Tuesday, October 27, 2009

Marketing for “Phased Out” Cell Phone Could Violate California Unfair Competition Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

Wireless telephone subscribers stated California Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) claims against AT&T, based on the company’s marketing and sale of a premium cell phone that it was allegedly in the process of phasing out, according to a California appellate court.

The subscribers purchased premium cell phones, which AT&T marketed as technologically advanced and capable of working around the world. However, the subscribers alleged that AT&T had no intention to continue to support and service the cell phones and was making changes to its wireless system that would substantially degrade service to subscribers using the phones.

To phase out the cell phones, AT&T sent the subscribers replacement phones that did not work around the world and cost significantly less than the original phone.

Misleading Representations

The subscribers stated a UCL cause of action against AT&T, according to the court. The UCL claim was based on the fraud prong of the UCL, and focused on AT&T’s representations that, although true, were likely to mislead the public. A business practice is deemed deceptive in violation of the UCL if a reasonable consumer was likely to be deceived. In light of the conduct alleged, the court could not conclude as a matter of law that reasonable consumers would not have been deceived.

Although AT&T argued that the subscribers had to plead the specific advertisements or representations they relied upon in making their purchasing decisions, the court found that a determination could not be made as a matter of law that the claim was not viable.

The subscribers alleged that, prior to their purchase of the cell phones, they conducted research and encountered advertisements and press releases explaining the advanced features of phone and improvements being made to the network the phone utilized. The subscribers did not need to present the specific advertisements to the court in order to have standing to bring the claims.

False Advertising Claim

Because they failed to show an injury in fact, the subscribers did not have standing to bring a California False Advertising Law (FAL) claim against AT&T, according to the court.

The subscribers alleged that AT&T violated the FAL by offering a free upgrade phone to owners of the phone at issue, but the phone offered did not have the same capabilities as the original phone.

In order to have standing, the subscribers needed to establish an injury in fact and loss of money or property as a result of a violation of the FAL. Even if it could be said that the return of an allegedly useless phone constituted an injury in fact, the subscribers did not suffer an injury because they declined to return their phones.

The decision is Morgan v. AT&T Wireless Services, Inc., CCH State Unfair Trade Practices Law ¶31,919.

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