Technically Legal

Technology and the law. Done right.

iTunes Gift Cards: Where’s my $.30?

On Podcast #5 this week, the Technically Legal crew discussed the recent filing of a case involving iTunes Gift Cards.   Following the show, the three of us continued to debate the merits of the case.  Naturally, this led to some follow up discussion.

To bring you up to speed, here are the basic facts.  Last week, multiple sources (see Ars Technica and Apple Insider) reported the filing of a class action lawsuit in the Southern District of Illinois against Apple for using “bait and switch tactics on their gift cards.”  More specifically, the case in question (Owens et. al v. Apple, Inc.  3:09-cv-00479-WDS-GDW) alleges breach of contract, fraud and misrepresentation under Illinois law.  The claims are based on a statement found on the cardboard insert containing the gift card, which states:

“Download $15 worth of entertainment to enjoy on your Mac or Windows PC.  And, of course, your iPod.  Songs are 99¢ and videos start at $1.99.”

Back in April 2009, the iTunes store shifted their pricing model, which was previously set at 99¢ per song, to a variable pricing model where songs are priced between 69¢ and $1.29.  The Owens, the couple who filed the suit, purchased cards from brick and mortar retailers (Sam’s Club and Walmart) between two relevant time periods:  some before Apple changed it’s pricing scheme and others after it changed.   The first claims asserted by the Owens’ asserts that the statement on the card that “[s]ongs are 99¢” constitutes a legally enforceable contract, or at least a term of a contract. Thus, the cards purchased, but unused prior to the change, constituted a breach of contract at the point when the store changed the prices.  The second part to the breach claim is that even after the pricing changed, the cards were purchased from retailers with the same language on them, even though the pricing model had changed.   Finally, the second claim alleges fraud and misrepresentation in business practices by allowing these statements on the cards.

During the podcast, we hashed out some of the broader legal arguments regarding whether these words could even constitute a contract.  In short, there is some debate over whether the words could create some type of “offer,” as required under contract law, or were merely an advertisement.

Ben went out and took some snapshots of the front and back of the cards today (see here and here).   As you can see, the card still contains the language at issue despite the pricing change.  Interestingly, the complaint left out much of the disclaiming language on the back of the card, which, in relevant part, states,  “[s]ubject to full terms and conditions, see www.apple.com/legal/itunes/us/gifts.html.”

After visiting Apple’s Terms and Conditions URL today, Section 11(b) notes that “Prices and availability of any Products are subject to change at any time.”  Another notable provision in the terms and conditions states that “Apple reserves the right to change the terms and conditions of sale at the iTunes Store at any time.”  Interestingly, the terms were last updated on June 16, 2009.  The action was filed last week on June 24th.  We were unable to find any previous versions of the terms and conditions.  The quoted language might reflect the lawsuit, or it could be the case that those terms were always there.

This presents an argument that the contract claims are attenuated since the rear of the card clearly states they are subject to additional terms and conditions.  On a side note, a court might decide that the notice on the back of a card which subjects a purchase to such additional terms at a purchase might not be lawful under contract law since the costumer does not have a chance to read the terms prior to purchase.  However, this argument has popped up a lot in the past with respect to End-User License Agreements (EULA’s) in software, and repeatedly failed.

In any event, it may still be the case that the language on the card is enough to satisfy a claim for misrepresentation or  something along the lines of false advertising.

The three of us debated back and forth as to how the language could be read and came to a few conclusions.  One potential reading is that the phrase “songs are 99¢” does not necessarily mean that all songs are 99¢.  Another enticing reading is obtained when consider the sentence in whole, “[s]ongs are 99¢ videos start at $1.99” (emphasis supplied).  Reading the entire syntax of the statement seems to say that songs are definitively 99¢ and the cheapest videos start at 99¢.  This may impose a stricter reading of the verb “are.”  In other words, why would Apple indicate there is variable pricing for videos but not songs?

In the complaint, the plaintiffs–and the class if certified–have requested a refund of 30¢ per song based on the misleading statements.  Amazing how seven words can draw so much trouble, but precision of language is an extremely important part of the legal world.  We are going to keep our eyes on this case, as there will surely be more to come.

Comments Off Posted in: Analysis, Commentary on June 30, 2009

Technically Legal Podcast: Episode 5

Ringtones Infringing Copyrights, RIAA settles a case for nothing, and Apple Sued over iTunes Gift Cards.

Download the podcast here. E-mail us at podcast@technicallylegal.org.

Ringtones Infringing Copyrights

ASCAP
ASCAP and Copyright Doublespeak [EFF]
17 USC 106 - Exclusive Rights
17 USC 110 – Limitations on Exclusive Rights

RIAA Settles for Nothing

No mistakes? NH P2P case highlights MediaSentry’s issues [ars]

Apple Sued over iTunes Gift Cards

Apple sued over ‘false’ iTunes gift card promises
Owens v. Apple, complaint.

Other Stories

Pirate Bay Retrial Denied
Apple has Psystar Stay Lifted.

1 Comment Posted in: Podcast on June 30, 2009

De-FUD: Supreme Court Serves Up Nothing

Wired once again makes our De-FUD page. This time they are saying that the Supreme Court’s denial of certiorari in the CSC Holdings case was the Supreme Court “Serv[ing] Up Remote-Recording Victory.”

It really isn’t. Generally, the Supreme Court has control over which cases it decides and which it doesn’t. (There are a few minor exceptions, where the Supreme Court has to hear a case.) The court not deciding to hear this case is by no means a victory for remote recording. The Supreme Court has a series of rules it consults when determining to take a case. One of which is whether or not courts are divided on a certain issue. Since this is the first time this remote recording issue has come up, it’s not surprising that they didn’t choose to hear the case.

