Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDCal: User States Unfair Competition Claim over Software’s Allegedly False Threat Reporting, (Feb 7, 2013)

By Tobias J. Gillett, J.D., LLM.

A user of a personal computer repair and maintenance software product has sufficiently stated claims under the “unfair” and “unlawful” prongs of California’s Unfair Competition Law, but not under the “fraudulent” prong, against the producer of the software over the software’s allegedly false reporting of threats and errors to convince users to keep the software unnecessarily, the federal district court in San Francisco has ruled (Worley v. Avanquest North America, Inc., February 5, 2013, Illston, S.).

Avanquest North America, Inc. produces a software product called System Suite PC Tune-Up & Repair 12, and claims it can detect and fix personal computer errors, privacy threats, viruses, and other problems. Benson Worley, a purchaser of the software, sued Avanquest claiming that the software reports false threats and errors in order to convince the user that it is working and to induce the user to keep the software and pay subscription fees. Worley asserted a variety of claims, including violations of California’s Unfair Competition Law.

Standing. Avanquest initially contended that Worley lacked Article III standing because he had not alleged an injury traceable to Avanquest’s conduct. The court disagreed, finding that Worley’s purchase and continued use of the software in reliance on the software’s allegedly deceitful threat and error reports, as well as the loss of utility in the software as a result, could constitute an Article III injury. This was true even if Worley had received some benefit from the software, and even if Worley had not sought a refund.

Unfair Competition Law. The court opened its UCL analysis by explaining that the UCL establishes three kinds of prohibited conduct—“unlawful, unfair, or fraudulent business act[s] or practice[s].” The court observed that a plaintiff proceeding under the fraudulent prong must plead their claims with particularity, as required by Federal Rule of Civil Procedure 9(b). Although Worley’s complaint asserted that his computer continued to malfunction after running Avanquest’s software, it did not specify how it continued to malfunction, nor did it address whether the software eliminated problems it claimed to fix. Therefore, the court dismissed Worley’s claim under the “fraudulent” prong, with leave to amend it to provide more specificity regarding the falsity of the representations on which he claimed to rely.

However, the court concluded that Worley’s claims that Avanquest had misrepresented the utility of System Suite and “intentionally designed the software to over-report errors and threats to the system to encourage consumers to keep the software and purchase renewals” adequately stated a claim under the “unfair” prong of the UCL. The fact that Worley kept the software beyond the 90-day refund period did not constitute an implicit concession “that the software program performed to his satisfaction,” particularly since he had alleged that the software’s error reporting was designed to induce users to keep it.

The court also determined that Worley had pled a claim under the “unlawful prong.” The court concluded that Worley could not base his claim on a breach of warranty claim, because he had not provided pre-suit notice as required under Ninth Circuit precedent, nor could he base it on a fraudulent inducement claim because he had not yet pled his claims with sufficient particularity. However, Worley could support his claim on an allegation of “systematic breach of contract,” based on the claim that Avanquest had “failed to honestly and accurately inform consumers about the true condition of their computers.”

The case is No. C 12-04391 SI.

Attorneys: Sean Patrick Reis (Edelson McGuire, LLP) for Benson Worley. Carter Winford Ott (DLA Piper LLP US) for Avanquest North America Inc.

Companies: Avanquest North America, Inc.

Cases: StateUnfairTradePractices CaliforniaNews