Internet Advertising and the Duty to Sell at Advertised Price

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1 Monthly Legal Article Plaza Drive, Suite A Tustin, California (714) FAX (714) Internet Advertising and the Duty to Sell at Advertised Price by L. Robert Cohen, Esq. Introduction All of Auto Advisory Services clients should know by now that it is illegal to sell a vehicle above an advertised price. This is true even though a customer may not be aware of the advertisement. What many of our clients are now grappling with is whether such duty to sell applies to prices quoted on the Internet as well. This article will address the issues associated with this new Internet/autolaw quandary. Duty to Sell The duty to sell at the advertised price comes from Vehicle Code section (e) which states, in part, It is a violation of this code for the holder of any dealer's license to: Fail to sell a vehicle to any person at the advertised total price while the vehicle remains unsold, unless the advertisement states the advertised total price is good only for a specified time and the time has elapsed. As if the above law was not clear enough, the California Code of Regulations drives it home by stating, Advertised vehicles must be sold at or below the advertised price irrespective of whether or not the advertised price has been communicated to the purchaser. (13 CCR ) There are, of course, items which can be added legally to the selling price if properly disclaimed (e.g., All advertised prices exclude tax, license, document preparation fee, smog fees, and finance charges, if

2 applicable. ). 1 Customer requested accessories may also be added to an advertised price, but dealers should ensure deals contain adequate documentation for accessories added to an ad car. In August of 1999, a shockwave was felt throughout the industry when a California appellate court took the duty to sell to an even higher level. The court in Donavan v. RRL Corp. held that a dealer has a duty to sell at the advertised price even when the advertised price was in error. The case did appear to leave some room for instances of extremely obvious mistakes and mistakes that couldn t have been caught by the dealer. However, this case is currently before the California Supreme Court and it is unknown what the outcome will be. The Donavan case, if nothing else, emphasized the importance of the duty to sell. Internet Advertising Since we know there is a duty to sell at an advertised price, the question now turns to whether Internet price quotes are advertising. There is no easy answer to this question as there is no law or court decision directly on point. Therefore, rather than answer this question outright, we are forced to first walk through an analysis and then arrive at some guidelines for dealers to use when quoting prices on the Internet. The definition of advertising (for purposes of the duty to sell) as contained in the Code of Regulations is a statement, representation, act or announcement intentionally communicated to the public generally for the purpose of arousing a desire to buy or patronize. (13 CCR (b)) 2 For our purposes, we are going to really focus in on the phrase communicated to the public generally. Applying this phrase to various promotional methods will allow us to arrive at an educated guess as to whether such a method constitutes advertising. It is safe to conclude that a newspaper ad is advertising in that it is clearly communicated to the public generally. The same would hold true for billboards, television and radio. It is also safe to conclude that a telephone call to a prospective buyer would not be advertising (as defined above) because such contact would not be communicated to the public generally. Therefore, advertising a price in a newspaper or on the radio will trigger the duty to sell at that price to the public generally whereas quoting a price to a customer on the telephone will not. These conclusions should come as no surprise to anyone. Using the above conclusions as a guide, we should be able to draw certain parallels with the Internet world. Specifically, we can liken a Web page to a newspaper and an to a phone call. If a Web page passively displays information and prices, it is very similar to a newspaper and would likely be 1 California has recently enacted a law specifically requiring Web sites to contain this standard disclaimer that was previously only required in certain sized newspaper advertisements. This law does not take effect until July 1, (Senate Bill 2060) 2 The California Code of Regulations contains two dramatically different definitions of advertising. For purposes of this article, we will use the definition that applies to the duty to sell (i.e., the one stated in this paragraph). The definition we won t be using is considerably more broad and encompasses even oral statements made by salespersons at the time of sale. 2

