annoyingly redacted opinion finds Block falsely advertised versus TurboTax

Intuit Inc. v. HRB Tax Gp., Inc., 2024 WL 5320392, No. 5:24-cv-00253-BLF (N.D. Cal. Dec. 3, 2024)

Intuit, which makes TurboTax and has had some advertising troubles of its own (hey, check out the IRS Free File program, for taxpayers with AGI of $84,000 or less and with many fillable forms for those with more), sued HRB (Block) for its advertising of a competing tax product, and succeeded in part.

TurboTax has three tiers: TT Do-it-yourself (DIY), Live Assisted, and Live Full Service. Live Assisted, the focus of this case, allows customers to prepare their tax returns largely independently, but it also provides “unlimited access to tax experts to help them with any questions that they may have,” among other features. (Live Full Service, by contrast, involves actually turning over all the taxpayer’s documents to a tax professional to prepare the return.)

Within TT Live Assisted, there are multiple individual products that a customer may select based “upon the level of tax complexity” of their situation. TT Live Assisted Basic might apply to a consumer with just a W-2 and no additional schedules. TT Live Assisted Deluxe is for a “slightly more complex” tax situation, e.g. “additional deductions and credits” or “mortgage interest.” Live Assisted Premium, “essentially includes all tax forms [and] schedules.” But all have tax expert assistance including “expert final review,” following a prompt asking whether the consumer wants to connect with an expert about their tax return.

Block has two tiers: Do-It-Yourself (DIY) and “File with a Tax Pro.” Within DIY, there are a further four tiers, including Free Online, Deluxe, Premium, and Self-Employed. DIY Free Online is geared toward simple tax returns and is free. DIY Deluxe is for consumers with more complex tax situations, such as those seeking to “maximiz[e] deduction and credits,” so it includes more tax forms. DIY Premium allows reporting of investment or rental income. DIY Self-Employed is for self-employed taxpayers who need to file a Schedule C.

DIY Deluxe had live expert help, artificial intelligence assistance, an automated accuracy review or error check, year-round support, and various guarantees, among other features. Separately, Block offers “Tax Pro Review” as an add-on, which allows “a DIY consumer, after they have filled out their taxes, the ability to send their tax return to a tax expert” along with their source documents, so that the tax expert can review, sign, and file the return.

Intuit challenged five of Block’s ad claims: (1) claims that Block’s products with expert and AI assistance features start at a lower price than Intuit’s products with similar features; (2) claims that Block’s paid DIY products are comparable to TurboTax Live Assisted; (3) claims that Block’s products with AI and expert assistance cost “[a]t least $54 less than TurboTax Live”; (4) claims that Intuit’s Live Full Service product “starts at” $169; and (5) claims suggesting that “5 million ‘TurboTired’ TurboTax consumers ‘switched’ to Block in 2023.”

For example, Block advertised: “Fed up with hidden fees? Make the switch to H&R Block with upfront transparent pricing.” TT challenged the middle tile’s claim that Block offered “expert help” “[s]tarting at $35” when Intuit’s “starting at” price for the same “expert help” was $0.

comparative ad

Also, relevant to claim (2), the ad compared a TurboTax Live Assisted product—Live Assisted Deluxe—with Block’s paid DIY products that don’t include a final expert review, which Intuit alleged was a material difference. TT Live and Live Assisted included guarantees that Block didn’t for its paid DIY products. Finally, Intuit, argued that Block’s products used chatbots to make it “incredibly difficult, if not impossible, to actually engage with an expert,” whereas TT didn’t.

For claim (4), Intuit dropped the price of Live Full Service to many customers at a starting price of $89, although in prior years the starting price had been $169; until it was contacted by Intuit regarding the inaccuracy, Block ran ads stating that the starting price for Intuit’s Live Full Service product was $169.

For (5), Intuit pointed to an email: “It’s Better with Block” that also included “TurboTired? Switch and save with Block” and concluded: “Join the 5 million+ who switched to Block last year.”

TurboTired/join the 5+million who switched ad

Intuit offered Professor Joel Steckel of the New York University Stern School of Business as an expert who conducted several surveys. He testified that respondents looking at Block’s home page—which displayed an advertisement similar to the challenged ads—believed that “there were at least as many features in the Block website and that the Block product costs less.” Based on another study, in combination with a review of academic literature, Dr. Steckel concluded that “Block’s conduct, which resulted in the perception of an equal or superior product at a lower price, could cause negative feelings regarding the pricing of TurboTax products and harm the TurboTax brand.” And a third study looking at the TurboTired ad led him to conclude that claims that “5 million+” people switched to using Block products “likely did influence ... consumers to switch to Block” because those consumers “would have understood that ... the 5 million-plus who switched to Block had all switched there from TurboTax.”

