Electronic shelf labels and the law

The retail industry has undergone a significant transformation over the past decade, with electronic shelf labels (ESLs) emerging as a vital technology in the digitisation of physical stores.

ESLs offer a modern, dynamic way for retailers to manage and display product information and pricing, providing a host of operational advantages. However, this innovation also brings a new set of legal considerations, from data privacy and consumer protection to intellectual property and competition law. In this article, we explore the key legal implications of deploying ESL technology and highlight the regulatory frameworks retailers must navigate.

What are electronic shelf labels (ESLs)?

Electronic shelf labels are digital price tags installed on store shelves that display product information such as price, stock levels, and promotional offers.

ESLs can be updated remotely via wireless networks, allowing retailers to dynamically adjust pricing and product information in real time. This not only improves efficiency but also helps retailers respond swiftly to changes in demand, competitor pricing, or stock availability.

Key features of ESLs

• Digital displays: usually powered by e-ink or LCD, ESLs offer clear, easily readable labels that can last for years with minimal energy consumption.
• Centralised price management: prices can be updated instantly across all stores, ensuring consistency and accuracy.
• Integration with retail systems: ESLs often integrate with point-of-sale (POS) systems, inventory management tools, and dynamic pricing algorithms.

While ESLs promise operational benefits and cost savings, their use introduces new legal complexities that retailers must carefully manage.

Legal implications of electronic shelf labels

Consumer protection: price transparency and accuracy.

One of the core legal requirements in any retail setting is that prices displayed to consumers must match those charged at the point of sale. This principle is enshrined in consumer protection laws in many jurisdictions.

Key considerations

• Accuracy of displayed prices: retailers using ESLs must ensure that the prices displayed are accurate and synchronised with their checkout systems. A mismatch between the shelf price and the charged price can lead to legal consequences, including fines and reputational damage.
• False advertising risks: dynamic pricing enabled by ESLs must be carefully managed to avoid misleading consumers. For example, if prices change frequently, retailers must communicate clearly that prices may fluctuate during the shopping experience. Failure to do so could be seen as deceptive advertising, which is prohibited under many consumer protection laws.

Best practice tip: retailers should implement robust systems to monitor ESL performance and ensure consistency between shelf prices and checkout prices in real time.

Data privacy and personalised pricing

Many retailers are now using ESLs in conjunction with dynamic pricing algorithms that adjust prices based on real-time market conditions. Some systems also leverage customer data to offer personalised pricing or discounts. This practice, while innovative, raises significant privacy concerns.

Key legal risks

• Compliance with data privacy regulations: collecting and processing personal data to offer personalised pricing must comply with data protection laws and other similar regulations. Retailers must ensure that any personal data collected is obtained with a valid lawful basis and used transparently.
• Transparency in data usage: consumers have the right to know how their data is being used. Retailers must clearly inform customers if their personal data will be used to adjust prices or offers.

Best practice tip: retailers should provide consumers with clear privacy notices that explain how personal data is used for pricing.

Dynamic pricing and fair pricing practices

ESLs often enable retailers to implement dynamic pricing, where prices change in response to factors like demand, stock levels, and competitor pricing. However, dynamic pricing can sometimes raise fairness concerns, particularly when prices are adjusted too frequently or unfairly impact certain consumer groups.

Legal considerations

• Price discrimination: in many jurisdictions, pricing strategies that result in unfair discrimination against certain consumer groups could be subject to legal challenges. For instance, dynamic pricing algorithms must not unfairly target vulnerable groups or adjust prices based on protected characteristics such as race, gender, or age.
• Price gouging: during periods of high demand, such as emergencies or natural disasters, dynamic pricing could lead to significant price increases, raising concerns about price gouging. Some jurisdictions have laws in place that limit price increases during certain periods to protect consumers from exploitation.

Best practice tip: retailers should ensure that dynamic pricing algorithms are audited regularly for fairness and compliance with anti-discrimination and anti-price gouging laws.

Competition law and algorithmic pricing

The use of dynamic pricing algorithms raises additional concerns under competition law, especially if these algorithms inadvertently lead to anti-competitive practices.

Potential legal risks

• Price collusion: if multiple retailers use similar dynamic pricing algorithms, there’s a risk that prices could become coordinated, even unintentionally. This could be seen as algorithmic collusion, which is prohibited under competition laws. Regulators are increasingly scrutinising how algorithms influence market behaviour to prevent unfair competition.
• Abuse of market power: retailers with significant market power need to be cautious in how they implement dynamic pricing strategies. Excessively aggressive pricing tactics could be viewed as an abuse of market dominance, leading to investigations by competition authorities.

Best practice tip: retailers should work with legal experts to ensure that their dynamic pricing strategies comply with competition laws and do not lead to anti-competitive outcomes.

Employment law: automation and labour impacts

ESLs significantly reduce the need for manual price updates, which can lead to labour reductions in some retail settings. This raises employment law concerns, particularly in countries with strong labour protections and unions.

Legal considerations

• Workforce reductions: retailers implementing ESL technology may need to make staff redundancies or reassign workers to different roles. Employment laws typically require employers to engage in consultations with employees and unions before making such changes.
• Employee retraining: in some jurisdictions, employers may be required to offer retraining or up-skilling opportunities to workers impacted by automation.

Best practice tip: retailers should proactively engage with their workforce, unions, and legal advisors when planning the implementation of ESL technology to ensure compliance with labour laws.

Intellectual property and software licensing

The deployment of ESLs also introduces intellectual property (IP) and software licensing considerations.

Key IP considerations

• Licensing agreements: retailers must ensure that they have the necessary licences for the software and hardware that power ESL systems. Unauthorised use of patented technology or failure to comply with software licensing terms can lead to IP disputes.
• Pricing algorithm ownership: retailers working with third-party vendors to develop dynamic pricing algorithms should ensure that ownership and usage rights are clearly defined in contracts. This helps prevent potential conflicts over IP ownership.

Best practice tip: retailers should conduct thorough due diligence to ensure compliance with all software licences and secure clear ownership agreements for any custom-developed algorithms.

How we can help

At ITLawCo, we specialise in helping retailers navigate the complex legal landscape surrounding emerging technologies. Our team of legal and technical experts is here to provide practical, actionable guidance on how to implement ESL technology while remaining compliant with relevant laws and regulations. Whether you’re seeking advice on consumer protection, data privacy, or competition law, we’re ready to help you future-proof your retail operations.

• Consumer protection: Advice on how to ensure price accuracy and transparency to avoid legal issues related to mismatched prices, false advertising, and deceptive pricing practices.
• Data privacy: Guidance on complying with data protection laws when using ESLs for personalised pricing, ensuring proper consent and transparency in data usage.
• Fair pricing: Help implement dynamic pricing strategies that avoid price discrimination and price gouging, ensuring compliance with anti-discrimination and consumer protection laws.
• Competition law: Navigate competition laws and preventing algorithmic collusion when using dynamic pricing algorithms, ensuring fair market practices and avoiding abuse of market power.
• Employment law: Advice on managing the labour impacts of ESLs, ensuring compliance with employment laws during workforce reductions and providing guidance on employee retraining and up-skilling.
• Intellectual property: Help retailers secure the necessary software licenses and clarify ownership rights for pricing algorithms, preventing intellectual property disputes.

Contact us to learn more about how we can support your business in leveraging ESLs safely, lawfully, and profitably.