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From Antitrust Law Daily, July 25, 2013

Purchasers fail to state false advertising and deceptive practices claims over Apple’s advertising of iPhone’s Siri feature

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

IPhone 4S purchasers failed to state putative class action claims under California’s Unfair Competition Law, Consumers Legal Remedies Act, and False Advertising Law that Apple, Inc. deceptively advertised the Siri feature of the device, and did not adequately disclose that Siri was in “beta” status, the federal district court in Oakland, California has ruled (In re iPhone 4S Consumer Litigation, July 23, 2013, Wilken, C.).

Apple, Inc. produces various electronic products, including the iPhone mobile communications device. Its iPhone 4S model incorporated a feature called Siri, referred to by Apple as “an intelligent assistant that helps you get things done just by asking.” Apple’s advertising provided specific examples of Siri responding to questions posed to it by users, and “conveyed that Siri was able to perform various tasks that were depicted therein, including that Siri could be used to make appointments, find restaurants, send text messages, learn guitar chords to classic rock songs, and learn how to tie a tie.”

The complaint asserted that its named plaintiffs had each purchased an iPhone 42 between October 2011 and January 2012 in reliance on Apple’s representations regarding the Siri feature. However, each of them allegedly found that Siri did not perform as advertised, even when they asked Siri the same questions posed to it in Apple’s advertisements. In addition, Apple’s advertising generally did not disclose that Siri was a “beta” feature, although a “Frequently Asked Questions” page “buried on Apple’s website” did mention that “Siri is currently in beta and we’ll continue to improve it over time.” Several other pages also noted that Siri was in beta, without elaborating. Moreover, the plaintiffs noted reports that allegedly showed “that continuous Siri usage dramatically increases an iPhone 4S user’s monthly data usage and can easily push users over their data plans.”

The plaintiffs asserted claims against Apple for violations of the CLRA, FAL, and UCL, among other claims. Apple moved to dismiss.

Standing. The court rejected Apple’s argument that, based on choice-of-law analysis, two of the plaintiffs lacked standing to assert their claims under the UCL, FAL, and CLRA because they were not residents of California and did not purchase their iPhones in California.

The court explained that Apple had “conflated two issues: the extraterritorial application of California consumer protection laws (or the ability of a nonresident plaintiff to assert a claim under California law), and choice of law analysis (or a determination that, based on policy reasons, non-forum law should apply).” The California courts had previously concluded that out-of-state parties could invoke state statutory remedies when injured by wrongful conduct occurring in California, and the plaintiffs had “alleged that Apple’s purportedly misleading marketing, promotional activities and literature were coordinated at, emanate from and are developed at its California headquarters, and that all ‘critical decisions’ regarding marketing and advertising were made within the state.”

The court found, contrary to Apple’s contention, that Mazza v. American Honda Motor Co., Inc., 666 F.3d 581 (9th Cir. 2012) did not demand a different result. Mazza “addressed whether differences between California consumer protection laws and the consumer protection laws of other states preclude class certification,” not whether the named plaintiffs could assert claims under California law. Moreover, California’s choice-of-law analysis had to be conducted on a case-by-case basis. The court found “that Mazza did not allow the defendants to substitute Mazza’s holding in lieu of their own careful analysis of choice-of-law rules as applied to this particular case.” Apple had failed to show how any differences between the consumer protection laws of California and the other relevant states “would be material to the facts of the instant litigation,” according to the court.

Rule 9(b). However, the court determined that the plaintiffs’ UCL, CLRA, and FAL claims failed because their allegations did not comply with Federal Rule of Civil Procedure 9(b)’s heightened pleading standard for claims of fraud or mistake. The plaintiffs did not dispute that Rule 9(b) applied, but did contend that they had sufficiently alleged their claims.

The court observed that the plaintiffs’ claims were “based on a fraudulent course of conduct,” in that they alleged that Apple’s “advertisements were fundamentally and designedly false and misleading,” and that Siri does not perform as advertised.” However, the court agreed with Apple that the plaintiffs failed to sufficiently allege “how these statements were misrepresentative or fraudulent, and how Siri failed to perform as advertised.” The court noted that the plaintiffs had not “explained what exactly Apple led consumers to believe in the commercials about Siri’s performance, through what particular statements, nor . . . what about these representations was in fact false,” and had not “specified precisely how Siri failed to meet the representations that they claim Apple made, what the truth about Siri’s performance actually was and how Apple knew or should have known that these representations were false.”

