Class Plaintiffs’ Consumer Fraud Claim Against Headphone Maker Survives Motion to Dismiss

The class action plaintiffs in Zak v. Bose Corp., 2019 WL 1437909 (N.D.Ill. 2019) sued the Massachusetts-based headphone behemoth claiming its mobile application (“App”) secretly intercepted plaintiffs’ music selections and sold the information to a third party.

Plaintiffs sued under the Federal wiretap act, and lodged state law claims under Illinois’s eavesdropping and consumer fraud statutes. Bose moved to dismiss the entire Complaint.

Partially granting and partially denying Bose’s motion, the Northern District provides a useful summary of the overlap between Federal wiretap and State law eavesdropping claims and engages in a creative and decidedly post-modern application of the Illinois Consumer Fraud Act, 815 ILCS 505/2 et seq. (the “CFA”).

Plaintiffs alleged that when they selected music to be streamed to their smartphones, Bose’s App “recorded” the selected song, artist and album while in transit to Spotify (or similar music streamers) and sold that data to a data miner.  According to plaintiffs, Bose used the recorded information to create detailed user profiles without his/her consent.

Federal Wiretap and State Eavesdropping Claims

The Federal Wiretap Act (18 U.S.C. s. 2511(a) and Illinois’s Eavesdropping statute, 720 ILCS 5/14-2(a) outlaw the interception (or attempts to intercept) of any electronic communication.

Liability under each statute only attaches to intercepted electronic communications by someone who is not party to the communication.

There is no wiretap or eavesdropping liability for a person who is party to a communication or where a party gives prior consent to the interception of the communication.

The Court rejected plaintiffs’ wiretap and eavesdropping claims as Bose was a party to the communication. The Court found that Bose “participated” in the user-to-streamer communication by first conveying the user’s song selection to the streamer and then processing the streamer’s song information back to the user.

Since the main purpose of the App was to facilitate communication between a headphone consumer and Spotify, the plaintiff failed to sufficiently allege that Bose was not a participant in the underlying communications.

Illinois Consumer Fraud Act

The plaintiffs’ consumer fraud claim survived.  The CFA prohibits “unfair or deceptive acts or practices” including the misrepresentation, omission or concealment of a material fact. 815 ILCS 505/2.

To state a CFA claim, the plaintiff must allege: (1) a deceptive act or practice by defendant, (2) defendant’s intent that plaintiff rely on the deception, (3) the deception occurred in the course of conduct involving trade or commerce, and (4) actual damage to the plaintiff as a result of the deception.

A colorable CFA claim also requires that the plaintiff actually be deceived by a defendant’s statement or omission – a plaintiff must actually receive a communication from the defendant.

For an omission to be actionable, it must involve a “material fact.”  A fact is material where it is information a reasonable buyer would be expected to rely on in deciding whether to purchase a product or one that would have led a buyer to act differently had it known of the omitted fact.

The Court found the plaintiffs sufficiently stated a CFA claim.  Plaintiffs pled a deceptive act by alleging that Bose advertised the headphones and App on its packaging and website, and omitted that the App secretly collected user data which was then sold to a third party.

The plaintiffs also adequately pled that the deceptive act was material as plaintiffs would not have purchased Bose products and installed the App had they known defendants were going to secretly collect and transmit plaintiffs’ streamed music choices.

Finally, according to the Court, plaintiffs adequately alleged both Bose’s intention that Plaintiffs rely on the omission “because it knew that consumers would not otherwise purchase their products” and actual damages – that Bose charged a higher price for its products and plaintiffs wouldn’t have bought the products had they known the App would collect and disclose their information. [*6]

The Court rejected Bose’s arguments that the alleged deceptive act didn’t relate to a material fact and the plaintiffs’ failed to plead actual damages since they did not ascribe a value to the “free and optional” App. The Court held that whether an alleged statement or omission is material is not properly decided on a motion to dismiss.

On the damages question, the Court credited class plaintiffs’ allegations that they paid $350 for the headphones in part because of the App and would not have done so had they known about the App’s information tracking.

Take-aways:

Zak and cases like it lie at the confluence of consumer law, tort law and cyber security. Aside from presenting a useful summary of the Illinois consumer fraud act as well as the Federal wiretap law, the case showcases the liberal pleading plausibility standard that governs Rule 12(b)(6) motions.

While it is unclear whether plaintiffs will ultimately win, Zak demonstrates that so long as a consumer fraud plaintiff pleads at least some facts in support of its omission claim, it can likely survive a motion to dismiss.

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PaulP

Litigation attorney at Kanaris Stubenvoll & Heiss, P.C. representing businesses and individuals in post-judgment enforcement, collections and real estate litigation.