In short, the Supreme Court may very well hear a similar case, and may rule for the content owners.

Comments Off Posted in: Links on June 29, 2009

Ending Exclusive Handset Agreements

Recently, Congress and the FCC have been looking into exclusive deals between handset manufacturers (like Apple, Palm, and Motorola) and carriers (Verizon, Sprint, AT&T). The focus of the inquiry is whether they are anti-competitive, and whether they should be banned. The FCC is in a unique position to stop this practice because they are not bound by the same, narrow, requirements of antitrust law.

The FCC

The Federal Communications Commission is allowed to regulate wired and wireless communication and equipment necessarily associated with those. The regulations they pass have to be in the “public interest, convenience and necessity.” If the FCC were to conduct hearings and find that it would be in the “public interest, convenience and necessity,” it could ban the practice of exclusive licenses.

If the FCC were to make a rule like this, it would be subject to what is called a notice and comment period. The FCC would publish the proposed rule, and anyone could write in and make suggestions, or ask for explanations. The FCC would then respond to the comments and publish a final rule.

The final rule would almost certainly be challenged in court. The court would look at whether or not the regulation was within the power of the FCC (probably yes), and whether or not banning these exclusive license agreements was actually in the “public interest, convenience and necessity.” It is possible that without these exclusive licenses development costs would be higher, or they would be borne entirely by the developer, reducing innovation in the handset market. It would be hard to prove this one way or the other. So the FCC would likely get the benefit of the doubt unless the challenger could present some hard evidence.

Even with these limitations, the FCC has a better chance of stopping exclusive agreements than the the Federal Trade Commission, Department of Justice, or Private Parties.

FTC, DOJ and Private Suits

If the FCC doesn’t stop these exclusive agreements, the Department of Justice (and their Antitrust Division), the Federal Trade Commission (and their Antitrust Division), or private parties could try to stop these exclusive arrangements too.

While the Sherman Antitrust Act says that “Every contract, combination . . . or conspiracy, in restraint of trade . . . is declared to be illegal.” It doesn’t really mean that. From very early on the Supreme Court has taken this to mean that only unreasonable restraints on trade are illegal.

The DOJ and the FTC each have their own guidelines to apply when going after alleged antitrust violations. In the end, though, it comes down to whether or not a court thinks that the contract is an illegal restraint on trade.

Antitrust law is really to complicated to go into any detail here. Suffice it to say, there would be a lengthy court battle about a number of antitrust theories. Chief among the arguments would what the relevant market was (all cellphones or just smart phones), how much of the market the handset maker had, and whether the exclusive deal had an adverse effect on competition.

It is notoriously hard to guess how courts will rule on these issues, making it very difficult to predict an outcome. The cases would also be very specific from phone to phone. So the outcome would not be as even as it would be if the FCC or Congress acted to stop these exclusive agreements.

1 Comment Posted in: Analysis on June 25, 2009

Technically Legal Podcast: Episode 4

Jammie Thomas Trial, and IE Antitrust Litigation in the EU.

Download the podcast here. Send any comments to podcast@technicallylegal.org.

Jammie Thomas Trial

17 USC 106, Exclusive Rights.
RIAA v. The People.
Copyright Registration
Registration as a Prerequisite for Statutory Damages.

IE Anti-Trust Litigation

Europe cool to Microsoft’s offer to sell browser-less Windows system.
United States v. Microsoft.

1 Comment Posted in: Podcast on June 23, 2009

De-FUD: Ars Technica Swings and Misses

Ars technica did a post Jammie Thomas trial round up and missed a couple of important things.

First, they say that the constitutional grounds for challenging the jury verdict would be the Eighth Amendment’s prohibition on “excessive fine[s].” The Eighth Amendment only applies to criminal matters, and is inapplicable in this case. The verdict would be challenged as unconstitutional under the 5th Amendment. This will be discussed on this week’s podcast. Look for it on Tuesday.

Secondly, the article implies that the RIAA may still be willing to settle for a figure near what they previously offered: around $5000. This is very unlikely as it wouldn’t even being to cover the fees and costs associated with the two trials.

Comments Off Posted in: Links on June 21, 2009

What If Your Cellphone Rings in Public?

So, you’ve paid for your favorite song to be your ringtone, but what if your phone rings in public? Are you violating the author’s and performer’s rights to public performance? The EFF tackles that issue in the link above.

1 Comment Posted in: Links on June 20, 2009

Technically Legal Podcast: Episode 3

Google Lawsuit, iTunes App Store, Online Harassment Laws and Reporters on Facebook.

Download the podcast here. Send your comments or suggestions to podcast@technicallylegal.org

Google Sued Again for Trademark Infringement–Soaring Helmet v. Leatherup.com

Tim Langdell: The EDGE of Insanity?

Texas Lawmakers Crack Down On Fake Profiles

iAWFUL

AP Reporter Reprimanded For Facebook Post; Union Protests

Comments Off Posted in: Podcast on June 15, 2009

Google Class Action

Eric Goldman reports on a class action law suit filed against Google over trademark infringement. Professor Goldman hits the nail on the head when he says that the suit isn’t likely to go very far. Class actions involving trademarks rarely get past initial stages, because unlike most class action cases, where the harm is exactly the same to each class member, it rarely is the case in trademarks. Because damages would be different in each case, the Court is likely to find that they won’t save any time or resources by allowing the class action to go forward, as opposed to litigating each case individually.

Comments Off Posted in: Links on June 15, 2009

Updating Trademark Law With Stronger Safe Harbor Protections

On this past podcast we talked about the CDA and the DMCA, but there is no similar safe-harbor rule for Trademark infringement. The Citizen Media Law Project discusses the current innocent infringement provisions in trademark law.

Comments Off Posted in: Links on June 12, 2009

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