Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDCal: iTunes Billing Practices Not Shown to Violate California Law, (Apr 17, 2013)

By Jody Coultas, J.D.

iTunes users failed to state California Consumers Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) class action claims against Apple, Inc. based on its allegedly unfair and deceptive billing practices, the federal district court in San Jose has held (Herskowitz v. Apple, Inc., April 15, 2013, Koh, L.).

The iTunes users alleged that Apple bills its "e-Store" customers more than once for products. Specifically, Apple allegedly double billed for a single product, refused to allow customers to download for free already purchased products despite the fact that the customers had not downloaded the product more times than the contractually specified limit, and prevented customers from accessing, storing, transferring, or managing already purchased products, causing customers to lose purchased products and requiring customers to re-purchase the products at an additional charge.

One user sought to represent a subclass (Subclass A) of individuals or entities that were charged at the time of purchase and paid Apple more than once for the same product. The other user sought to represent all individuals or entities that purchased any product and were billed again for subsequently downloading the same product.

There was insufficient evidence to suggest more than a mere possibility that Apple violated the CLRA, according to the court. Subclass A alleged that Apple violated the CLRA by inserting an unconscionable provision in a contract by implementing an unlawful practice of refusing to refund Apple’s customers who have been double-billed. Apple argued that the claim should be dismissed for failure to allege facts establishing that either substantive or procedural unconscionability. Substantive unconscionability is based on overly-harsh or one-sided results, while procedural unconscionability focuses on oppression or surprise due to unequal bargaining power. The limited evidence failed to support a finding of either procedural or substantive unconscionability.

Because of the ambiguity of the pleadings, the court dismissed the UCL claim with leave to amend. Subclass A alleged that Apple violated the unfair prong of the UCL by interpreted and applied the Agreement’s ‘final sale’ provision in an unconscionable manner, and by citing its final sale policy as its sole grounds for refusing to refund the overcharged amount.

The UCL does not specifically define "unfair," but courts generally use one of two tests to determine whether an act was unfair. The "tethering test" requires that the public policy that is a predicate to a consumer unfair competition action must be tethered to specific constitutional, statutory, or regulatory provisions. The "balancing test," looks at whether the challenged business practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.

The users failed to show that the alleged violation was tethered to any statutory provision. However, if the users’ allegation was that Apple charges individuals twice for a single purchase and single download, the contention may suffice to state a claim for unfairness under the UCL. If the users’ allegation was that Apple was required to issue refunds after customers download the same song multiple times, despite the clear provision warning customers to download a song only once and the provision providing for refunds under limited circumstances, the plausibility of such a claim is much weaker. Therefore, the users were granted leave to amend to fix this ambiguity.

The cases are Nos. 12-CV-02131-LHK and 12-CV-03124-LHK.

Attorneys: Joseph J. Tabacco, Jr. (Berman DeValerio) for Robert Herskowitz. Penelope Athene Preovolos (Morrison & Foerster LLP) for Apple, Inc.

Companies: Apple Inc.

Cases: StateUnfairTradePractices CaliforniaNews