Following a California court decision, online retailer Overstock.com is facing significant changes to the way it compares prices on its site, and the company believes the court's decision could cause a ripple effect across the rest of the retail world.

Today, when offering a price comparison for a particular product sold on its site, Overstock compares its price to a price recently offered by a single competitor – an approach that overstates the extent of the company's discounts, according to a lawsuit from a group of California district attorneys. A Friday ruling from California's Alameda County Superior Court may force the company to alter its comparisons so that they consider prices from a wide range of top retailers.

Salt Lake City-based Overstock plans to appeal the court's decision, arguing that Judge Wynne Carvill is misreading California law and holding it to a higher standard than other e-commerce sites. The company's general counsel, Mark Griffin, believes that if the ruling is upheld, it could affect other online retailers as well as brick-and-mortar stores. "Other companies are going to have to really wonder if they're next," he says.

In 2010, a group of California district attorneys sued Overstock for $15 million, claiming the company "routinely and systematically" made false and misleading claims about the prices of its products. The suit even went so far as to accuse Overstock of misleading the public with the name of its company, pointing out that it no longer operates solely by liquidating goods from bankrupt and distressed companies and that a majority of the products sold on its site are not second-hand or discontinued items.

With a tentative ruling on Friday, Carvill dismissed some of the claims. But he did find that Overstock's price comparison techniques violate the state's unfair competition and false advertising laws. In comparing its prices to those listed by competitors, the judge found, the company is overstating the differences and misleading consumers. In short, the judge ruled that the company must better explain its comparisons on the site for all to see, or use rather complicated methods to take into account prices from multiple competitors.

Under the ruling, Overstock must also pay penalties for practices dating back to the spring of 2006. The court imposed a penalty of $3,500 per day for practices from March 2006 through September 2008, and $2,000 per day for September 2008 through September 2013. That's a total of about $6.42 million.

Once the ruling is final, Overstock has 60 days to comply with the judge's injunction. Larkin says the company will continue to argue against the ruling, but if the decision is rubber-stamped by the court – which could happen over the next few weeks – the company intends to comply, even as it launches an appeal.

According to Overstock CEO Patrick Byrne, if Overstock complies with the court's rules, the average discount shown by its price comparisons would drop from about 33 percent to 26 percent. But he believes the ruling is unfair, saying that no other retailer is held to this standard. "No one, in history, has ever been asked to do this or [was] sued for not doing it," he says.

Both he and Griffin argue that the ruling causes a fundamental shift in the way retailers advertise discounts. And though Overstock could accommodate the court's ruling fairly easily, they say, it could be very difficult for smaller retailers and brick-and-mortar stores to comply with the complicated price comparison rules laid down in Judge Carvill's 89-page ruling.