Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: HP cannot escape class action alleging firmware caused printers to only accept HP ink, (Jul 19, 2023)

By Donielle Tigay Stutland, J.D.

Court dismisses fraud claims related to affirmative misrepresentation by the printer maker, but not fraud claims related to an omission.

The federal district court in San Jose, California dismissed some amended claims brought by two consumers alleging that printer manufacturer HP’s use of firmware which makes non-HP ink incompatible with its printers, is in violation with various consumer state and federal statutes. The court dismissed claims brought by a Florida consumer under California law, finding he did not have standing. The court also granted the motion to dismiss all claims related to HP printers other than the specific model purchased by the plaintiffs. With respect to claims brought alleging fraud, the court found there was no fraudulent affirmative misrepresentation by the printer maker because messages from the printer about third party cartridges not working were not false, so the motion to dismiss such claims was granted. However, the court denied the motion to dismiss based on an omission, finding that the printer purchaser had adequately plead that the defect was central to the printer’s function. The court also denied the motion to dismiss with respect to the CFAA claim for failure to plead statutory damages, finding that a class of plaintiffs may aggregate damages “so long as those damages arose from the same act by a defendant.” Finally, the court declined to dismiss the claim under the California Unfair Competition Law (“UCL") (So v. HP, Inc., July 17, 2023, Freeman, B.).

The plaintiff’s suit stemmed from allegations that HP periodically pushes out firmware updates to its printers that prevent consumers from using third-party ink cartridges. The consumer alleged that third-party ink cartridges can be 25%-75% less expensive than HP cartridges. The consumer also contended that HP’s printer firmware causes the printer to “display a (false) error message” stating there is a “supply problem, cartridge communication error, or cartridge problem,” when a user attempts to use a non-HP ink cartridge. The consumer purchased multiple HP printers and alleged that firmware and software updates sent to HP printers around December 2020 caused the printers to no longer accept non-HP branded ink cartridges.

On January 13, 2023, the original California consumer, along with a printer purchaser from Florida, filed an amended complaint, which asserts claims for violation of the (1) CFAA; (2) CDAFA; (3) unfair, fraud and unlawful prongs of the UCL; (6) FAL; (7) fraud by omission; (8) CLRA; and (9) the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”). HP seeks to dismiss the amended claims.

Standing. At the outset, the court found that the Florida consumer lacked standing to assert any claims under California law, and only had standing to assert the claims related to Florida law. Additionally, the court found that the consumers only had standing to bring claims related to the HP OfficeJet Pro 6978, the specific printer model purchased by the plaintiffs.

Fraud. The court analyzed the fraud claim by reviewing whether there was a sufficient plead affirmative misrepresentation or omission by HP with respect to the printer cartridges. HP argued that the fraud claim be dismissed, because the plaintiff had not stated a claim as to either an affirmative misrepresentation or actionable omission.

The plaintiff asserted that the error message received from his printer constituted affirmative misrepresentations. HP argued that there is no causation and/or injury because consumers were not harmed by the purchase of the HP cartridges, as those cartridges allowed the printers to work. Additionally, HP argued that the error messages consumers got when using non-HP ink were not false. The court agreed with HP, and denied the motion to dismiss with respect to affirmative misrepresentations.

Turning to the fraud claim by omission, the court began by noting that under California law, a claim of fraud by omission requires a showing of (1) the concealment or suppression of material fact, (2) a duty to disclose the fact to the plaintiff, (3) intentional concealment with intent to defraud, (4) justifiable reliance, and (5) resulting damages.”

HP next argued that the fraud claims based on omission also fail because the consumer did not allege HP concealed a defect central to the printers’ function and because the relevant information was disclosed. The court noted that to allege fraud by omission, the omission must either (1) “be contrary to a representation actually made by the defendant,” or (2) “an omission of a fact the defendant was obliged to disclose.” However, with the first prong not alleged, the printer owner needs to show that HP had a duty to disclose prior to sale that it would send out firmware that would make its printers incompatible with third-party cartridges.

Both sides argued as follows: HP argued that the printer purchaser did not alleged that the defect is central to the function of the printer, and the printer purchaser argued that the defect is central to the printer’s function because the printer stopped working until he used an HP cartridge. Looking at Oddo v. United Technologies Corp., to determine whether the defect is central to the function of the product, the court determined that the printer purchaser had adequately plead that the defect was central to the printer’s function, by alleging that his printer stopped working and that it did not start working again until he obtained HP cartridges. The court denied the motion to dismiss any fraud-based claims based on omission.

Statutory Damages. HP argues that the CFAA claim should be dismissed because Plaintiffs do not allege the required statutory damages of $5,000. The court indicated however, that under the CFAA, a class of plaintiffs may aggregate damages “so long as those damages arose from the same act by a defendant.” Thus, each class member only needs to incur $0.32 in damages to meet the threshold through aggregation. The court denied the motion to dismiss the CFAA claim for failure to plead statutory damages.

UCL unlawful claim. Finally, the court analyzed the printer purchasers’ UCL unlawful claim. The UCL prohibits any “unlawful, unfair or fraudulent business practice and unfair, deceptive, untrue or misleading advertising;” which the California Supreme Court has determined to prohibit three separate types of unfair competition: (1) unlawful acts or practices, (2) unfair acts of practices, and (3) fraudulent acts or practices.

The California plaintiff brought a claim under the unlawful prong of the UCL. HP argued this claim was derivative of other causes of action and this requires dismissal. The court disagreed and indicated that it had not dismissed all the other counts. The court denied the motion to dismiss the count alleging unlawful acts or practices under the UCL.

The Case is No. 5:22-cv-02327-BLF.

Attorneys: Michael Francis Ram (Morgan & Morgan, P.A.) for Henry So. Megan O'Neill for the HP Inc.

Companies: HP Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews