Consumer's Claims About His Rights to Itunes Purchases Survives Motion to Dismiss

Consumer’s Claims About His Rights to iTunes Purchases Survives Motion to Dismiss

CONTRIBUTORS ALERTS

July 30, 2021

What Does It Mean to "Buy" Digital Content?

On August 13, 2020, David Andino sued Apple Inc. (Apple) in the United States District Court Gary R. Greenstein for the Eastern District of California for violations of three California state laws: 1) the Consumers Legal Remedies Act (CLRA), 2) the False Advertising Law (FAL), and 3) the Unfair Competition Law (UCL). The claims turn on the meaning of a single word—"Buy." On April 19, 2021, the court held that all three claims could move forward because Andino showed that he alleged an existing injury and that he and other consumers reasonably could have been confused by Apple's use of the word "Buy."1 Christopher A. Apple's iTunes Store allows users to "Rent" or "Buy" digital content, including movies, music, Paniewski and television shows, at diﬀerent prices. For instance, users can "Rent" a movie for $5.99 or "Buy" a movie for $19.99.2 Apple's agreement3 with its users explains that access to digital content—even content that is purportedly "bought"—may provide less than full ownership rights:

"You may use the Services and Content only for personal, noncommercial purposes Morgan Oksana (except as set forth in the App Store Content section below)."4 Dudkewitz "Content may not be available for Redownload if that Content is no longer oﬀered on our Services."5 "Apple further reserves the right to modify, suspend, or discontinue the Services (or any part or Content thereof) at any time with or without notice to you, and Apple will not be liable to you or to any third party should it exercise such rights."6 "BY USING THE SERVICES, YOU AGREE, TO THE EXTENT PERMITTED BY LAW, TO Brian J. Levy INDEMNIFY AND HOLD APPLE… HARMLESS WITH RESPECT TO ANY CLAIMS ARISING OUT OF YOUR BREACH OF THIS AGREEMENT… YOU AGREE THAT YOU SHALL NOT SUE OR RECOVER ANY DAMAGES FROM APPLE, ITS DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, AGENTS, CONTRACTORS, AND LICENSORS AS A RESULT OF ITS DECISION TO REMOVE… ANY INFORMATION OR CONTENT."7

Andino alleged that he purchased unspeciﬁed "Digital Content"—presumably by clicking "Buy"—and would not have entered into that transaction if he knew he would receive only a license to that content.8 Andino further alleged that other iTunes consumers were not aware that by clicking the "Buy" option on the application, they purchased only a license to the digital content rather than ownership of the content itself.

Copyright © 2021 Wilson Sonsini Goodrich & Rosati. All Rights Reserved. On behalf of a putative nationwide class, Andino alleged Apple's misleading use of the word "Buy" violated three California state laws: 1) the CLRA, 2) the FAL, and 3) the UCL. Apple moved to dismiss all claims, arguing that Andino lacked standing because none of his content had yet been removed9 and further arguing that no reasonable consumer would believe they had purchased digital content that would be available forever.10 The court rejected those arguments. With respect to standing, the court held that Andino had alleged that he already suﬀered an injury: "[H]e spent money purchasing the content that he wouldn't have otherwise as a result of Apple's [alleged] misrepresentation" that he would possess the content in perpetuity.11

With regard to the reasonableness of Andino's belief, the court pointed to a dictionary deﬁnition of "Buy"—"acquire possession over something"—and held that it was "plausible" that consumers were misled.12

Because of the procedural posture, Apple has not yet argued that Andino agreed, under any agreement with Apple, to obtain only a limited license to access "purchased" content. Andino implied in his complaint that he was not bound by any agreement with Apple because he did not accept any terms before each individual purchase: "[B]y clicking the 'Buy' button, the digital content instantly becomes available in the consumer's digital content library without the consumer needing to accept any terms and conditions pursuant to a click-wrap agreement."13

The court will have to decide whether Andino somehow avoided entering into an agreement with Apple and whether Andino was granted only limited license rights despite Apple's usage of the term "Buy."

