NY Algorithmic Pricing Law Decision Provides Map for Compliance

A federal court in Manhattan has cleared the way for enforcing the nation’s first law requiring businesses to disclose when algorithmic pricing—driven by consumer personal data—influences displayed prices.

The Oct. 8 decision in National Retail Federation v. James dismissed the National Retail Federation’s constitutional challenge to New York’s Algorithmic Pricing Disclosure Act.

With requirements now in place in New York for businesses to disclose their use of personal data to set prices for products, companies using dynamic or personalized pricing that may affect residents must:

• Assess how consumer data feeds into their pricing algorithms.
• Document compliance with disclosure and transparency obligations.
• Develop consumer communication strategies that highlight the benefits of data-informed pricing.

Disclosure Requirements

Gov. Kathy Hochul (D-N.Y.) signed the Algorithmic Pricing Disclosure Act in May, requiring businesses in the state that use “personalized algorithmic pricing” to include a clear disclosure stating: “This price was set by an algorithm using your personal data.”

The disclosure must appear in the same medium as the price and be placed “on, at or near and contemporaneous with” the price, using language “easily visible and understandable to the average consumer.”

The law defines personalized algorithmic pricing as any price set by an algorithm using data that identifies or can be linked to a specific individual or device—such as browsing history, shopping behavior, or location data.

Some industries are exempt, such as insurance companies subject to New York’s Insurance Law, financial institutions governed by the Gramm-Leach-Bliley Act, and subscription-based models in which the offered price is lower than the contractual rate.

Constitutional Allegations

Six days before the law was to take effect, the National Retail Federation sued Attorney General Letitia James, alleging it violated the First Amendment’s bar on compelled speech. The plaintiff argued the mandated disclosure forces businesses to convey “misleading and controverted government-scripted opinions,” rather than purely factual information.

The trade association claimed the disclosure implies retailers engage in invasive or nonconsensual surveillance, thereby communicating an evaluative judgment, rather than a neutral factual disclosure, about algorithmic pricing practices.

It also asserted that the disclosure unduly burdens commercial speech by consuming limited advertising space and is impermissibly underinclusive because it exempts certain industries.

Rakoff’s Ruling

Southern District of New York District Judge Jed Rakoff rejected each of these contentions and granted the attorney general’s motion to dismiss. Applying the commercial speech framework, he held the disclosure was both factual and uncontroversial and therefore subject to the deferential standard in Zauderer v. Off. of Disc. Counsel of S. Ct. of Ohio.

Under Zauderer, the government may compel factual disclosures about products or services if the requirement is reasonably related to a legitimate state interest and isn’t unduly burdensome. The standard is far more forgiving than the intermediate or strict scrutiny applied to other forms of compelled speech.

Rakoff found that New York’s disclosure requirement met these criteria. He determined the statement described accurately what occurs when an algorithm sets prices using personal data and didn’t imply wrongdoing. Retailers, he said, remain free to provide additional context explaining their data use or the benefits of algorithmic pricing.

New York has a legitimate interest in ensuring consumers understand how prices are determined, Rakoff said, particularly when individualized pricing may lead different consumers to pay different amounts for the same product or service.

The disclosure, Rakoff concluded, imposes only a minimal burden—a short, factual notice placed near the price. Similar mandates, he observed, have long survived constitutional scrutiny even in media with limited space.

Broader Implications

National Retail Federation v. James is the first judicial review of an algorithmic transparency mandate. It signals that courts may treat digital disclosure laws as permissible factual requirements, not controversial compelled speech, when they are narrowly tailored and advance clear consumer protection goals.

The ruling comes amid broader debates over artificial intelligence, data privacy, and fairness in the digital marketplace. Lawmakers in at least 10 states, including California, Arizona, Connecticut, Illinois, and Virginia, are considering new transparency laws, while US Sen. Amy Klobachar (D-Minn.) in February introduced the Preventing Algorithmic Collusion Act to inform consumers when algorithms affect pricing, credit, employment, or other economic decisions.

If the US Court of Appeals for the Second Circuit upholds Rakoff’s decision, it may embolden legislators to expand transparency mandates across industries that use algorithmic or AI-driven tools.

The decision offers practical guidance for future regulations. Courts may be willing to uphold disclosure mandates that accurately describe factual business practices, provided they avoid moral or subjective framing and are proportionate to the government’s stated interest.

The case is: Nat’l Retail Fed’n v. James, 2025 BL 362701, S.D.N.Y., 25-cv-5500 (JSR), 10/8/25.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Wynter Deagle is co-leader of Sheppard Mullin’s intellectual property practice group and a member of the privacy and cybersecurity team.

Teresa Morin is an associate in Sheppard Mullin’s business trial practice group in San Diego.

Tracy Chau is a privacy and cybersecurity associate in Sheppard Mullin’s Chicago office

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