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From Antitrust Law Daily, August 7, 2013

California consumer protection and false advertising claims proceed against Apple over mobile app privacy claims

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

An iPhone purchaser has adequately alleged California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA) claims against Apple, Inc. over Apple’s allegedly misleading statements regarding the privacy and security of third-party software applications (“apps”) obtained through Apple’s App Store, the federal district court in San Francisco has ruled (Pirozzi v. Apple, Inc., August 3, 2013, Tigar, J.).

According to the complaint, Apple maintains an online store, called the App Store, that is the exclusive source from which users can obtain apps for their iPhone, iPod touch, and iPad mobile devices. Apple claims to review every app offered through the App Store, and its App Store Review Guidelines provide that “Apps cannot transmit data about a user without obtaining the user’s prior permission and providing the user with access to information about how and where the data will be used.” Apple’s license agreement with third party developers also requires the developers to obtain consent before collecting user or device data.

Apple and its representatives allegedly made a number of statements characterizing Apple as the “gatekeeper” to the App Store, and as having taken steps to protect users’ privacy. The complaint alleges, however, that contrary to these representations “Apple-approved apps have downloaded and/or copied users’ private address book information (including names and contact information of users’ contacts), location data, private photographs and videos without the users’ knowledge or consent.” Apple allegedly failed to properly screen the apps, and allowed them to be sold in the App Store despite their failure to abide by Apple’s stated privacy policies.

The iPhone purchaser filed a putative class action lawsuit, alleging that she purchased her iPhone in reliance on Apple’s representations regarding the safety of users’ private information. She asserted claims under the UCL, FAL, and CLRA, among other claims. Apple filed a motion to dismiss.

Article III standing. The court concluded that the iPhone purchaser had Article III standing to bring her claims. The court noted that a previous decision had already rejected Apple’s argument that the purchaser had failed to adequately allege that she had suffered a “non-speculative injury,” because “[o]verpaying for goods or purchasing goods a person otherwise would not have purchased based upon alleged misrepresentations by the manufacturer would satisfy the injury-in-fact and causation requirements for Article III standing.” The purchaser’s allegations that she was “misled as to the nature and integrity of Apple’s products” were sufficient to satisfy the injury-in-fact requirement, according to the court. Although the court had previously dismissed the purchaser’s complaint for failure to demonstrate causation, she now sufficiently identified specific statements on Apple’s website, in-store advertisements, and privacy policy on which she alleged she had relied, in the court’s view.

However, the court found the purchaser’s allegations that she “relied on Apple’s reputation for safety” to be “inadequately pled.” Her one sentence allegation did not “sufficiently describe how Plaintiff learned of Apple's reputation for securing its App Store's apps, whether Apple was responsible for the creation of its reputation, whether the statements Plaintiff heard or saw can be connected to Apple’s conduct, directly or indirectly, what precisely are the contours of Apple’s reputation, or how that reputation, precisely defined, led to Plaintiff’s injury.” As the purchaser had not adequately pled her “reputation for safety” claim, the court declined to address whether a “reputation for safety” could satisfy the Article III standing requirement or the elements of her statutory claims.

Statutory standing. The court also found that the purchaser had standing under the UCL, FAL, and CLRA. The court explained that the UCL and FAL required a plaintiff to “establish a loss or deprivation of money or property sufficient to qualify as injury-in-fact,” and that the CLRA’s standing requirement was “substantially similar.” As in its discussion of Article III standing, the court concluded that the purchaser’s allegations that she overpaid for her iPhone as a result of Apple’s misrepresentations were sufficient to confer standing.

Unfair Competition Law

The UCL prohibits “any unlawful, unfair or fraudulent business act or practice.” The court concluded that the purchaser stated a claim under all three prongs of the statute.

Fraudulent prong. The court explained that plaintiffs proceeding under the UCL’s fraudulent prong “must point to a misrepresentation with particularity and plead that the misrepresentation was an immediate cause of the injury-producing conduct, but not necessarily the sole or even the predominant or decisive factor.” The purchaser alleged that she relied on specific statements on Apple’s website regarding the security of iPhone apps, and that the “apps were an essential part of the device” for her when she purchased the iPhone. Therefore, she adequately pled her claim under the fraudulent prong, according to the court.

Unfair prong. The court noted that California courts have employed three different definitions of an “unfair” business practice, but that the California Supreme Court has not yet clarified the appropriate definition in the consumer fraud context. In the absence of such guidance, the Ninth Circuit, in Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718 (2007), had chosen to follow a definition of an “unfair” business practice as “a practice the utility of which is outweighed by the gravity of the harm to the victim.” In the present case, the court found the purchaser had adequately pled the harm to her from Apple’s conduct, while Apple had not provided any justifications to weigh against the harm.

Unlawful prong. Since the court declined to dismiss the purchaser’s FAL and CLRA claims, the court also declined to dismiss the purchaser’s UCL claim based on violations of those laws.

False Advertising Law. The purchaser also adequately pled her claim under the FAL, in the court’s view. The purchaser identified specific statements on Apple’s website that she alleged constituted misleading advertising, and Apple did not dispute that the statements were advertisements. She also alleged that she “based her decisions to purchase the Apple Device and/or purchase apps through the App Store in substantial part on Apple’s misrepresentations,” and therefore had alleged that she had relied on the statements.

Consumer Legal Remedies Act. The court also determined that the purchaser sufficiently pled her claim under the CLRA. The CLRA prohibits “representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another,” or that they have “characteristics,” “benefits, or quantities which they do not have.” The purchaser adequately alleged that Apple’s representations regarding the “particular standard, quality, and grade” of its devices had caused her to suffer monetary damages because she would not have paid as much for the iPhone had she known Apple’s representations were false.

In addition, the court found Apple’s argument that the purchaser was not a “customer” for purposes of the CLRA because her claims concerned the quality of third-party apps, not the quality of the iPhone itself, to be “too clever by half.” The court explained that the purchaser’s “overpayment claim relates to the purchase of her iPhone: an iPhone is a good; she bought it from Apple; she is a consumer. That her complaint stems from how the device functions does not change this basic conclusion.”

The court also denied Apple’s motion to dismiss as to a claim for negligent misrepresentation, but granted it as to a claim for unjust enrichment, as California law does not recognize a cause of action for unjust enrichment.

The case is No. 12-cv-01529-JST.

Attorneys: Jennifer Sarnelli (Gardy & Notis, LLP) for Maria Pirozzi. S. Ashlie Beringer (Gibson Dunn & Crutcher LLP) for Apple, Inc.

Companies: Apple, Inc.

MainStory: TopStory StateUnfairTradePractices Privacy CaliforniaNews

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