Block’s own expert, Hal Poret, critiqued these surveys and the related testimony, including use of controls.

Claims about expert/AI help: Intuit argued that Block “falsely claim[s] that its paid DIY products offering ‘expert’ and ‘AI’ assistance ‘starting at’ $35 were cheaper than Intuit’s product with expert and AI help.” These challenged ads were “literally false,” according to Intuit, because TurboTax Live Assisted Basic—which is free for certain customers—includes expert and AI assistance. Block responded that the point of the ad was not to compare the starting price for expert/AI assistance in any circumstance, but rather to compare Block’s DIY Deluxe product with Intuit’s TurboTax Live Assisted Deluxe product, and that the prices listed were literally true insofar as those were the products being compared.

The court found that Intuit’s reading of the ad was correct and that the ad was literally false by necessary implication. Block’s own witness testified that the bullet points listed on the relevant advertising tile pertained to various Block products, not just Block’s DIY Deluxe product: the tile mentions “[o]ptions for deductions, investors, and self-employed,” a statement that alludes to Block’s DIY Premium and DIY Self-Employed products.

Thus, it wasn’t credible that the ad was supposed to compare TurboTax Live Assisted Deluxe with Block DIY Deluxe based on “the tax situations that th[ose] product[s] cover” and “the tax forms that are available” in those products. The advertising tile clearly emphasized the availability of expert assistance—other than the $35 price, the most prominent text on the tile states “File your taxes with expert help.” And it said nothing about the specific tax forms available through Block’s DIY Deluxe product; instead, it alluded to multiple different Block products. “Block could easily have emphasized certain specific tax forms if indeed that was the basis for the price comparison, but it did not do so. Instead, it told customers about the starting price for Block’s products that include expert help. A viewer of this ad would readily recognize the ‘necessary implication’ that the TurboTax product it listed as a comparison was the lowest-priced TurboTax product with expert assistance.” The court therefore presumed actual deception as well.

The court also found likely success on materiality. (Here’s where harm causation gets tricky—since Intuit doesn’t directly benefit from anyone who uses the free product with expert assistance, and people who pay for TT because they mistakenly thought they’d get to use the free product are more accurately characterized as victims of false advertising rather than as beneficiaries, the “value” that Intuit gets here is actually at most “brand value” rather than the value of a truthful claim. We’re in a world where that’s enough, I guess.)

Steckel’s study of the ad at issue concluded that “respondents thought that there were at least as many features in the Block website and that the Block product costs less.” He also found that “price [was] extremely important,” and he also found that approximately one-third of survey respondents identified availability of tax expert assistance as important. He also summarized academic literature showing that “price comparisons ... increase[ ] the purchase likelihood of the brand making the comparison and reduce[ ] consumers’ intent to search for more information.” “In combination, Dr. Steckel’s findings support his conclusion that claims that tax expert assistance is available starting at a lower price through Block’s products are likely to affect consumer purchasing decisions, since a significant number of consumers are interested in expert assistance and a significant number of consumers also care strongly about the price of the product they select.”

Block’s critiques were insufficient; Poret primarily challenged the lack of a proper control group, which went primarily went to misleadingness/deception. And even without a proper control, the court wasn’t “persuaded that it should ignore Dr. Steckel’s finding that 25 percent of respondents who viewed the original advertisement thought it showed that Block’s products included comparable or more features than the comparator product.”

The court also found likely injury to Intuit, applying a presumption of injury when there’s direct competition and a tendency to mislead, as well as testimony of Intuit’s Director of Marketing Strategy of her belief  that the ads “absolutely were harmful” to Intuit, in the form of both reputational harm and economic harm and Steckel’s testimony that “Block’s conduct, which resulted in the perception of an equal or superior product at a lower price, could cause negative feelings regarding the pricing of TurboTax products and harm the TurboTax brand” and conclusions from the academic literature that “price comparisons ... increase[ ] the purchase likelihood of the brand making the comparison and reduce[ ] consumers’ intent to search for more information.”

