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Business Law by Tom Ramsey

Knowing Too Much About One’s Internet CustomersTom Ramsey - Business Law

September 10th, 2013 – Previous installments of this column have reviewed litigation based upon customers’ complaints that retailers were seeking, and obtaining, too much personal information about them when checking out. In those cases, the courts have held that ZIP codes and telephone numbers constitute personal identification information and cannot be solicited by retailers. By seeking or requiring such personal information, the retailers violated the provisions of the Song-Beverly Credit Card Act of 1971, which governs and issuance and use of credit cards. These cases involved the likes of Williams Sonoma Stores, Inc., Linens ‘N Things, Inc and Brookstone Company, Inc. They were centered about purchases of physical products at traditional “brick-and-mortar” businesses.

The newest entry in the line of personal identification information cases involves sales by Apple, Inc., over the internet. David Krescent sued Apple because he was “requested or required” to provide Apple with his address and telephone number as a condition of accepting his credit card as payment for a purchase from Apple through its iTunes store located on its internet web site. David asserted that a customer’s telephone number or address is not necessary for any special purpose incidental and related to the individual credit card transaction, such as shipping or delivery because neither exists: The delivery is by download.

The basis of David’s claim was the 1971 Act. In part, the 1971 Act prohibits the following: Requesting or requiring, as a condition to accepting a credit card as payment, the cardholder to write any personal identification information upon the credit card transaction form or otherwise; utilizing a credit card form which contains preprinted spaces specifically designed for filling in any personal identification information of the cardholder.

The new element is the purchase of an electronically downloadable product on line. Do the prohibitions set forth in the Song Beverly Credit Card Act of 1971 apply here? Of course, in 1971 such transactions were nonexistent.

In response, Apple filed and served a demurrer to the complaint. By such a move, Apple asserted that even if everything David alleged were to be true, the 1971 Act doesn’t apply to internet transactions. David claimed that the 1971 Act was applicable to all transactions.

The trial court sided with David and against Apple, as did the California Court of Appeal.

The matter ended up in the California Supreme Court.

The Supremes first explained the 1971 Act’s general qualification to its requirements: The 1971 Act “does not prohibit any person, firm, partnership, association, or corporation from requiring the cardholder, as a condition to accepting the credit card as payment in full or part for goods or services, to provide reasonable forms of positive identification, which may include a driver’s license or a California state identification card, or where one of these is not available, another form of photo identification.”

The Supreme Court observed that the language of the 1975 Act confirms that the legislature did not contemplate commercial transactions conducted on the then nonexistent Internet. “[I]n construing statutes that predate their possible applicability to new technology, courts have not relied on wooden construction of their terms. Fidelity to legislative intent does not make it impossible to apply legal text to technologies that did not exist when the text was created. Drafters of every era know that technological advances will proceed apace and that the rules they create will one day apply to all sorts of circumstance that they could not possibly envision.” As will become apparent, this language was not indicative of the court’s ruling.

The Supreme Court then outlined the background of various statutes in light of technological changes subsequent to when such statutes were written and response of the legislature to some of them. For example, in 2011 the restrictions against obtaining zip codes were made inapplicable by the legislature to “pay at the pump” transactions when an automated cashier at the pump requires and uses zip code information solely for the prevention of fraud, theft or identity theft. Rather than hope that the 1971 Act will somehow apply to the new technology without any change in its provisions, the legislature amended it to specifically cover technological advances.

The court then concluded, “We cast no doubt on [David’s] claim that protecting consumer privacy in online transactions is an important policy goal, nor do we suggest that containing fraud is as important or more important than protecting preface. We express no view on this significant issue of public policy. Our role is to determine what the Legislature intended by the statute it enacted. Here the statutory scheme, considered as a whole, reveals that the Legislature intended to safeguard consumer privacy while also protecting retailers and consumers against fraud. This accommodation of interests struck by the Legislature would not be achieved if [the statute in question] were read to apply to online transactions involving electronically downloadable products. Because we cannot make a square peg fit a round hole, we must conclude that online transaction involving electronically downloadable products fall outside the coverage of the statute….In light of our holding today, the Legislature may wish to revisit the issue of consumer privacy and fraud prevention in online credit card transactions.”

The holding of the Court of Appeal was reversed. This should result in a judgment in favor of Apple. The case is entitled Apple, Inc., v. The Superior Court of Los Angeles County. It was decided in 2013.

(Tom Ramsey is a Long Beach attorney who has specialized in business law for more than 40 years. He may be reached at bizlawwiz@aol.com.)