Apple previously sold iTunes gift cards with packaging that stated “Download $xx worth of entertainment to enjoy on your Mac or Windows PC. . . . Songs are 99¢ and videos start at $1.99.” In April 2009, Apple changed its pricing structure and raised the price of a limited number of songs on iTunes to $1.29. Plaintiffs, who alleged purchases of iTunes gift cards in March 2008 and May 2009, filed a class action alleging false advertising and breach of contract. Apple alleged that it stopped shipping the challenged gift cards to retailers “long before” the price restructuring in 2009, and it argued that price information appearing on old gift cards should not require Apple to sell all iTunes songs for 99¢ forever. A federal judge recently denied Apple’s motion to dismiss. (Owens v. Apple, Inc., No. 09-cv-0479-MJR (S.D. Ill. 2009)).
Apple’s motion to dismiss relied on several arguments. Of interest here is Apple’s claim that the complaint failed to satisfy the new pleading standard set forth in Bell Atlantic v. Twombly.
With regard to Twombly, the court stated that the plaintiffs need not include actual evidence in their complaint; instead, with respect to their claim for breach of contract, the plaintiffs need only allege that they suffered damages as a result of the breach of a “definite and certain contract term.” While Apple argued that the claim was not that “all” songs were available for $.99, the Court disagreed. It found that there was “nothing vague” about the representation which included qualifying language regarding the price of videos, but not for the price of songs. Apple’s argument with respect to the false advertising claim was rejected on similar grounds. To paraphrase Shakespeare (badly) one wonders whether “for want of a ‘prices subject to change’ disclaimer, a motion to dismiss was lost.”
With regard to the materiality requirement under Plaintiffs’ false advertising claim, Apple argued that under Twombly the complaint did not establish that it was “plausible” that Plaintiffs would not have purchased the gift cards in light of the very small number of songs for which the price was increased by $0.30. The court, however, did not explicitly address Apple’s materiality argument.
In another recent decision applying Twombly to federal claims for false advertising, the District of Colorado similarly held that the new pleading standard does not require plaintiffs to include actual evidence in their complaints to survive a Rule 12(b)(6) motion. (Gates Corp. v. Dorman Products, Inc., No. 09-CV-02058 CMA-KLM (D. Colo. 2009)) Instead, a plaintiff alleges facts sufficient to show that a particular representation is likely to deceive by asserting that the representation is false or misleading and material. Materiality may be sufficiently alleged by asserting facts suggesting that consumers bought the defendant’s products because of the challenged representation. The plaintiff “cannot be expected to present detailed evidence in its Complaint on the nuances of consumer confusion, such as survey evidence,” the court said, especially where the cause of action requires only a “tendency to deceive.”
Plaintiffs are likely to take note of Owens and Gates and argue that the cases suggest that Twombly and Iqbal may not have a significant effect on the pleading standards for state and federal claims for false advertising. We will keep watching to see how other courts apply the new pleading standard to these claims.
We’ll also keep you informed of further developments in Owens v. Apple. Even though Apple lost this round, some interesting questions remain including class certification, whether a consumer can reasonably believe that a pricing claim remains true a year or more after purchase of a gift card, and whether after some period of time it is reasonable for an advertiser to assume that no more of its product bearing the relevant claim remains in the marketplace.