To the extent Block was enjoined from claiming that expert and AI assistance “starts at” a lower price with Block than with Intuit, Block would likewise be barred from claiming that expert and AI assistance costs at least $54 less with Block than with Intuit, given that Intuit provides expert and AI assistance for free through TurboTax Live Assisted Basic, so such assistance is actually available for less with Intuit than with Block.

What about the claims comparing Block’s paid DIY products with TT Live Assisted? Intuit identified several putative material differences: (1) although both companies’ products offer “as-you-go” expert assistance, only TurboTax Live Assisted has the additional “expert final review” feature without additional cost; (2) this also allows a free upgrade for an expert to prepare, sign, and file the review; (3) TurboTax Live Assisted includes a guarantee that consumers will be reimbursed for any penalties assessed due to errors made by the tax expert who assisted the Live Assisted consumer; (4) TT’s access to live experts is easier.

Block argued that comparing the two was not misleading and that these putative differences were marketing gimmicks that weren’t significantly different; the vast majority of TT Live Assisted consumers, it said, didn’t get an expert final review, since they must take proactive steps to prompt the review process.

Lanham Act case law accepts an apples-to-oranges theory of falsity for comparative advertising when an ad “omits differences which would have been material to recipients.” The court found that Intuit’s feature was genuinely different from Block’s on expert final review, citing some redacted evidence. Its tools “enable Intuit’s experts to proactively identify any overarching concerns about consumers’ prepared returns.” Although both companies’ products permit unlimited question-and-answer with live experts, at the end of the process, an Intuit customer can request a final review in which the expert conducting the review proactively looks for issues and uses unique tools to help target any such issues. Block doesn’t have that “proactive” feature for its paid DIY products.

In addition, TT Live Assisted permits a tax expert to “complete, sign, and file” a consumer’s return on their behalf, while a Block consumer looking for a similar sign-and-file service must “pay the add-on fee for Tax Pro Review.” Although this free upgrade occurs in only a “tiny fraction” of cases (again, redacted), the court found that this was also a genuine difference.  However, the argued ease of access to expert assistance was not shown to be a genuine difference. Both products included “as-you-go” assistance from experts that can be reached using a “help button” from virtually any page of the tax preparation software experience. Both had live help via web chat, phone call, or screen share. Although Block’s web chat uses an “AI Assistant” to ask an initial set of questions before connecting a consumer to a live expert, the court was persuaded Block’s evidence and arguments showing that the exchange with the AI assistant was quite brief. And although some Block experts are located in India, they receive the same training and interact with consumers the same way regardless of their location.

Finally, Intuit’s argument that the parties’ guarantees were meaningfully different was mistaken.  

So, were expert final review and/or free sign-and-file used in a “tiny fraction” of cases material? The court indicated that materiality could be assessed in two ways: whether the omitted information was “ ‘likely to influence the purchasing decision’ of consumers,” generally demonstrated through use of consumer surveys, or whether “the defendants misrepresented an inherent quality or characteristic of the product.” While the “inherent qualit[ies] or characteristic[s]” of a product may sometimes be self-explanatory, any doubts as to what counts as “the very nature” of the product “must be addressed by evidence of why a consumer sought out a given product—i.e., the primary purpose(s) that drove their consumption activity.”

Expert final review was neither an “inherent quality or characteristic” of Live Assisted nor a “key product feature” going to “the very nature” of an online tax preparation product, unlike the way that “the amount of beef in a burger is an inherent quality or characteristic of a burger.” Evidence that a redacted percentage of Live Assisted consumers take advantage of the expert final review feature didn’t help. [Hmph.] “The Court is skeptical that a feature that must be affirmatively invoked—and if not invoked, is not experienced by the consumer—counts as part of ‘the very nature’ of a product.” There was no other evidence that the prospect of such review drove consumption. Evidence that consumers who used expert final review really liked it did not mean it was material to a purchase decision. Nor did Steckel study expert final review specifically. “[I]t is possible that consumers do not see a difference in value between the type of expert final review offered by Intuit and the as-you-go expert assistance offered by a live expert through either party’s products.” For the extraordinary remedy of a preliminary injunction, this was insufficient.

Similar problems hampered Intuit’s showing on the materiality of the free sign and file service, especially since Intuit doesn’t widely advertise this service, which requires “dig[ging] deep enough” online to even know that such an upgrade is available and “the fraction of individuals who are upgraded in this way is vanishingly slim.”

