California Supreme Court Rules That Song-Beverly Act Does Not Apply To On-Line Transactions

by Snell & Wilmer
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A little over a year ago, the United States District Court for the Central District of California ruled that California’s Song-Beverly Act (the Act), which prohibits collection of “personal identification information” in conjunction with credit card transactions applied only to “brick and mortar transactions.” On February 4, 2013, the California Supreme Court in a 4-3 decision in Apple, Inc. v. Superior Court reached the same conclusion in regard to electronically downloadable products.

The Apple case, which involved the collection of personal information in conjunction with iTunes purchases, was one of many cases that have been brought in the wake of the California Supreme Court’s ruling in Pineda v. Williams-Sonoma Stores, Inc. that ZIP codes are personal information under the Act. The California Supreme Court’s ruling in the Apple case was closely watched, but does not settle all issues relating to the Act’s applicability to online transactions.   

In Apple, the court found that the Act, which dates from the pre-Internet era, was ambiguous in regard to online transactions. However, the court reasoned that the privacy and security concerns addressed in the Act differ considerably for online as opposed to brick-and-mortar transactions. Although brick-and-mortar retailers have the opportunity to inspect credit cards when they are presented by customers, online retailers lack such protections because they are unable to confirm that the person using the card is authorized to do so.  The court concluded that “[b]ecause the statutory scheme provides no means for online retailers selling electronically downloadable products to protect against credit card fraud . . . that the Legislature could not have intended [the Act] to apply to this type of transaction.”

Because the California Supreme Court limited its holding to online transactions involving electronically downloadable products, it is unclear whether online transactions involving purchases of physical goods will run afoul of the Act.  The Apple case is therefore not likely to end the debate over the Act’s applicability to the online world, particularly given the close division of the court and the large number of pending lawsuits involving the Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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