consumer protection: August 2007 Archives
The Computer and Communications Industry Association (a group of tech companies including Microsoft, Google, et al) has filed a formal complaint with the US Fair Trade Commission, over "years of consumer deception" in the form of misleading and deceptive copyright warnings from major copyright holders.
Some examples of the types of warnings in issue here include:
The consequences for disregarding these warnings can be severe:
The complaint alleges that the copyright holders:
Some examples of the types of warnings in issue here include:
NFL warning: (this clip was, itself, ironically, the subject of a DMCA takedown notice from the NFL)
Sterling Mets warning:
Commissioner of Baseball warning:
The consequences for disregarding these warnings can be severe:
The complaint alleges that the copyright holders:
have engaged, and continue to engage in, a nationwide pattern of unfair and deceptive trade practices by misrepresenting consumer rights under copyright law, and in some cases threatening criminal and civil penalties against consumers who choose to exercise statutorily or Constitutionally guaranteed rights. These false representations violate the letter and spirit of the Federal Trade Commission Act's prohibition against unfair or deceptive acts or practices in or affecting commerce.Other articles on this topic are here and here. [For nytimes.com username and password, use bugmenot.com]
Earlier in August, the New South Wales Supreme Court handed down its long-awaited judgment in the eBay Wirraway case -- more formally known as Smythe v Thomas [2007] NSWSC 844. That judgment pre-dated the establishment of this blog, but it's quite a significant case -- at least so far as eBay buyers and sellers in Australia are concerned -- so it's worth a recap.
The facts, briefly stated, are that Thomas listed a rare and valuable Wirraway aircraft on eBay, with an auction duration of 10 days and a minimum price of $150k. Smythe, after a phone conversation with Thomas (the substance of which was disputed) placed a bid for $150k and, there being no other bidders, "won" the auction.
[I'd rather buy a T-38, or a nice Embraer bizjet, but I digress...]
Thomas was unhappy because he was hoping to obtain $250k for the aircraft. He refused to complete the transaction, and Smythe sued. Thomas' defence was:
Despite the fact that eBay were downplaying the potential effect on their business model and online commerce via eBay in Australia generally, it would seem that if Thomas had succeeded on any of his first three defences, it would have thrown a serious spanner into eBay's collective works. It's reassuring to see that this didn't happen.
The facts, briefly stated, are that Thomas listed a rare and valuable Wirraway aircraft on eBay, with an auction duration of 10 days and a minimum price of $150k. Smythe, after a phone conversation with Thomas (the substance of which was disputed) placed a bid for $150k and, there being no other bidders, "won" the auction.
[I'd rather buy a T-38, or a nice Embraer bizjet, but I digress...]
Thomas was unhappy because he was hoping to obtain $250k for the aircraft. He refused to complete the transaction, and Smythe sued. Thomas' defence was:
- There was a contract (the eBay User Agreement) between Thomas and eBay, and between Smythe and eBay, but there was no contract or agreement between Thomas and Smythe;
- The eBay listing was analogous to a classified advertisement -- i.e. an invitation to treat;
- Even if there was offer and acceptance, the time for payment was to be negotiated and the agreement was therefore incomplete;
- Smythe waived his right to bid on the auction, based on the content of the disputed phone call.
Despite the fact that eBay were downplaying the potential effect on their business model and online commerce via eBay in Australia generally, it would seem that if Thomas had succeeded on any of his first three defences, it would have thrown a serious spanner into eBay's collective works. It's reassuring to see that this didn't happen.
Slashdot have a story concerning a major outage in the "Windows Genuine Advantage" servers. This outage resulted in a large number of genuine, legitimate installations of Microsoft Windows products incorrectly identifying themselves as "non-genuine" with a subsequent lessening of functionality [see e.g. this or this] -- presumably to encourage those damn dirty software pirates to buy a copy of the real thing. Even though they already had.
Microsoft have dropped the ball on this one. Even though the problem is now fixed, and they have apologised, and provided instructions on how to rectify systems that were incorrectly stigmatised as non-genuine during this period, this demonstrates what can happen when even apparently-well intentioned DRM systems malfunction. No word on whether any compensation will be forthcoming, but Microsoft have their EULA's to hide behind, so I doubt this will happen, possibly except as a goodwill gesture and without admission of liability.
