocers, for example, have long offered coupons at checkout for items similar to those purchased and coffee shops have offered rewards cards giving repeat customers every tenth cup free. An online merchant might offer a promotion to a customer who leaves a product in an online shopping cart for a number of days. Retailers have traditionally checked to see what competitors charge, made seasonal price adjustments, or offered promotions based on intuition.
Using algorithmic pricing, “They simply do it with greater sophistication and on a much-larger scale,” the suit said.
“Algorithmic pricing mechanisms lower overall consumers prices in the aggregate,” the suit said. “Studies have consistently shown that algorithmic pricing incorporating data on market conditions plays a powerful role in driving prices down because algorithms allow companies to be more responsive to supply and demand and so better optimize pricing to reflect market conditions.”