Claims that over five million consumers switched to Block, when only redacted [ugh!] did: Intuit argued that 5 million was the total number of new Block customers. Block added a disclaimer to that effect on its website after Intuit filed suit, but Intuit argued that it was insufficient. Block also argued that it discontinued any combination of this claim with the “TurboTax switcher” message so the claim was moot. The court disagreed, because voluntary cessation doesn’t moot a claim unless there’s no reasonable expectation that the wrong will be repeated. Here, Block only added a disclosure after the TRO hearing and that was just an asterisk linked to small text at the bottom of the page, not directly below the claim.

The court found likely success on falsity. The ad at issue necessarily implied that over 5 million people switched from Intuit to Block. The phrases “TurboTired? Switch and save with Block,” “Switch from TurboTax® now,” and “Join the 5 million+ who switched to Block last year” all appeared in the same content box within the email. Plus, even if it weren’t false by necessary implication, Steckel’s survey showed likely deception in more than 50% of respondents; even with the disclaimer language in the body of the email, Steckel found that 47 percent of respondents still came to the same conclusion.

Poret critiqued the survey by arguing that TurboTax and H&R Block are the “dominant names” in the field of online tax preparation, so people would just guess they’d switched from TT. But “Block has offered no case law supporting Mr. Poret’s conclusion that a net deception measurement of ‘10 to 20 percent or higher’ is necessary to show ‘enough evidence that an ad is misleading.’” Then there are redactions that make the discussion hard to comprehend, but seem to have something to do with Block’s intent. “In other words, Block itself has created relevant ‘noise’ that may lead respondents to believe the ‘5 million+’ switched language refers to people switching from TurboTax specifically, regardless of whether the specific iteration of the advertisement the respondents review says anything about TurboTax.”

Anyway, the court found that the ad was false, without need of a “net deception baseline (or a specific quantitative value thereof),” as informed by the court’s own “experience and understanding of human nature.” While the materiality burden was high, for a preliminary injunction, “Intuit has a slightly more forgiving burden for proving actual or likely deception.” Steckel’s testimony met this burden. “That a large portion of respondents were also confused by Dr. Steckel’s control version of the email does not change the fact that many viewers of Block’s advertising claim came away from it with the wrong conclusion.” [It just means the control also was deceptive!]

Materiality/injury: Block’s own redacted internal materials supported materiality. [What were they????] “Block clearly believes that advertising about switching to Block has in past years successfully encouraged consumers to make such a switch.”

Claims that TT Live Full Service started at $169: Intuit argued that Full Service was available at $89 to a redacted [!!] percentage of customers as “test pricing.” Block argued that its pricing team checked TT’s website and saw the $169 price and had no reason to believe that Intuit would change its prices in January. Block contended that it couldn’t be held liable “if Intuit is posting two different prices online” without disclosing that prices may differ in certain test markets.

Although false advertising is nominally strict liability, and although the strength of this argument as a matter of consumer protection is very hard to evaluate given the redaction (if the test pricing was available to 2% I’d feel very differently than if it was available to 75% of customers), the court was attracted to the mootness argument here to avoid the issue. Block’s witness testified that a Block manager checked Intuit’s website every day to validate the $169 comparison price. When Block was contacted by Intuit’s team about the $89 price, Block “put a process in place to update that content and correct the mistake on [Block’s] site,” and Block represented that it does not plan to run ads using an inaccurate starting price for TurboTax Live Full Service in the future. There were no circumstances “raising the specter of gamesmanship” here; this was just a mistake that had been addressed, and the court denied the request for an injunction as moot.  

For the claims that survived the other factors, there was a presumption of irreparable harm, which Block didn’t rebut, and “[e]vidence of threatened loss of prospective customers or goodwill certainly supports a finding of the possibility of irreparable harm.” Plus there was Steckel’s testimony that “Block’s conduct, which resulted in the perception of an equal or superior product at a lower price, could cause negative feelings regarding the pricing of TurboTax products and harm the TurboTax brand” and could “influence ... consumers to switch to Block.” Thus, Intuit was entitled to an injunction against Block ads (1) suggesting that the “starting” price for expert and artificial intelligence assistance is lower with Block’s products than with Intuit’s products, and (2) placing language about “5 million+” people having switched to Block in proximity to language about switching from TurboTax or other language inviting the inference that all 5 million+ people switched to Block’s products from Intuit’s products.