If my business had been disrupted by something such as the inadvertent activation of the MS Office "kill switch" described in this article, or I was prevented from working on an assessment item for university by it, I would be wanting Microsoft's corporate head on a platter, and some monetary compensation.
Microsoft have dropped the ball on this one. Even though the problem is now fixed, and they have apologised, and provided instructions on how to rectify systems that were incorrectly stigmatised as non-genuine during this period, this demonstrates what can happen when even apparently-well intentioned DRM systems malfunction. No word on whether any compensation will be forthcoming, but Microsoft have their EULA's to hide behind, so I doubt this will happen, possibly except as a goodwill gesture and without admission of liability.
If my business had been disrupted by something such as the inadvertent activation of the MS Office "kill switch" described in this article, or I was prevented from working on an assessment item for university by it, I would be wanting Microsoft's corporate head on a platter, and some monetary compensation.
In July this year, Jetstar lost a case in the Victorian Civil and Administrative Tribunal concerning its terms and conditions of sale. The case, Free v Jetstar Airways Pty Ltd [2007] VCAT 1405, involved a term of Jetstar's agreement:
At the time, I predicted that Jetstar was likely to appeal, and to stop allowing name changes altogether. I was right. Not only is this a rather petulant act, it seemingly ignores the possibility that their new term:
JETSAVER FARE RULESThe Applicant had booked two tickets to Honalulu for herself and her sister, for $437.39 per person return. Afterwards, her sister became unable to travel and the applicant wanted to change her sister's ticket into her niece's name. Jetstar would only do so if she paid a $75 change fee, plus the difference between what she originally paid for the tickets and what the tickets were currently selling for -- which was $600.93. The Applicant paid under protest and brought proceedings in VCAT alleging the above terms, as applied to changes of name, were unfair terms within the meaning of the Fair Trading Act 1999 (Vic). The Tribunal agreed and ordered a refund of the $600.93.2.1 Subject to availability and payment of all applicable amounts, changes can be made to your Booking as follows. Changes to the origin and destination of travel are not permitted.
2.2 Your new fare will be at least the amount of the fare you originally purchased, and may be more. At the time your Booking is changed you must pay the difference (if any) between the fare you originally purchased and the fare available on the date of the change. This will apply to all date, time and name changes.
2.3 Date, time and Passenger name changes may be made by telephoning Jetstar Telephone Reservations ... A change fee* is payable for each change, for each passenger flight segment change ...
*Current Jetstar fees and a summary of fare types can be found at jetstar.com/faretypes.html.
At the time, I predicted that Jetstar was likely to appeal, and to stop allowing name changes altogether. I was right. Not only is this a rather petulant act, it seemingly ignores the possibility that their new term:
Only date and time changes are permitted, subject to availability. Changes to the passenger name and changes to the origin or destination of travel are not permitted.could very well be an unfair term as well.
The Sydney Morning Herald is carrying an excellent article on the free-speech implications of changes to law on secondary boycotts, which are dealt with in s 45D of the Trade Practices Act 1974. Secondary boycotts got a lot of attention when Australian wool-growers sued People for the Ethical Treatment of Animals and their supporters, who were advocating boycott of Australian wool. From that article:
No price is too high to pay to protect the Aussie woolgrower. With marked contempt for the effect it would have on freewheeling public debate, Peter Costello has introduced a little bill to clobber campaigners against the bloody business of mulesing sheep. But not only them: his strategy will snare anyone calling for customer boycotts.
So if you're asking Australians not to buy lipstick tested on caged rabbits, rugs woven by Pakistani slaves or suits made with mulesed wool, then pray your boycott calls don't succeed, for the Australian Competition and Consumer Commission is about to be given the power to sue you out of the water if they do.
Gagging public debate with such threats has been an old ambition of the Howard Government.
Not that Canberra talks in such terms. Introducing the Trade Practices Amendment (Small Business Protection) Bill 2007 last week, Costello reaffirmed his Government's "commitment to stand up for small business against thuggery and intimidation. It is vital, both for our economy and our way of life."