This case may establish law on the issue of whether consumers obtain any rights beyond a license based on the description of the purchased digital content. If the court finds that the terms of service were accepted by Andino, Apple will presumably argue that it has merely licensed the digital content subject to certain terms. In 2010, the United States Court of Appeals for the Ninth Circuit promulgated a three-part test for determining whether a user is a licensee or owner of software: "[A] software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions."14 It remains to be seen whether the Andino court will apply a similar standard with respect to the purchase of the digital content available through the iTunes store—e.g., music, movies, and TV shows.

The dispute over whether purchasers of digital media content obtain a license or ownership of digital goods may have far-reaching consequences. In this case, millions of consumers could be affected. Andino will likely move for class certification. Apple's Media Services Terms and Conditions does not include a mandatory arbitration clause or a class-actions waiver. While Apple garnered some positive publicity for that decision,15 it could expose Apple to significant damages.

The outcome in this litigation could also aﬀect how consumers acquire digital content going forward. Vendors often oﬀer "products" for "sale," even though the consumer never acquires ownership of the content. As here, distributors frequently argue that consumers merely buy a license when they buy movies or music.16 For example, this was encapsulated by the Divx DVD format, which allowed users to view purchased DVDs for a limited period of time.17

Regardless of the decision by the Andino court, companies should review their online terms to determine whether revisions should be made to avoid any risk of consumer confusion.

For more advice on digital media and music rights, please contact Gary Greenstein or any member of the ﬁrm's Digital Media and Entertainment practice.

Gary Greenstein, Christopher Paniewski, Angelina He, Morgan Dudkewitz, and Brian Levy contributed to this alert.

[1] Andino v. Apple, Inc., No. 2:20-cv-01628-JAM-AC, 2021 U.S. Dist. LEXIS 76011 (E.D. Cal. Apr. 19, 2021).

[3] Neither Apple nor Andino has speciﬁed which contract is at issue. For the purpose of this Alert, we refer to the “Apple Media Services Terms and Conditions,” 09/16/2020, available at https://www.apple.com/legal/internet-services/itunes/us/terms.html.

[4] Apple Media Services Terms and Conditions § B (Services and Content Usage Rules), https://www.apple.com/legal/internet-services/itunes/us/terms.html.

[5] Id. § B (Downloads).

[6] Id. § L (Termination and Suspension of Services).

[7] Id. § L (Waiver and Indemnity).

[8] See, e.g., First Am. Compl. ¶¶ 55–58, Andino v. Apple, Inc., No. 2:20-cv-01628-JAM-AC (E.D. Cal. Dec. 7, 2020), ECF 11.

[9] Andino, No. 2:20-cv-01628-JAM-AC, at *4–5.

[10] Id. at *13–14.

[11] Andino, No. 2:20-cv-01628-JAM-AC, at *4–5.

[12] Id. at *14.

[13] First Am. Compl. ¶ 12, Andino, No. 2:20-cv-01628-JAM-AC (N.D. Cal. Dec. 7, 2020), ECF No. 11.

[14]Vernor v. Autodesk, Inc., 621 F.3d 1102, 1111 (9th Cir. 2010); cf. Universal Instruments Corp. v. Micro Sys. Eng'g, Inc., 924 F.3d 32, 45 (9th Cir. 2019) (discussing Vernor).

[15]Ed Zimmerman, Class Action Waivers in Consumer Web Agreements: Congress Enters the Debate, Forbes (Oct. 31, 2017), https://www.forbes.com/sites/edwardzimmerman/2017/10/31/class-action-waivers-in- consumer-web-agreements-congress-enters-the-debate/?sh=4f1c831711db (“Perhaps as a result of the potential for negative publicity, at least some large web-based consumer-facing companies . . . have opted not to use class action waivers in their terms of service.”).

[16] See, e.g., Cullen Kiker, Amazon Cloud Player: The Latest Front in the Copyright Cold War, 17 J. Tech. L. & Poly 235, 241–42 (2012) (“Many of these sales include language that labels the MP3 ﬁle as a license to enjoy the music as opposed to a purchase. When a consumer purchases an MP3 ﬁle, there is a question if, regardless of their trappings of a license, users are purchasing a license or making an actual purchase as if it were a physical CD.”).

[17] See Kevin Hunt, Circuit City Finally Kills Divx, Ending Doomed Experiment, Hartford Courant (June 24, 1999), https://www.courant.com/news/connecticut/hc-xpm-1999-06-24- 9906240822-story.html.