If your social media page permits a user to purchase goods or services from you, a December 20, 2013 ruling from the Northern District of California may be of interest.

The case involves minors using their parents’ credit cards without authorization (in 2011) in order to purchase several hundred dollars’ worth of Facebook Credits.I.B. v. Facebook, Inc., No. C 12-1894 CW (N.D. Cal. Dec. 20, 2013).

When the parents discovered the unauthorized purchases, they asked Facebook to refund the purchase price.  Facebook refused, and both the parents and minors instituted a putative class action against Facebook in 2012.

The complaint involved three claims:

  1. the minors sought a declaratory judgment that their purchases were void or voidable under California state law;
  2. all plaintiffs claimed that Facebook’s refusal to issue refunds violated California’s unfair competition law; and
  3. one parent alleged that Facebook violated the federal Electronic Funds Transfer Act (EFTA) by failing to make the mandatory disclosures required by that law.

Facebook filed a motion to dismiss at the pleading stage on grounds including failure to state a claim and standing.  The court ruled in Facebook’s favor on counts (2) and (3).

With respect to the federal EFTA claim, the court found that the mandatory disclosures applied only to financial institutions and that Facebook was not a financial institution.

As for the unfair competition law claim, Facebook successfully argued that the minors lacked standing to bring a claim because that California law requires plaintiffs to establish that they suffered economic harm. In this case, the minors did not suffer economic harm; it was their parents’ money.

The court found that the parents could not establish a claim because they could not identify any specific conduct by Facebook that caused the losses they suffered: The court found that those losses “derive, at bottom, from the unauthorized use of their credit cards by the minor Plaintiffs.” Slip op. at 16.

With respect to the minors’ claim that their purchases were void or voidable (count (1)), the court ruled that the minors had a valid claim and had standing to pursue their claims in federal court.

The court focused on a specific California state law that permits minors to disaffirm their contracts and ruled that statutory right gave the minors standing to pursue their claims in federal court. Cal. Family Code § 6701(c).

Facebook relied on the minors’ continued to use Facebook’s services as an acceptance of the Facebook Statement of Rights and Responsibilities (SRR), which included payment terms, and argued that this acceptance of the SRR contradicted any disaffirmance of the purchases.

At this motion to dismiss stage of the proceedings, the court ruled that

  1. Facebook had provided no evidence to support its claims that the minors had continued to use Facebook’s services;
  2. the version of the SRR that Facebook submitted to the court indicated that it had been changed in 2012, without stating what the changes were, so the court had no evidence as to the terms in effect in 2011 when the class action was filed; and
  3. the minors were not seeking to disaffirm selected portions of Facebook’s terms, but rather were seeking to disaffirm discrete transactions—their purchases of Facebook Credits.  This last point led the court to conclude that the minors “therefore do not need to disaffirm the entire SRR—nor allege that they have ceased using Facebook’s services—in order to disaffirm the transactions in question.” Slip op. at 11.

Apple recently entered into a consent agreement with the Federal Trade Commission and agreed to refund consumers up to $32.5 million to settle the FTC’s complaint that the company billed consumers for millions of dollars of charges incurred by children in kids’ mobile apps without their parents’ consent.

Does your social media site enable users to purchase your goods or services via credit card?  Could your offerings appeal to users under age 18?  Do you have policies and procedures for minors or their parents seeking refunds of minors’ purchases?

Sue Ross (susan.ross@nortonrosefulbright.com / +1 212 318 3280) is a lawyer in Norton Rose Fulbright’s US intellectual property practice.