Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES-9th Cir.: Consumer class action over advertising of PlayStation 3 functionality proceeds, (Jan 7, 2014)

By Linda O’Brien, J.D., LL.M.

Purchasers of the PlayStation 3 video game system may proceed with claims under California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumer Legal Remedies Act (CLRA) regarding Sony’s advertising of the dual functionality of the PlayStation Network and other operating software over the ten-year lifespan of the video game system, the U.S. Court of Appeals in San Francisco has ruled (In re Sony PS3 “Other OS” Litigation, January 6, 2014, Per Curiam). However, the court dismissed the consumers’ breach of warranty claims under the Magnuson-Moss Warranty Act (MMWA).

Sony Computer Entertainment America manufactured and marketed the PlayStation video game system. Consumers who purchased the PlayStation 3 (PS3) system filed a class action suit against Sony alleging breach of warranty, false advertising, and unfair consumer practices, among other claims, regarding an advertised dual functionality of the PlayStationNetwork (PSN) and other operating software (Other OS) over the ten-year lifespan of the PS3. Sony’s motion to dismiss the complaint for failure to state a claim was granted and the plaintiffs appealed the dismissal.

Unfair consumer protection. The district court erred in dismissing the plaintiffs’ misrepresentation claims under the CLRA. Plaintiffs must allege a misrepresentation, reliance on the misrepresentation, and damages caused by the misrepresentation to state a claim under the CLRA. In this case, the consumers sufficiently alleged that (1) at the time of sale, Sony mischaracterized the dual functionality of the PS3 and those statements were likely to deceive the public; (2) they reviewed the company website, relevant articles, and packaging before making their purchases and relied on the representations of the PS3’s features; and (3) they suffered damages by paying a premium for the PS3 due to the supposed dual functionality.

False advertising. To state a claim under the UCL or FAL for false advertising or promotional practices, the plaintiffs must show that members of the public are likely to be deceived. The court found that the consumers adequately alleged that members of the public were likely to be deceived by Sony’s advertising and promotional statements about the PS3’s dual functionality and ten-year lifespan and they suffered injury in the form of lost premium payments. Additionally, the consumers adequately alleged (1) substantial injury was caused by the charging of a premium for the dual functionality and later discontinuing access to both the PSN and Other OS features; (2) the injury could not be reasonably avoided because the consumers would have lost access to the PSN if they did not download the update; and (3) there was no countervailing benefits to consumers or competition that outweighed the substantial injury to consumers. Thus, dismissal of those claims was also reversed.

Warranty claims. The breach of express warranty and implied warranty of merchantability were properly dismissed, according to the court. Statements made in promotional materials did not include all the exact terms that would create an express warranty and Sony’s software license agreement specifically informed consumers that updates and services may cause some loss of functionality. Sony only warranted a ten-year lifespan for the PS3 system itself. The plaintiffs also failed to allege that dual functionality was one of the ordinary purposes for which the game system was used. Moreover, the MMWA required that a written warranty guaranteeing a product’s specific level of performance state a period of time over which the performance is guaranteed, and there was no such written statement that warranted dual functionality for the ten-year lifespan of the PS3 or any other specific time period.

The case is No. 11-18066.

Attorneys: James A. Quadra (Calvo Fisher & Jacob LLP) for Anthony Ventura. Joseph Collins (DLA Piper US, LLP) for Sony Computer Entertainment America, Inc.

Companies: Sony Computer Entertainment America, Inc.; Sony Computer Entertainment America LLC

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