Tuesday, February 5, 2013
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High Court Says Online Retailers May Collect Personal Data
From Staff and Wire Service Reports
A narrowly divided state Supreme Court ruled yesterday that Apple Inc. and other online retailers can continue to require California customers who purchase downloadable products with credit cards to provide personal information such as their addresses and phone numbers.
In a 4-3 ruling, the majority said that the Legislature didn’t intend for Sec. 1747.08 of the Song-Beverly Credit Card Act to apply to the sale of such products, because online retailers need the data in order to combat identity theft and credit card fraud.
David Krescent, an Apple customer, brought a class action against the Cupertino-based company in 2011 after he was required to submit his home address and phone number when using a credit card to purchase downloadable music. The lawsuit alleged that Apple violated a two-decade old California state law prohibiting retailers from demanding such personal information to complete a credit card transaction.
“Unlike a brick-and-mortar retailer, an online retailer cannot visually inspect the credit card, the signature on the back of the card, or the customer’s photo identification,” Justice Goodwin Liu wrote for the court.
1990 Law
He said state lawmakers were concerned only with brick-and-mortar retailers unnecessarily requiring personal information during credit card transactions when they adopted the law in 1990 when no one—not even Apple’s legendary founder Steve Jobs—envisioned the explosive growth of online commerce.
“In 1990, the idea of computerized transactions involving the sale and purchase of virtual products was beyond any legislator’s imagination,” Liu wrote. “Such technology was not even a twinkle in Steve Jobs’ eye.”
Liu was joined by Chief Justice Tani Cantil-Sakauye and Justices Kathryn Werdegar and Carol Corrigan.
Justice Joyce Kennard, in a dissent in which she was joined by Justice Marvin Baxter and Presiding Justice Barbara Jones of the First District Court of Appeal, sitting by assignment, said yesterday’s ruling leaves “internet retailers free to demand personal identification information from their credit-card-using customers and to resell that information to others.”
Kennard wrote:
“The majority’s decision is a major win for these sellers, but a major loss for consumers, who in their online activities already face an ever increasing encroachment upon their privacy.”
She noted that at the time Sec. 1747.08 was enacted, both mail order and telephone order transactions were well established, and that there were no significant differences between such sales and the ones at issue.
“Succinctly put, the similarity between online transactions and mail order or telephone order transactions belies the majority’s insistence that its holding exempting online sellers such as Apple from compliance with section 1747.08 is necessary to protect these sellers from consumer fraud,” she said.
Baxter Dissent
Baxter, in a separate dissent joined by Kennard and Jones, said the majority’s decision shifts the burden of privacy protection onto consumers, leaving them “unable to freely use their credit cards for online purchases without surrendering their personal identification information.”
Neither an Apple spokesperson nor attorney Eric Schreiber, who argued the case on behalf of Krescent, returned MetNews phone calls.
But Michael Burns and Eric McDonough of Seyfarth Shaw LLP, who specialize in representing retail clients, hailed the decision as “a welcome and long-awaited victory for retailers,” which should help reduce the recent “explosion of Song-Beverly litigation.”
Burns added that the fact that it was a 4-3 “close call” showed that there had been a “spirited debate” among the justices about the uncertainty created by its recent holding in Pineda v. Williams-Sonoma Stores, Inc. (2011) 51 Cal.4th 524, in which the justices unanimously ruled that Williams-Sonoma and other traditional retailers were wrong to require credit card customers to provide their ZIP codes.
Brick-and-Mortar
That ruling led to a flurry of class action lawsuits alleging that brick-and-mortar stores with such policies violated former Sec. 1747.8, the predecessor to Sec. 1747.08, which the Legislature enacted in 1990. In 2011, the Legislature amended the credit card act to exempt gas stations from the ZIP code ruling, concluding that those retailers needed the information to prevent fraud at the pump.
Liu argued that the Legislature is free to once again amend the law to include online stores if lawmakers feel that customers’ privacy interests in refusing to divulge addresses and phone numbers outweigh Apple’s and other online stores’ concerns about fraud.
But Baxter said that “rather than fashioning such an expansive exception to section 1747.08, this court should have given effect to its plain terms and left it to the Legislature to address defendant‘s claims of competing policy interests.”
The case is Apple, Inc. v. Superior Court of Los Angeles County (Krescent), 13 S.O.S. 581.
Copyright 2013, Metropolitan News Company