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Federal Trade Commission v. Amazon.Com, Inc.

United States District Court, W.D. Washington

December 1, 2014

FEDERAL TRADE COMMISSION, Plaintiff,
v.
AMAZON.COM, INC., Defendant

For Federal Trade Commission, Plaintiff: Laura Marie Solis, LEAD ATTORNEY, FEDERAL TRADE COMMISSION (WA), SEATTLE, WA; Jason Adler, FEDERAL TRADE COMMISSION, WASHINGTON, DC.

For Amazon.com, Inc., Defendant: David J. Burman, Harry H Schneider, Jr., PERKINS COIE (SEA), SEATTLE, WA; J Douglas Baldridge, VENABLE LLP, WASHINGTON, DC.

Page 1159

ORDER DENYING DEFENDANT AMAZON'S MOTION TO DISMISS

HONORABLE John C. Coughenour, UNITED STATES DISTRICT JUDGE.

This matter comes before the Court on Defendant's motion to dismiss for failure to state a claim (Dkt. No. 7), Plaintiff's response (Dkt. No. 11), and Defendant's reply (Dkt. No. 12).

The parties raise several disputed legal issues, including: (1) what documents, if any, the Court may consider in reviewing the motion to dismiss, (2) whether the complaint attempts to assert a new legal standard, and (3) whether the complaint pleads facts sufficient to state a claim under Section 5 of the FTC Act, 15 U.S.C. § 45(n). The Court addresses each issue in turn.

Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES the motion for the reasons explained herein.

I. BACKGROUND

Defendant Amazon.com, Inc. (" Amazon" ) operates an Appstore in which customers can view and download apps to use on Android mobile devices or Kindle Fire tablets. Dkt. No. 1, p. 3. Apps take many forms, but include functions that allow users to read books, play games, stream movies, check weather, and organize files. Dkt. No. 1, p. 3; Dkt. No. 7, p. 4. Apps may be free or come at a cost to download and install. Dkt. No. 1, p. 4. Certain user activities within some apps also come with monetary charges, starting at $0.99. Id. These charges are known as " in-app purchases." Id.

Page 1160

Many apps geared towards children, and likely to be used by children, offer in-app purchases. Dkt. No. 1, pp. 7-10. For example, a child may be prompted to use or acquire seemingly-fictitious currency to advance his or her progress in a game, but in reality is making an in-app purchase. Id. at 8-9. Amazon has received many complaints from adults who were surprised to find themselves charged for in-app purchases made by children. Id.

The Federal Trade Commission (" FTC" ) brings suit against Amazon, alleging that the billing of parents and other account holders for in-app purchases incurred by children " without having obtained the account holders' express informed consent" is unlawful under Section 5 of the FTC Act, 15 U.S.C. § 45(n). Dkt. No. 1, p. 11.

Amazon moves the Court to dismiss the case for failure to state a claim under Fed.R.Civ.P. 12(b)(6). In support of its motion, Amazon argues, inter alia, that (1) the FTC's use of the phrase " express informed consent" attempts to create a new legal standard, and (2) because in-app purchases were made by children with actual or apparent authority, the complaint fails to satisfy the requirements of 15 U.S.C. § 45(n). Dkt. No. 7.

The Court turns first to the appropriate standard of review, including what documents may be considered while undergoing that review.

II. MOTION TO DISMISS, MATERIALS CONSIDERED

A. Standard for Motion to Dismiss Under Fed. R. Civ. P 12(b)(6)

" To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A complaint has stated a claim " plausible on its face" when it " pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The plaintiff is obligated to provide grounds for his entitlement to relief that amount to more than labels and conclusions or a formulaic recitation of the elements of a cause of action. Bell A. Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). " [T]he pleading standard Rule 8 announces does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678.

As Amazon has not filed an answer to the complaint, its motion to dismiss for failure to state a claim is timely. Fed.R.Civ.P. 12(b).

B. Documents Incorporated in the Court's Review

The parties dispute whether the Court may consider the documents attached to Amazon's motion to dismiss. See Dkt. No. 7, pp. 7-8; Dkt. No. 11, pp. 19-20 (" This Court Should Not Consider the Exhibits to Amazon's Motion" ). The documents are as follows:

(A) Amazon's terms and conditions of use;
(B) The Amazon Appstore conditions of use;
(C)(1) A screenshot depicting a children's app called " Pet Shop Story," and its description;
(C)(2) A screenshot depicting the " Pet Shop Story" app and its " Key Details" link;
(C)(3) A screenshot confirming a recent in-app purchase and showing a " Parental Controls" button, and;
(D) Copies of customer complaints and Amazon's responses.

Page 1161

When ruling on a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a district court may not typically consider evidence outside the pleadings without converting the motion into a Rule 56 motion for summary judgment. U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). However, documents that are " incorporated by reference" in the complaint or facts for which judicial notice are taken may be considered without conversion into a Rule 56 motion. Id. (citing Van Buskirk v. CNN, 284 F.3d 977, 980 (9th Cir. 2002)).

The doctrine of " incorporation by reference" has been articulated in various ways. Courts typically require that a document be " referred to extensively" in the complaint or " form the basis" of the complaint to be considered incorporated by reference. Ritchie, 342 F.3d at 908. An insurance coverage plan " forms the basis" of a complaint based on coverage and a newspaper article containing an allegedly defamatory statement " forms the basis" of the corresponding defamation complaint. Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998) (insurance); Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (citing Horsley v. Feldt, 304 F.3d 1125, 1135 (11th Cir. 2002)) (newspaper). Another route to incorporation exists " if the contents of the document are alleged in a complaint, the document's authenticity is not in question and there are no disputed issues as to the document's relevance . . ." Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010) (where a billing agreement was not explicitly referred to in the complaint but necessary to the claim and its authenticity was not disputed, it was validly considered on a motion to dismiss).

A court may also review materials on a motion to dismiss if they are the subject of judicial notice. Judicial notice may be taken of factual matters that are either generally known or " capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably questioned." Ritchie, 342 F.3d at 908-09; Fed.R.Evid. 201(b). Judicial notice should be taken with reserve, however, as its function is to deprive a party of the opportunity to attack opposing evidence through rebuttal and cross-examination. Rivera v. Philip Morris, Inc., 395 F.3d 1142, 1151 (9th Cir. 2005).

Turning to the six attachments, the Court finds that only Attachments C(1), C(2), and D are appropriate to consider in reviewing Amazon's motion to dismiss.

1. Attachments A & B:

The FTC brings a single cause of action against Amazon: unfair billing practices. Nowhere does its complaint reference either Amazon's general terms and conditions of use or those for its Appstore. See generally Dkt. No. 1. Only once does the complaint tangentially mention Amazon's terms and conditions: " Amazon's stated policy is that all in-app charges are final." Dkt. No. 1, p. 10; Dkt. No. 7, p. 5. This language, vaguely acknowledging a " stated policy," does not mention terms or conditions of use. Rather, taken in context, this language is focused on the customer service experience of requesting a refund. Dkt. No. 1, p. 10, ΒΆ 30. In response to customer complaints, Amazon employees caution that " [a]s a standard ...


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