But Costello's bill is designed to protect businesses of any size - all the way up to BHP Billiton - not by outlawing intimidation, but by punishing persuasion.
Hurt a business simply by arguing that it's ethically repugnant to buy its products and the commission will be able to step in and sue to recover the company's lost profits. It's quite a service.
Continue reading SMH: Free speech? Not while we're on sheep's back.
The Age online is carrying an article about the ACCC's price fixing action against ANZ bank, which I blogged about a few days ago. Quoting from the article:
ANZ is probably arguing that there are two separate markets: one for "loans direct from banks", in which ANZ competes; and a separate market for "loans via middlemen/brokers" in which Mortgage Refunds compete. Because they're not competitors, what ANZ is alleged to have done isn't price fixing.
Market definition in competition/antitrust cases is, as The Age's article notes, fraught with difficulty. However, I think that the ACCC's argument has a much better chance of success. In economic terms, home loans from banks and home loans via brokers are substitutable; if banks raise their prices, consumers will go to brokers, and if brokers raise their prices, consumers will go to banks. Substitutability is an important indicator that products/services comprise a single market.
ANZ will need to do some fast talking and have eminent economists on hand to support their world view that home loans from banks, and home loans via brokers, are two completely different services that don't compete with each other.
IMHO, the smart money is on the ACCC.
The ACCC's statement of claim and ANZ's response spell out a case that will turn on whether the court believes banks and their brokers operate as distinct and competing entities in a market for "loan arrangement services". ANZ in its only statement regarding the case said the assertion that banks and brokers were competitors was "ill-conceived and misplaced in law" because "ANZ as a lender and Mortgage Refunds as a broker are not competitors".Mortgage Refunds and the ACCC are probably arguing that there is only one market, let's call it "provision of home lending services", in which the ANZ bank and Mortgage Refunds compete with each other.
ANZ is probably arguing that there are two separate markets: one for "loans direct from banks", in which ANZ competes; and a separate market for "loans via middlemen/brokers" in which Mortgage Refunds compete. Because they're not competitors, what ANZ is alleged to have done isn't price fixing.
Market definition in competition/antitrust cases is, as The Age's article notes, fraught with difficulty. However, I think that the ACCC's argument has a much better chance of success. In economic terms, home loans from banks and home loans via brokers are substitutable; if banks raise their prices, consumers will go to brokers, and if brokers raise their prices, consumers will go to banks. Substitutability is an important indicator that products/services comprise a single market.
ANZ will need to do some fast talking and have eminent economists on hand to support their world view that home loans from banks, and home loans via brokers, are two completely different services that don't compete with each other.
IMHO, the smart money is on the ACCC.
Resale Price Maintenance (RPM) is, in a nutshell, a supplier imposing on its customers a minimum price at which they may resell goods or services acquired from the supplier. The result of RPM is to reduce or eliminate price-based competition in the retail market for the goods or services in question. This harms consumers, because they will be forced to pay higher prices than they would pay in a competitive market.
In Australia, RPM is per se unlawful under s 48 of the Trade Practices Act 1974 (and what actually constitutes RPM is defined in Part VIII). In the USA, RPM has been per se unlawful since the 1911 Supreme Court decision in Dr. Miles Medical Co. v. John D. Park and Sons. The rationale for the per se rule is that RPM (and other practices proscribed per se) always or almost always restrict competition, so it is unnecessary to evaluate each case.
There are economic arguments as to why RPM is not, or is not always, anti-competitive. I don't subscribe to those economic theories -- in my view, the harm to consumers from the elimination of competition on price will not be offset by the benefits to consumers and the public that are claimed to result from RPM. Where a supplier can substantiate the benefit to the public that would be created by RPM, and and those benefits outweigh the harm, they can apply to the ACCC for an authorisation to engage in RPM under s 88(8A) of the TPA.
In June this year, the US Supreme Court drank the economic kool-aid (in a 5:4 split) and reversed Dr Miles Medical Co in Leegin Creative Leather Products v PSKS Inc, holding that RPM did not always or almost always restrict competition, and therefore did not meet the criteria for per se illegality, and would instead be evaluated under the rule of reason approach -- that is, each case would be evaluated on its merits to determine whether the net effect was to lessen competition or not.
