Monday, October 07, 2013

"unlimited" service that was actually limited could deceive consumers

Chapman v. Skype Inc., --- Cal.Rptr.3d ----, No. B241398, 2013 WL 5502960 (Ct. App. Oct. 4, 2013)

Chapman alleged that Skype falsely advertised its voice over IP calling plans as “Unlimited” when they actually limited the number of minutes per day and month and the number of calls per day.  The trial court dismissed her claim, but the court of appeals reversed, holding she’d stated a claim for violation of the usual California statutes, and could potentially plead intentional and negligent misrepresentation with sufficient specificity as to actual reliance, as well as unjust enrichment.

Skype offers “Unlimited” monthly calling plans, including an “Unlimited World” calling plan that it describes as allowing “unlimited” calls to 40 countries and an “Unlimited U.S. & Canada” plan.  A footnote appears immediately after “Unlimited.”  The superscript references a link at the bottom of the page stating in a much smaller font, mostly in blue text, “A fair usage policy applies.” The link goes to the policy terms on another page.  The policy says that the calling plan is limited to 6 hours per day, 10,000 minutes per month and 50 numbers called per day, and that calls in excess of these limits will incur the “normal rates and connection fees.” Plus, calls to mobile telephones in 32 out of the 40 countries are not included.

I took screenshots of one Skype offer today, which still seems to have the allegedly problematic features—the “fair usage policy” doesn’t even have a link, which is not good.  Query also whether “things you should know” just above the bottom interferes with directing consumers’ attention to the important caveat about “unlimited”—to wit, that it’s actually limited.

One screen down:
3 screens down:
Chapman subscribed to the Unlimited U.S & Canada plan and believed that there was no limit on the minutes or calls she could make. She didn’t notice the “fair usage policy” language, used her calling plan freely, and was charged overage fees when her use exceeded the limits.  She filed a putative class action.  The trial court accepted Skype’s arguments that customers were required to click a box affirming that “I agree to the Skype Terms of Service” before buying, and that Skype provided a link to the terms of service, which itself provided a link to the fair usage policy.  Having agreed to be bound by the ToS, Chapman was bound by the fair usage policy.  The trial court found that the footnote reference was “clearly conspicuous.”

Practice note: The general rule about advertising disclosures is that you can’t disclose information that contradicts a false or misleading claim and thereby cure the deceptiveness.  The FTC doesn't like that at all.  The court of appeals agreed that Chapman had stated a claim for violations of the UCL and FAL (thus also CLRA).  Whether consumers are likely to be deceived is usually a question of fact. 

Here, a factfinder could reasonably conclude that consumers were likely to be deceived because they’d fail to notice the disclosure that the plan wasn’t actually unlimited.  As the court noted, “[a] reasonable interpretation of the words ‘fair usage policy’ is that they suggest a policy to protect against misuse of the service provided. They do not necessarily suggest to an ordinary consumer that the ‘Unlimited’ plan is actually limited as to the number of minutes and number of calls. Those words therefore do not necessarily, and as a matter of law, alert a reasonable consumer to the need to follow the link to learn the details of those limits.”

In addition, Chapman adequately alleged actual reliance—causation—which can be inferred from a material misrepresentation.  The materiality of “unlimited” was also a factual question.

As for negligent and intentional misrepresentation, Chapman adequately alleged misrepresentation.  The question was whether she alleged actual and justifiable reliance.  Skype argued that Chapman failed to properly allege that she wouldn’t have bought a subscription if she’d known of the limits, and that the fact that she twice renewed her subscription after learning of the limits showed that she did not actually rely on “Unlimited.”  The renewal wasn’t part of the complaint and wasn’t judicially noticeable, and the court expressed no opinion on whether renewals demonstrated that she would’ve bought a subscription even if she’d known of the limits.  Moreover, it was possible for Chapman to have justifiably relied on the misrepresentation even after being afforded a reasonable opportunity to read the terms.  “Although the failure to read a contract precludes a claim of fraud in the execution, so as to render the contract completely void, it does not necessarily preclude equitable relief from the contract terms based on a misrepresentation.”  Chapman wasn’t alleging fraud in the execution, and she didn’t entirely fail to read the contract, but instead read and allegedly relied on the “unlimited” representation.

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