When a widespread industry practice comes under regulatory scrutiny, companies that end up in the crosshairs sometimes fall back on the “everyone does it” defense. This argument has an intuitive appeal in the consumer-protection context—consumers are presumably aware of practices that are common across an entire industry, the thinking goes, and they make purchasing decisions with knowledge of these practices.
The online ticket reseller StubHub recently tried this approach at NAD. It didn’t go over so well.
NAD launched an inquiry into StubHub’s fee-disclosure practices to determine whether consumers were being misled about the total cost of tickets sold on the site because StubHub does not disclose the service fees when it initially displays the ticket price. StubHub discloses the fees, which can range from 24% to 29% of the ticket cost, only at the time of checkout, after the consumer has already made the decision to buy the tickets. NAD was concerned that consumers do their comparative shopping when they see the initial price display—not at the time of checkout, when the true cost of the ticket is revealed—and thus are misled into believing that the StubHub tickets are cheaper than they are.
In arguing that its fee-disclosure practices are not misleading, StubHub asserted that “reasonable consumers searching for tickets online expect some fees to be added at check-out because the universal practice followed by all major online vendors and resellers is to list fees in this manner.” StubHub explained that consumers’ expectations in a given circumstance heavily depend on the prevailing industry practice in the market. “When a particular industry has a strongly established practice,” StubHub insisted, “the existence of that practice itself provides strong evidence of what a reasonable consumer expects to encounter when participating in the marketplace.”
StubHub thus argued that its fee-disclosure practices are not false or misleading because consumers expect to incur service fees at checkout given the widespread nature of the practice. StubHub even went one further, pointing out that it once modified its fee-disclosure practices and listed total prices before the checkout page, a move that it abandoned after competitors failed to do the same, causing StubHub to lose market share because consumers mistakenly believed that its prices were comparatively higher because they assumed there was still some type of additional fee to be added on.
NAD rejected StubHub’s “everyone does it” defense, concluding that “[a]n industry-wide practice alone will not satisfy the requirement for reliable consumer perception evidence as to what a reasonable consumer understands.” An advertiser in this scenario instead must submit actual evidence showing what consumers understand when they encounter the industry practice. NAD also noted that StubHub’s anecdote about changing its fee disclosure actually supported NAD’s conclusion in this case—that consumers rely on pricing claims made in the initial price display when comparison shopping rather than expecting that the total price will be disclosed only at checkout.
For these reasons, NAD held that StubHub’s practices misled consumers about the true cost of tickets sold on the site, and recommended that StubHub modify its advertising to clearly and conspicuously disclose its service fees when it initially displays ticket prices on the StubHub website.
In short, that everyone does it doesn’t mean you can, too.
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