Disclosure of beta status. However, the court rejected Apple’s argument that the plaintiffs’ claims should be dismissed because it had adequately disclosed Siri’s beta status. The court observed that, although some, but not all, pages on Apple’s website disclosed Siri’s beta status, its advertisements did not. Moreover, the disclosures on Apple’s website were frequently made “in much smaller font, separated from the primary discussion of Siri’s features.” Therefore, although Apple could offer its disclosures as a defense on the facts, they were not sufficient to dismiss the plaintiffs’ claims as a matter of law.

Puffery. The court also declined to dismiss the plaintiffs’ claims on the ground that many of Apple’s statements were “non-actionable puffery.” Although Apple correctly argued that its use of words like “amazing” or “impressive” were “mere puffery upon which a reasonable consumer could not rely,” its “portrayals of the ways in which Siri operated can be used to show misdescriptions of specific or absolute characteristics of the claimed features,” and therefore could support the plaintiffs’ claims.

Reliance. The court did find further grounds to dismiss the plaintiffs’ UCL, FAL, and CLRA claims in their failure to allege with specificity the claims they each relied upon in purchasing their iPhones. Although the plaintiffs each alleged that they had relied on Apple’s television advertisements and website representations, they did not “specify particular commercials, presentations, or portions of the website,” and did not “state whether the ones that [they] saw and relied upon were those whose contents were alleged elsewhere” in the complaint.

The court rejected the plaintiffs’ contention, based on Morgan v. AT&T Wireless Services, Inc., 177 Cal. App. 4th 1235 (2009) and In re Tobacco II Cases, 46 Cal. 4th 298 (2009) that they did not have to “specify each and every time they were exposed to one of Apple’s misrepresentations,” because the misrepresentations “were part of a consistent, broad marketing campaign by Apple over time.” The court observed that the court had previously concluded in Herrington v. Johnson & Johnson Consumer Companies, Inc., 2010 WL 3448531 (N.D. Cal.) that “In re Tobacco II merely provides that to establish UCL standing, reliance need not be proved through exposure to particular advertisements; the case does not stand for, nor could it, a general relaxation of the pleading requirements under Rule 9(b).” Moreover, Apple’s advertising campaign was only six months old when the plaintiffs filed their complaint, as compared to the decades-long campaign alleged in In re Tobacco II.

CLRA claim. However, the court declined to grant dismissal of the plaintiffs’ CLRA claim based on Apple’s argument that the plaintiffs’ claims only related to Siri, not the iPhone 4S, and that Siri itself was not a good or service for purposes of the CLRA. The plaintiffs had alleged that Siri was a “feature” of the iPhone 4S, and the distinguishing characteristic that made them choose to pay for the iPhone 4S. The court distinguished the present case from ones concluding that software was not a good or service for purposes of the CLRA, noting that the plaintiffs’ CLRA claim was “premised on the purchase of the iPhone 4S itself, of which Siri is alleged to be a feature,” rather than “on the downloading or purchase of software.”

UCL claim. The court found that the plaintiffs had failed to state a claim for violation of the UCL. The court dismissed the plaintiffs’ fraudulent business acts or practices claim for the same reasons that it had previously dismissed the plaintiffs’ fraud claims. Since it had previously dismissed the plaintiffs’ other claims, the court dismissed the plaintiffs’ claims under the unlawful prong of the UCL, which permits borrowing of violations of other laws as the predicate for stating a cause of action under the UCL.

Moreover, the court noted that the UCL requires plaintiffs to “establish that they (1) suffered an injury in fact and (2) lost money or property as a result of the unfair competition.” The plaintiffs had failed to adequately allege that they had suffered injury “as a result of any particular deceptive or misleading statements made by Apple,” and thus had not properly alleged that they had standing under the UCL, according to the court.

The case is No. C 12-1127 CW.

Attorneys: Matthew S. Kahn (Gibson Dunn and Crutcher) for Apple, Inc. Jennifer Sarnelli (Gardy & Notis, LLP) for Frank M. Fazio.

Companies: Apple, Inc.

MainStory: TopStory StateUnfairTradePractices Advertising CaliforniaNews

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