NY Algorithmic Pricing Act Withstands First Amendment Challenge

In June 2025, New York enacted a series of new consumer protection requirements as part of the Transportation, Economic Development and Environmental Conservation Article VII Legislation section of the FY 2026 New York State Executive Budget (the “Ted Bill”).

The Ted Bill included the Algorithmic Pricing Disclosure Act (“the Act”), a mandatory disclosure requirement for covered companies that use algorithmic-driven dynamic pricing. We covered the specific requirements of the Act in our prior June 2025 article.  In short, the Act:

• Defines “personalized algorithmic pricing” as “dynamic pricing derived from or set by an algorithm that uses consumer data,” which “Part X” further defines as “any data that identifies or could reasonably be linked, directly or indirectly, with a specific natural person or device.”
• Requires covered entities that use an algorithm to set prices based on personal data and publish or advertise these prices to consumers in New York to make the following mandatory disclosure: “This price was set by an algorithm using your personal data.”

Shortly after its enactment, the National Retail Federation(“NRF”), a retail trade association representing businesses thatuse the type of algorithmic pricing regulated by the Act, filed a complaint alleging that the Act’s mandatory disclosure requirement violated the First Amendment and sought a preliminary injunction. See National Retail Federal v. James, 1:25-cv-05500-JSR (S.D.N.Y. May 9, 2025), ECF No. 1. The New York Attorney General responded by moving to dismiss the NRF’s complaint.

On October 8, 2025, 2025, the District Court for the Southern District of New York granted the government’s motion to dismiss, holding that the NRF failed to plausibly allege a constitutional violation under the First Amendment. Because it granted the motion to dismiss, the Court denied the NRF’s request for preliminary injunction as moot.

Analysis

The Court first addressed the level of scrutiny to apply to the constitutional challenge. As the Court explained:

• “A law that prohibits or restricts commercial speech must survive so-called ‘intermediate’ scrutiny in order to pass constitutional muster. This means that the regulation must ‘directly advance[ ] a substantial governmental interest’and must not be ‘overly restrictive.’”
• “By contrast, a law that requires the disclosure of ‘purely factual and uncontroversial information about the goods or services the speaker may offer’ is governed by the more permissive Zauderer v. Off. of Disciplinary Counsel, 471 U.S. 626 (1985), standard of review. Under Zauderer, a commercial disclosure law does not offend the Constitution so long as it is ’reasonably related to the state’s interest in preventing deception of consumers,’ and [is] not ‘unjustified or unduly burdensome.’”

Applying this analysis, the Court held that the Act was entitled to Zauderer’s deferential review because the disclosure is of purely factual and uncontroversial information.

• Purely Factual: The Court held that the disclosure, “This price was set by an algorithm using your personal data,” was pure factual. 
• • The Court rejected the argument that the disclosure is indirectly misleading under the Ninth Circuit’s Wheat Grower’s case. Wheat Growers involved a mandatory disclosure that was literally factual but included a term with scientific meaning that might not be understood by an ordinary consumer. Wheat Growers also considered whether “overall message” of the mandatory disclosure was misleading, despite it being literally factual.
  • This Court found both of those features lacking in the New York law. The Court explained that in “Wheat Growers, the Ninth Circuit’s conclusion was based on the presence of specific language in the challenged warning that it reasoned was susceptible to misinterpretation and that, if so interpreted, would make the statement demonstrably false.” On the other hand, “[the NRF] stops short of alleging that the meaning of those individual terms, as used in the disclosure, is demonstrably odds with their ordinary meaning and, in that sense, misleading.”
• Uncontroversial: The Court held that the NRF failed to plausibly allege that the mandatory disclosure is controversial.
  • First, the Court held that the “Second Circuit has been clear that a compelled commercial disclosure is not rendered ‘controversial’ merely because the regulated entity does not wish to make that disclosure or because it would prefer to make a different statement on that same topic.”
  • Second, the Court rejected the NRF’s argument that the mandatory disclosure was “controversial” because it requires the speaker to “take sides in a public debate.”The Court looked to the Supreme Court’s decision in Nat’l Inst. of Fam. & Life Advocs. v. Becerra (NIFLA), 585 U.S. 755, 769 (2018), for guidance.
    • The Court stated that the NRF’s complaint made “no more than a conclusory assertion that the topics of ’machine learning, algorithms, and artificial intelligence’ in general, or algorithmic pricing in particular, are ‘controversial.’”
    • The Court also held that “[the NRF’s] members are not required by the disclosure to ‘t[ake] sides’ in any controversy, no less a ‘heated political’ one.” To the contrary, regulated entities “are free to utilize algorithmic pricing or not, and are free to communicate their own views about the use of such technologies.”

After holding that the Zauderer standard applies, the Court easily concluded that the NRF failed to plausibly allege that the law was not reasonably related to the state’s interest in preventing deception of consumers.

The NRF has 30 days – until November 10 – to file a notice of appeal.

Take Aways

For the timing being, the Act will remain in effect and enforcement by the State Attorney General may begin.

Importantly, the Court’s decision leaves open the possibility forregulated entities to make complementary statements about the AI or algorithmic pricing, so long as the other requirements of the Act are met.

Regulated entities should review the Act’s requirements and ensure they are in compliance.

Clark Hill’s attorneys can assist with determining whether you fall within the scope of the law and how to comply with the New York law, as well as the patchwork of various AI, algorithmic pricing, and privacy laws throughout the county.