As Americans continue to struggle with a cost-of-living crisis, a new tech-powered technique threatens to further increase the amount people pay for daily goods and services, including this year’s holiday gifts. Called “surveillance pricing,” this technique enables companies to set an individualized price for each consumer based on the maximum they are willing to pay for a good or service. Now, as legislatures attempt to regulate surveillance pricing, companies have sued to overturn those regulations by arguing that they violate the businesses’ First Amendment free speech rights. A notable early case is ongoing in New York. This sets up another battle in the ongoing clash between consumer protection and overly expansive readings of the First Amendment.

What is surveillance pricing?

Surveillance pricing is the practice where companies collect or obtain individualized personal information about their actual or potential customers and use a variety of techniques to target different prices to specific consumers for the same goods or services. The goal of surveillance pricing is to infer the highest price that the customer is willing to pay, based on consumers’ personal data and other market data. This machinery of setting different prices may also be referred to as “algorithmic pricing.”

Consumers are increasingly familiar with the inkling that they are shown different, individualized prices for products and services like hotel rooms, Uber or Lyft rides, flights, or electronics. For example, a recent investigation into Instacart found that its pricing algorithm could lead to $1,200 more spent on groceries each year.

Surveillance pricing harms consumers in several ways. First, consumers may wind up paying more for the same product than what is advertised to other consumers. This can amount to violations of state consumer protection law. The price differences may also be discriminatory on the basis of protected characteristics, such as race and gender. Further, surveillance pricing is built on the mass data sharing of personal data through data brokers, and it incentivizes even more intrusive data collection to predict an individual consumers’ likelihood to purchase products at certain price points. Such personal data collected for commercial purposes often end up in the hands of third parties, including law enforcement agencies, and used for unrelated purposes. In sum, surveillance pricing and the mass data collection that fuels it undermine consumer privacy, autonomy to make purchasing decisions, and fair treatment of consumers.

How did New York decide to regulate surveillance pricing?

To proactively address the harms to consumers from surveillance pricing, New York passed the Algorithmic Pricing Disclosure Act (“the Act”) in May 2025, and it went into effect July 8, 2025. The Act requires a business using surveillance pricing to clearly and conspicuously post a disclosure that states, “This price was set by an algorithm using your personal data.” The Act also prohibits the use of protected class data, such as ethnicity, national origin, age, disability, sex, sexual orientation, gender identity and expression, pregnancy outcomes and reproductive healthcare, to set prices or discriminate among consumers.

The Act includes some real teeth. It encourages compliance through high penalties and a private right of action, which allows individual consumers to sue companies that use their protected class data in one of these prohibited ways. These measures ensure the Act will actually influence corporate behavior.

The National Retail Foundation argues that New York’s law violates companies’ First Amendment rights to keep surveillance pricing secret.

National Retail Federation (“NRF”), an industry trade group, has sued New York to stop the implementation of the Act, arguing that the law violates companies’ First Amendment free speech rights because it requires companies to alert customers when the company is using surveillance pricing. NRF’s case, brought in federal court in the Southern District of New York, was dealt a huge blow when the district court judge granted New York’s motion to dismiss. But NRF has appealed the case to the Second Circuit, setting up an important First Amendment battle that will likely influence other cases going forward.

Two different First Amendment standards can apply when a law requires a business to provide information to consumers and the public. The first standard fits into the doctrine of “compelled speech,” which applies anytime the government forces someone to speak. Generally, laws that compel speech are subjected by courts to “strict scrutiny,” which means that the government carries a heavy burden to prove that the regulation is necessary. Most laws subjected to strict scrutiny end up being overturned. But a lower standard of scrutiny called the “Zauderer test” applies when a regulation requires a business to provide true information about non-controversial topics to inform consumers, such as laws that require labeling for drugs. The Zauderer test is very deferential to the challenged law and not a significant hurdle. The question is which standard should be applied in this case.

Background on Zauderer and Compelled Commercial Speech

Before 1976, the First Amendment was not thought to apply to commercial speech at all. In Virginia Pharmacy Board, the Supreme Court recognized that companies’ ability to provide information to the public about its products/services deserves some protection—albeit a “lesser protection”—because of the interest that consumers and society at large have in “the free flow of commercial information.” Restrictions on companies’ ability to provide information are thus subject to intermediate scrutiny.

But in cases where the government seeks to compel commercial speech, the First Amendment interests are different and lower. After all, providing factual information to consumers is the entire point of commercial speech. First Amendment safeguards in such cases serve only to prevent the government from abusing its power to force companies to take the government’s favored side in public debates. This was the intuitive conclusion that the Supreme Court reached in Zauderer v. Office of Disciplinary Counsel. Zauderer recognized that the First Amendment interest “in not providing any particular factual information” in a commercial context “is minimal.” As a result, where the government compels a company only to share “purely factual and uncontroversial information,” this mandatory disclosure is permissible so long as it is not “unjustified or unduly burdensome.” While there are a few narrow contexts in which a corporate disclosure mandate could receive a higher level of scrutiny, none is relevant to this case.

