NEW YORK — A federal court this month granted New York State’s motion to dismiss a challenge to a recently passed state law requiring merchants to disclose when pricing has been set by an algorithm using a consumer’s personal data.
The New York Algorithmic Pricing Disclosure Act, passed in May, requires businesses in New York to include a disclosure whenever personalized algorithmic pricing is used, stating that “THIS PRICE WAS SET BY AN ALGORITHM USING YOUR PERSONAL DATA.”
The New York law also prohibits use of personal data related to protected classes (race, gender) that would result in discriminatory treatment based on those characteristics.
Enactment of the law was delayed after the National Retail Federation filed a lawsuit arguing that the act “compels” its members “to express a misleading and controverted government-scripted opinion without justification” in violation of members’ First Amendment rights. The U.S. Chamber of Commerce filed an amicus brief in support of the NRF.
The U.S. District Court for the Southern District of New York agreed with the state, holding that the disclosure is factual, not controversial, and was reasonable in informing consumers about prices.
The court also determined that the law was not unduly burdensome, and that consumers would not otherwise know when their personal data was used in pricing.
Thorvardur de Shong
Lawmakers and regulators have wrestled with role of algorithms in setting prices when the data is based on personal, nonpublic or competitively sensitive information. Algorithmic pricing presents potential risks to fair and competitive markets, although the technology has the capability to benefit consumers, such as when they are used to offer promotions. NRF’s lawsuit highlighted the longstanding practice by grocers and retail pharmacies of offering coupons at checkout for items like those purchased.
State lawmakers in California are considering the Surveillance Pricing Protection Act (AB 446), to enhance consumer protection by banning “surveillance pricing,” defined as setting pricing for a specific consumer (or a group of consumers) using personal data such as geolocation, web browsing history or inferences about personal characteristics collected through cookies and similar tracking technologies.
AB 446 would also prohibit businesses from charging different consumers (or groups of consumers) different prices for the same product or service.
