Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App.: Dismissal of consumer’s deceptive trade practices claims against social network operator reversed, (Nov 4, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a consumer against the operator of an online social entertainment platform for false advertising and deceptive trade practices in relation to the purchase of audio products from the company by platform users, the trial court abused its discretion in dismissing the consumer’s claims without leave to amend, the California Court of Appeals in San Jose has decided. Thus, the judgment of dismissal was reversed and remanded (MacKinnon v. IMVU, Inc., October 30, 2014, Premo, E.).

IMVU develops and operates an Internet entertainment service known as the instant messaging virtual universe. Users access the instant messaging virtual universe through a software application available for download on IMVU’s website. IMVU users create customized virtual characters, or avatars, which can interact with other users’ avatars and can purchase products for their avatars, such as audio clips. All IMVU users must agree to a Terms of Service Agreement which governs their use of the IMVU website.

In 2008, IMVU informed users that it was implementing a 20 second limitation on new audio clips purchased due to bandwidth issues but the restriction would not affect clips already in IMVU’s music catalog. Peter MacKinnon joined IMVU in 2009 and purchased hundreds of dollars of audio products. In 2011, IMVU announced that the 20 second limit would apply to all audio products in the catalog, including those previously purchased. MacKinnon filed a putative class action suit against IMVU, alleging violations of California’s Consumers Legal Remedies Act (CLRA), Unfair Competition Law (UCL), and False Advertising Law (FAL), among other claims. MacKinnon asserted that IMVU deceived its users regarding the audio products they purchased and wrongfully restricted users’ ability to play those products after purchase. The trial court granted IMVU’s motion for judgment on the pleadings and MacKinnon appealed.

CLRA. To state a deception-based claim under the CLRA, a plaintiff must demonstrate that the defendant engaged in conduct that was likely to mislead or deceive a reasonable consumer. MacKinnon’s CLRA claims were based on two representations: (1) IMVU’s 2008 announcement that the 20 second restriction would not affect products already in IMVU’s music catalog and (2) the message “You own this” that users received after purchasing audio products. According to the court, based on the alleged facts, a finder of fact could reasonably conclude that a consumer would likely be deceived by those statements that their audio clips would not be limited. Although the Terms of Service Agreement expressly allowed IMVU to alter products without offering users refunds, a consumer may have understood those representations to mean that IMVU would not exercise its contractual right to restrict audio products post-purchase.

Moreover, MacKinnon’s allegations that he reviewed the 2008 announcement and would not have purchased full length audio clips had he known that IMVU would restrict them were sufficient to show reliance at the current stage of the proceedings.

However, MacKinnon failed to state a claim based on the “You own this” representation by not pleading reliance, according to the court. He did not allege that he ever saw the representation or that he was exposed to a long term advertising campaign which contained the misleading representation.

UCL. MacKinnon’s claim under the fraudulent prong of the UCL was premised on the same allegedly deceptive representations as his CLRA claims – the 2008 announcement and the “You own it” representation. The court determined that MacKinnon properly pleaded a UCL claim based on the 2008 announcement for the reasons discussed in connection with the CLRA claim.

FAL. The FAL requires that the plaintiff allege facts showing the defendant’s representations were likely to deceive the public and actual reliance on those representations. MacKinnon’s false advertising claim was predicated on the same theory as his CLRA and UCL claim and the complaint demonstrated that he could amend his false advertising claim to state a cause of action based on IMVU’s 2008 announcement. Thus, the trial court erred by denying MacKinnon leave to amend with respect to that representation, the court concluded.

The case is No. H039236.

Attorneys: Seth Adam Safier (Gutride Safier LLP) for Peter Mackinnon, Jr. Carter Winford Ott (DLA Piper LLP), and Luanne Sacks (Sacks, Ricketts & Case, LLP) for IMVU, Inc.

Companies: IMVU, Inc.

Cases: StateUnfairTradePractices CaliforniaNews