Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: California deceptive practices claims fail against Apple over laptop screens, (Aug 14, 2013)

By Tobias J. Gillett, J.D., LL.M.

A purchaser of a MacBook Pro with Retina Display (“rMBP”) produced by Apple Inc. failed to state claims for violation of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) over Apple’s alleged misrepresentations concerning the laptop and its failure to disclose that the laptops’ screens were manufactured by two different companies whose screens were of different standards of quality, the federal district court in San Francisco has ruled (Hodges v. Apple Inc., August 12, 2013, Orrick, W.).

Apple introduced its rMBP on June 12, 2012. According to the purchaser’s complaint, the screens for the laptops were manufactured by two different companies, LG and Samsung. Screens manufactured by LG allegedly exhibited “image retention” and “burn-in” problems that screens manufactured by Samsung did not. The purchaser alleged that Apple knew about the differences between the screens as produced by the two manufacturers, but “publicly denied” them. Apple allegedly “represent[ed] the rMBP as a single, unitary product” and did not disclose in its advertisements or other representations that its rMBPs had screens “that exhibit different levels of performance and quality.”

The purchaser filed a putative class action against Apple, asserting claims under the CLRA and the UCL, and for breach of contract. Apple filed a motion to dismiss.

Consumers Legal Remedies Act

Misrepresentation. The court concluded that the purchaser failed to state a claim under the CLRA because he did not plead with particularity any actual misrepresentations Apple made about its rMBPs. Although he argued that Apple had made an affirmative misrepresentation by selling its rMBPs as a “single, unitary product,” the court observed that this argument was “bare and conclusory since [he] did not identify a single example of Apple actually representing that the rMBPs are ‘single’ or ‘unitary.’” Moreover, he did not allege “when, where, and how Apple made these supposed misrepresentations.”

In addition, although Apple’s assertion that its rMBP had “the world’s highest resolution notebook display” was arguably actionable, the purchaser did not allege that the rMBPs did not actually have the highest resolution laptop display. Further, Apple’s description of the rMBPs as having “the world’s most advanced notebook display” was “non-actionable puffery,” since it was a “generalized, vague, and unspecified assertion upon which a reasonable consumer could not rely.” The court found that even when viewed together Apple’s representations were “not likely to deceive members of the public.”

Fraudulent omission. The purchaser also failed to adequately plead that Apple had made a fraudulent omission for purposes of the CLRA. The court cited the Ninth Circuit’s 2012 decision in Wilson v. Hewlett-Packard Co., 668 F.3d 1136, in which the appellate court concluded that a defendant “is not liable for a fraudulent omission concerning a latent defect under the CLRA, unless the omission is contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obligated to disclose,” and that “only safety concerns trigger an obligation to disclose a latent defect.”

Here, the purchaser did not allege that Apple’s failure to disclose that the screens for its rMBPs were manufactured by two different companies, or that one screen posed more risk of malfunction than the other, related to a safety concern. Since the purchaser did not allege a fact that Apple was obligated to disclose, the purchaser had not adequately pled a fraudulent omission under the CLRA.

Unfair Competition Law

The purchaser also failed to state a claim under the UCL, according to the court. The court explained that the UCL prohibits “any unlawful, unfair or fraudulent business act or practice,” with “unlawful,” and “unfair,” and “fraudulent” each representing a separate theory of liability.

Fraudulent prong. The court found that, as previously discussed, the purchaser had not identified any “untrue, misleading, or deceptive” statement made by Apple. Moreover, the purchaser did not “plead with particularity that Apple had a duty to disclose some fact but did not do so.” He did not allege that consumers had a reasonable expectation that the rMBPs were identical and from the same manufacturer, or that Apple had any obligation to disclose its suppliers or that certain products may be more susceptible to defects unrelated to safety.

Unfair prong. The court observed that the California courts disagreed on the appropriate definition of an unfair act or practice for purposes of the UCL, with some courts holding that a plaintiff must allege a practice that “offends an established public policy or is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” with the policy “tethered to specific constitutional, statutory or regulatory provisions,” and other courts holding “that the court must apply a balancing test that weighs the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”

Under the first test, the purchaser failed to cite any specific law or policy that Apple had violated, “except for a vague allusion to deceit.” The purchaser also failed to plead deceit, in that he did not identify actual misrepresentations or omissions made by Apple, and did not allege how Apple’s conduct was “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”

Under the balancing of harms approach, the purchaser had not availed himself of the one-year warranty that came with his laptop, even though it began malfunctioning one month after purchase, a fact that “weaken[ed] his claim of harm and unfairness.” The purchaser had also failed to allege that Apple had violated any duty of disclosure. Balancing Apple’s need to meet strong consumer demand for its rMBPs by employing two manufacturers against the harm experienced by a consumer that declined to take advantage of his warranty, the court concluded that Apple failed to state a claim under the unfair prong.

Unlawful prong. Finally, the court found that the purchaser failed to state a claim under the “unlawful” prong because he did not “plead with particularity that Apple violated any law.” Although the purchaser claimed that Apple “violat[ed] Civil Code §§ 1572, 1573, 1709, 1711, 1770 and Business & Professions Code §§ 17200, et seq., 17500, et seq., and the common law,” he did not identify “which part of each statute was violated and how.”

The case is No. 13-cv-01128-WHO.

Attorneys: Adam J. Levitt (Grant & Eisenhofer P.A.) for Beau Hodges. Matthew David Powers (O'Melveny & Myers LLP) for Apple Inc.

Companies: Apple Inc.

Cases: StateUnfairTradePractices CaliforniaNews