Online, But Off Song-Beverly: California Supreme Court in a Narrow Ruling Finds That Song-Beverly Does Not Apply to Retailers Selling Downloadable Products


In at least one specific type of transaction, California retailers can now breathe a little easier.  In Apple Inc. v. Superior Court (Krescent), No. S199384 (Cal. Feb. 4, 2013), the California Supreme Court found that Section 1747.08 of the Song-Beverly Credit Card Act does not apply to online retailers that sell digital downloads.  However, the ruling leaves open a lot more questions than it addressed, such as whether Song-Beverly applies to Internet transactions involving physical goods or kiosk transactions in brick-and-mortar stores.

California’s Song-Beverly Credit Card Act prohibits California retailers from collecting certain personal information when a customer pays for merchandise with a credit card.  In the Krescent case, the plaintiff alleged that Apple impermissibly required him to provide his address and telephone number when he used a credit card to purchase media downloads from the Apple online store.  On demurrer, Apple argued that the plaintiff’s claim failed as a matter of law because Song-Beverly does not regulate online transactions.  The trial court overruled the demurrer, stating that the trial court was not prepared, “at the pleading stage,” to interpret Song-Beverly as completely exempting online credit card transactions.

In a 4-3 decision, Justice Goodwin Liu wrote for the California Supreme Court majority, and essentially followed his line of questioning at oral argument in November 2012 when he challenged the plaintiff’s counsel to explain how the Act could possibly apply to online retailers if they cannot prevent fraud in their online transactions.  In the written opinion, the court subsequently found that the statute could not apply to customers purchasing downloaded products from the Internet because the statute’s fraud prevention safeguards could not possibly apply to an Internet transaction.  Specifically, Song-Beverly allows a retailer in a brick-and-mortar store to visually inspect the customer’s photo identification, but an online retailer has no possible way of utilizing this fraud prevention measure.  “Because the statutory scheme provides no means for online retailers selling electronically downloadable products to protect against credit card fraud, we conclude that the Legislature could not have intended section 1747.08 to apply to this type of transaction.”

While the opinion certainly helps online retailers in a one narrow type of transaction, brick-and-mortar retailers can still regard this as a positive development.  For one thing, a pro-retailer victory at the California Supreme Court (even if specifically related to online retailers selling downloadable products) may stem the tide of Song-Beverly class action litigation already targeting hundreds of retailers in California.  Additionally, as many California retailers know too well, the Song-Beverly Credit Card Act is a vague and complex law with numerous unanswered questions of statutory interpretation.  The Krescent opinion also left open some questions of its own, as the case specifically stated that it did not address whether Song-Beverly applies to “online transactions that do not involve electronically downloadable products or to any other transactions that do not involve in-person, face-to-face interaction between the customer and the retailer.”  As a result, the Krescent opinion does not let retailers know whether Song-Beverly applies to, for example, an online purchase of a physical good, or an in-store purchase at an automated kiosk.  However, because Song-Beverly issues that make it to a reviewing court are often a question of first impression, future defendants can argue that the Krescent case stands as authority that the California Supreme Court will not blindly apply Song-Beverly to a credit card transaction involving technology that does not fit within the statutory framework.

The last time the California Supreme Court looked at Song-Beverly, the high court’s statutory interpretation benefited plaintiffs.  (For more information, read our prior alert titled "Two New California Supreme Court Decisions Will Impact Landscape of Class Action Litigation Against Retailers.")  Now, the statutory interpretation tide may have turned, albeit very slightly.  When analyzing Song-Beverly’s applicability to modern technology that did not exist when Song-Beverly was drafted, California courts do not need to rely on “wooden construction” of the statutory terms.  With the continued development of the case law, we recommend that all retailers consult with California attorneys who specialize in this area to ensure that their practices do not put them at risk for a Song-Beverly class action lawsuit.

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