Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—W.D. Wash.: Microsoft may be liable for deceptive billing practices, (Oct 22, 2014)

By Jody Coultas, J.D.

The federal district court in Seattle denied dismissal of Texas Deceptive Trade Practices Act (DTPA) class action claims filed by X-Box LIVE subscribers against Microsoft Corporation. The subscribers alleged that Microsoft deceptively made unauthorized changes to their credit cards in connection with their streaming media subscriptions (Walsh v. Microsoft Corporation, October 20, 2014, Pechman, M.).

Standing. Three of the subscribers had standing to assert claims against Microsoft, according to the court. Microsoft argued that three of the subscribers lacked standing because they never subscribed to X-Box LIVE, and all but one subscriber lacked Article III standing because they had not alleged a particularized injury. Sworn declarations that two subscribers had accounts were sufficient to survive dismissal. Rather than alleging that each subscriber was incorrectly billed by Microsoft, denied a refund, and charged additional fees after cancelation, the complaint attempted to incorporate these facts by reference. By pleading that a similar situation happened to each subscriber, the subscribers pleaded a general allegation of injury.

DTPA claim. Microsoft argued that the subscribers failed to allege fraud with sufficient particularity, that X-Box LIVE was not a service covered by the statute, that the claim was barred by the economic loss doctrine, and that the subscribers failed to allege the requisite reliance. To state a DTPA claim, the plaintiff must be a consumer and show that the defendant committed a false, misleading, or deceptive act that caused the consumer's damages.

The subscriber had standing to assert the DTPA claim, according to the court. The named plaintiff alleged that he purchased a subscription to the X-Box LIVE entertainment service, that Microsoft intentionally made unauthorized charges to his credit card, contravening representations it made to him about when and why it would charge his credit card, and the unauthorized charging of his credit card caused him harm. Microsoft argued that billing practices are merely incidental to the object of its transaction, which was for the X-Box LIVE entertainment service, and merely incidental billing practices are not covered by DTPA. Because the claims were based on whether the service deceptively billed subscribers without permission, the claims were covered by the DTPA. A dispute over the propriety of charges was not incidental to the X-Box service.

The economic loss doctrine did not require dismissal of the DTPA claim, according to the court. Allegations of a mere breach of contract, without more, do not constitute a false, misleading, or deceptive act in violation of the DTPA. The subscriber did not allege that the X-Box LIVE service was worth less than what he paid for it, or that Microsoft breached the contract by not performing. The complaint was based on what Microsoft knew and stated about X-Box LIVE’s unauthorized billing capacity.

Microsoft argued that the subscribers failed to allege reliance on any allegedly deceptive or misleading statements. The court found that it was clear that the subscribers allegedly relied on Microsoft’s representations about its billing practices, none of which state that Microsoft may make unauthorized charges during or after the subscription term.

One subscriber’s claims were dismissed because California recognizes contractual shortening of statutes of limitations, and his claims were time-barred. The subscribers’ Computer Fraud and Abuse Act (CFAA) were dismissed for failure to plead that the value of their claims, in the aggregate over a one-year period, exceeds $5,000, as required by CFAA. The subscribers’ implied warranty and Magnuson-Moss claims were also dismissed because Microsoft disclaimed these warranties. Finally, the unjust enrichment and money had and received claims were dismissed.

The case is No. C14-424 MJP.

Attorneys: Lish Whitson (Lish Whitson PLLC) for Dennis Walsh. Rebecca J. Francis (Davis Wright Tremaine) for Microsoft Corporation.

Companies: Microsoft Corporation

Cases: StateUnfairTradePractices WashingtonNews