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

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