3 deemed advertising. Alternatively, if an is sent from a dealership employee to a specific customer, it is quite similar to a phone call and would not likely be considered advertising as defined above. Our analysis would be complete if the above two examples were the only form of Internet pricing. However, dealers are using the Internet in various capacities to generate leads and make sales. Drawing parallels becomes more difficult in cases where unsolicited , or spam, is concerned and in cases where a Web site automatically generates price quotes based upon customer selections. These are, at best, gray areas. We must, therefore, address the methods employed by dealers individually and separate them into two categories; what will likely trigger the duty to sell at the advertised price and what will likely not. What will likely trigger the duty to sell. 1. Price Listing. A dealer s Web page that merely lists sale prices should certainly trigger the duty to sale the advertised vehicles at that price. When all consumers are viewing the same information and prices, the Web page most resembles a newspaper advertisement. 2. Non-Interactive Price Quoting. Many dealers may avoid the price listing problem, but will still show sale prices on subsequent pages throughout the site. As discussed below, there is a level of interactivity that is required in order to take a price quote outside of the realm of advertising. What that level is remains to be seen. However, not requiring the customer to select a specific vehicle or to identify herself prior to quoting a price may be deemed advertising. 3. Mass ing ( Spam ). If a dealer obtains a generic list and sends out hundreds, or even thousands of s promoting a special price, it is unlikely that such a communication would be seen as a one-to-one communication. Such an broadcast more closely resembles a cable television advertisement (i.e., a general broadcast to a specific group of subscribers) and, therefore, could be deemed advertising. What will likely NOT trigger the duty to sell. 1. Single . An sent from the dealership to a prospective customer should certainly not trigger the duty to sell the vehicle at the ed price to anyone other than the recipient of the Multiple Targeted . Using a specific database of, for example, prior customers would likely not create a duty to sell a vehicle at the ed price to anyone other than the recipients of the . Such an more closely resembles a private invitational mailer and is not communicated to the public generally. 3. Personalized Interactive Web Pricing via . This is probably the most troublesome area for us attorney-types. Some Web sites offer instant price quotes whereby a customer is provided a 3

4 personal quote sent via . Usually, this type of quote is issued after the customer has selected a specific vehicle and identified himself/herself. Such electronic price quotes could take the offer outside of the realm of advertising if, in fact, the quotes were generated as a result of a specific customer inquiry and were presented to the requesting customer only. In such instances, an argument could certainly be made that such a price quote does not differ substantially than an being sent by a salesperson pursuant to a customer s request. Furthermore, any such personalized quote is arguably not communicated to the public generally. Therefore, we believe that a Web site with this level of interactivity would not likely trigger the duty to sell at the quoted price to anyone other than the recipient of the quote. Auto Advisory Services has received unconfirmed reports that certain state enforcement agencies may be in the process of adopting a standard similar to the one above. Not mentioned above is an even less clear example of Web site price quoting whereby the customer selects or builds a vehicle, identifies himself and then immediately is provided a personalized quote to their browser rather than via . Although this method employs considerable interactivity, it lacks in one area that could prove to be important to enforcement agencies such as the DMV. In the Personalized Interactive Web Pricing via example provided above, the Web site virtually ensures the one-to-one quoting by requiring an address. In that example, if the shopper fails to provide a correct address (or fakes one), then he or she will not receive the price quote. In the example provided in this paragraph whereby the shopper merely has to identify himself in some way, there is no assurance that the provided identification is not just a fake name or address. Generalization A good way of approaching your particular situation is to ask yourself the following question. Are we providing a one-on-one, personalized quote for a vehicle that was selected by a specific customer, or are we listing prices for one or more vehicles not in response to a customer s specific request? If you answer affirmatively only to the first part of this question then you have a better chance of your communication not being treated as advertising. Again, if it is not advertising, then the duty to sell an identified vehicle to all of your other customers at the communicated price should not be triggered. Caveat The above guidelines are not based upon any court decision or official judicial interpretation. Ultimately, new legislation may be required to clarify exactly what level of interactivity brings a price quote outside of the realm of advertising. Until then, however, we must base our opinions on what we have available. If you have any doubt, the conservative advice is to assume that the price quote triggers the duty to sell. Currently there are no California statutes to protect the dealer, but there are statutes which tend to support the theory that anything online is advertising. Therefore, it is best to err on the side of caution. 4

5 Lastly, always remember that whether or not a communication is deemed advertising for purposes of invoking the duty to sell at the advertised price, a dealer is almost always obligated to the recipient of any communicated price to sell to that person at the communicated price. 5