Zauderer Clearly Applies to New York’s Law

New York’s law should be subjected to, and pass, the Zauderer test. The law requires businesses to disclose the uncontroversial fact of whether a consumer’s price has been set, in part, based on crunching their personal data. This is the heartland of commercial speech and Zauderer: a business informing consumers about facts related to the price they are paying for goods. “The right of a commercial speaker not to divulge accurate information regarding his services is not . . . a fundamental right.”

NRF’s Arguments that Zauderer Does Not Apply

NRF though, attempting to invoke a higher level of scrutiny, argued that Zauderer only applies where the justifying governmental interest is the prevention of consumer deception. Not only is this inaccurate, it also ignores that New York’s law does serve to prevent consumer deception and misunderstanding. It exists to ensure that consumers understand the price they see is not—as they would naturally assume—the same price offered to everyone, but rather one calculated by an algorithm to apply to them specifically.

NRF’s attempts to avoid Zauderer review did not stop at its deception argument. NRF also claimed that Zauderer does not apply because New York’s law is not “purely factual and uncontroversial.” But the Act’s disclosure requirement is exactly that: “This price was set by an algorithm using your personal data.” NRF’s argument essentially boils down to the following: “Forcing us to be honest about our business practices violates our free speech rights.”

Much like food and drug labeling, or the labeling of GMO products, requiring the labeling of algorithmically set prices is, contrary to NRF’s claims, the exact sort of mandatory disclosure contemplated by Zauderer.

National Retail Foundation’s lawsuit fits into a pattern of problematic corporate free speech claims.

NRF’s lawsuit fits into a disturbing trend of tech companies and their industry partners attempting to label harmful corporate conduct as free speech so that they can get a First Amendment get-out-of-regulations-free card. This cynical and reckless litigation strategy wrests control from democratically elected legislatures, leaves people with no recourse when businesses intentionally or recklessly harm them for profit, and steals attention away from many real censorship threats.

Here is a list of just some of the activities that tech companies have claimed in litigation to be free speech:

• Selling people’s data to the highest bidder, including selling someone’s home address to a person who means them harm.
• Building a generative AI chatbot that urges users to kill themselves and instructs them on how to do it.
• Using casino industry technology to create addictive or compulsion-inducing platform features that cause users to spend more money and time on a platform.
• Using dark pattern design features to trick or manipulate users into giving up more data, money, and time than they want to.
• Obscuring from users how companies design their platforms and whether they follow their own content moderation guidelines.

Part of what makes Big Tech’s First Amendment litigation strategy harmful is that it distracts from the very real and dangerous attempts to censor speech in an era in which many government actors are trying by formal and informal means to control information and thought online. Protestors are being beaten and jailed, important research is being decimated, and activists are being targeted for deportation, to name just a few examples. Big Tech is distracting from these real threats to democracy by claiming that the most dangerous censorship regime is state governments seeking to hold them accountable for abusive business practices.

Essentially, tech companies are seeking to win a constitutional right not to abide by common business regulations. This strategy, referred to by some scholars as “Digital Lochnerism,” is similar to the strategy that permitted big businesses early in the 20th century to use the Constitution to strike down workplace safety regulations, minimum wage laws, and other important regulations. Thankfully, the Supreme Court eventually turned against Lochnerism, permitting those commonsense regulations to be enforced. Now, the battle against Digital Lochnerism is playing out in courts across the country. It is essential for courts to recognize these claims for what they are—a tech industry strategy to avoid regulations—and reject them. While the Supreme Court and other courts have recently dealt this strategy some significant blows, the record at courts across the country is mixed.

What does all this mean for policymakers who want to tackle surveillance pricing?  

The challenge by NRF should not discourage states from regulating surveillance pricing. NRF is litigating the New York law precisely because it fears it will be effective, and NRF’s First Amendment challenges have been rejected by the district court already.

That said, there are best practices states can follow to best insulate their laws from First Amendment challenges.

1. States should create a strong record showing the need for the regulation, such as in the legislative findings in the bill, legislative history, or factfinding by an agency. Specific findings of harm can help rebut arguments that the regulation is addressing an issue that is “purely hypothetical.”
2. States should be careful in the phrasing of their required disclosures to keep it strictly factual and avoid any opinion statements. New York’s law does this well, requiring the unambiguously factual statement: “This price was set by an algorithm using your personal data.”
3. Exceptions and carve-outs should be limited as much as possible both as good policy and to avoid constitutional issues. When exceptions and carveouts are made to a disclosure requirement, states should try to explain—such as in the legislative findings—why these specific exceptions are appropriate or necessary. This can help combat a challenge that the law is unduly burdensome or makes inappropriate speaker-based distinctions.
4. Consider prohibiting surveillance pricing altogether as opposed to requiring disclosures around the practice, which is a more direct approach that avoids the First Amendment altogether.

States can and should feel confident regulating surveillance pricing without fearing First Amendment bogeyman behind every corner.