Handing a victory to online retailers, on February 4, 2013, the California Supreme Court held in a split decision that online transactions involving electronically downloadable products fall outside the scope of the Song-Beverly Credit Card Act. Despite acknowledging the unique fraud issues present in online transactions, the Court refused to decide the broader issue of whether the Act applies to online transactions that do not involve electronically downloadable products or to any other “card not present” transactions that do not involve in-person, face-to-face interaction between the purchasing customer and the retailer. That said, given the Court’s analysis, it is hard to imagine a different outcome for online transactions as a whole.

This opinion comes nearly two years after the California Supreme Court’s February 2011 decision in Pineda v. Williams-Sonoma Stores, Inc., which held that for purposes of the Song-Beverly Act, ZIP codes constitute “personal identification information” (PII). The Pineda decision opened a floodgate for lawsuits based on retailers’ collection of ZIP codes, resulting in hundreds of cases against brick-and-mortar retailers. Some online retailers were swept up in the post-Pineda litigation frenzy as well and, since then, online retailers and others involved in e-commerce have been waiting to see if the Act, which prohibits businesses from requesting and recording customers’ PII during credit card transactions, applies to online transactions. Although the majority explicitly limited its holding to online purchases of electronically downloadable products, the Court’s 4-3 decision is consistent with the trend in California trial courts (state and federal), which have concluded that online transactions are exempt from the Act.

Please see full alert below for more information.