In Australia, RPM is per se unlawful under s 48 of the Trade Practices Act 1974 (and what actually constitutes RPM is defined in Part VIII). In the USA, RPM has been per se unlawful since the 1911 Supreme Court decision in Dr. Miles Medical Co. v. John D. Park and Sons. The rationale for the per se rule is that RPM (and other practices proscribed per se) always or almost always restrict competition, so it is unnecessary to evaluate each case.
There are economic arguments as to why RPM is not, or is not always, anti-competitive. I don't subscribe to those economic theories -- in my view, the harm to consumers from the elimination of competition on price will not be offset by the benefits to consumers and the public that are claimed to result from RPM. Where a supplier can substantiate the benefit to the public that would be created by RPM, and and those benefits outweigh the harm, they can apply to the ACCC for an authorisation to engage in RPM under s 88(8A) of the TPA.
In June this year, the US Supreme Court drank the economic kool-aid (in a 5:4 split) and reversed Dr Miles Medical Co in Leegin Creative Leather Products v PSKS Inc, holding that RPM did not always or almost always restrict competition, and therefore did not meet the criteria for per se illegality, and would instead be evaluated under the rule of reason approach -- that is, each case would be evaluated on its merits to determine whether the net effect was to lessen competition or not.
Continue reading Resale Price Maintenance and eBay.
The Consumerist reports on a judgment from the US Court of Appeals for the 9th Circuit in Shroyer v New Cingular Wireless Services Inc, which held that a class action waiver and mandatory arbitration clause in a mobile phone contract was unenforceable because it was unconscionable under California law.
This is the latest in a line of cases in which courts have rejected "get out of court free" contract provisions by holding that they were unconscionable. Another such recent case was Gatton v T-Mobile USA Inc.
Linden Labs, operators of the "Second Life" virtual world, suffered a high profile defeat earlier this year in a very similar case - Bragg v Linden Research Inc.
The case that seems to have started this ball rolling was Comb v Paypal Inc, a 2002 decision. Courts seem to be increasingly aware that corporations are abusing their ability to dictate terms in this fashion, in an attempt to "insulate [themselves] contractually from any meaningful challenge to [their] alleged practices" [from Comb v Paypal]
Another recent 9th Circuit decision in Douglas v Talk America Inc held that a company could not unilaterally alter a contract merely by putting an updated version of the contract on its website, despite a provision of the contract that purported to allow them to do so.
Hopefully, these cases will put companies on notice that the days of "we own your soul" contracts are at an end. But I doubt it. It remains to be seen whether statutory schemes against unfair terms in consumer contracts will have that effect.
Readers interested in the topic of unfair terms in electronic contracts may be interested in reading an article I co-authored on that topic: Dale Clapperton and Stephen Corones, 'Unfair Terms in Clickwrap and Other Electronic Contracts' (2007) 35 Australian Business Law Review 152.
This is the latest in a line of cases in which courts have rejected "get out of court free" contract provisions by holding that they were unconscionable. Another such recent case was Gatton v T-Mobile USA Inc.
Linden Labs, operators of the "Second Life" virtual world, suffered a high profile defeat earlier this year in a very similar case - Bragg v Linden Research Inc.
The case that seems to have started this ball rolling was Comb v Paypal Inc, a 2002 decision. Courts seem to be increasingly aware that corporations are abusing their ability to dictate terms in this fashion, in an attempt to "insulate [themselves] contractually from any meaningful challenge to [their] alleged practices" [from Comb v Paypal]
Another recent 9th Circuit decision in Douglas v Talk America Inc held that a company could not unilaterally alter a contract merely by putting an updated version of the contract on its website, despite a provision of the contract that purported to allow them to do so.
Hopefully, these cases will put companies on notice that the days of "we own your soul" contracts are at an end. But I doubt it. It remains to be seen whether statutory schemes against unfair terms in consumer contracts will have that effect.
Readers interested in the topic of unfair terms in electronic contracts may be interested in reading an article I co-authored on that topic: Dale Clapperton and Stephen Corones, 'Unfair Terms in Clickwrap and Other Electronic Contracts' (2007) 35 Australian Business Law Review 152.
