United States District Court, D. Minnesota
DEVI KHODAY and DANISE TOWNSEND, individually and on behalf of the class they represent, Plaintiffs,
SYMANTEC CORP. and DIGITAL RIVER, INC., Defendants.
Douglas J. McNamara and Andrew N. Friedman, COHEN, MILSTEIN, SELLERS & TOLL PLLC, Richard Wentz, THE WENTZ LAW FIRM, Karen Hanson Riebel and Kate M. Baxter-Kauf, LOCKRIDGE GRINDAL NAUEN PLLP, for plaintiffs.
Patrick E. Gibbs, LATHAM & WATKINS, LLP, Steve W. Gaskins, GASKINS, BENNETT, BIRRELL, SCHUPP, LLP, for defendant Symantec Corp.
Charles Smith, Amy Van Gelder, and Jessica Frogge, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, and Steve W. Gaskins, GASKINS, BENNETT, BIRRELL, SCHUPP, LLP, for defendant Digital River, Inc.
MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS' MOTION FOR CLASS CERTIFICATION
JOHN R. TUNHEIM, District Judge.
This is a class action lawsuit brought by named Plaintiffs Devi Khoday and Danise Townsend against Defendants Symantec Corp. ("Symantec") and Digital River, Inc. ("Digital River") (collectively, "Defendants"). Plaintiffs allege that Defendants sold download insurance products to consumers using misrepresentations that those products were the exclusive means by which customers could redownload software purchased from Defendants. Plaintiffs bring claims against Digital River under Minnesota's Consumer Fraud Act, and against Symantec under California's Unfair Competition Law and Consumers Legal Remedies Act, as well as claims for unjust enrichment against both Defendants.
Plaintiffs move for class certification of all individuals in the United States that purchased the two download insurance products at issue during a certain period of time dictated by the statute of limitations. The Court will certify Plaintiffs' proposed class under Federal Rule of Civil Procedure 23(b)(3) because it finds that Plaintiffs have satisfied the prerequisites for certification, and have also demonstrated that class issues will predominate and a class action is a superior method for adjudicating the claims against Defendants.
I. SYMANTEC AND DIGITAL RIVER
Symantec is a California-based company that sells internet security software products under its Norton brand. (Decl. of Patrick E. Gibbs, Ex. 1, Aug. 23, 2013, Docket No. 217; Am. Compl. ¶ 2, Apr. 14, 2011, Docket No. 40; Symantec's Answer ¶ 2, Apr. 11, 2012, Docket No. 85.) Digital River is a Minnesota-based company that builds and manages e-commerce websites for online retailers. (Second Decl. of Amy L. Van Gelder, Ex. 1 (Decl. of Andrew Carrane ("Carrane Decl.") ¶ 2), Aug. 23, 2013, Docket No. 215.)
In 2000, Symantec contracted with Digital River to manage Symantec's online storefront, through which it sold its Norton products. ( See Second Decl. of Douglas J. McNamara, Ex. 1 at 12:16-18, 15:3-20, June 26, 2013, Docket No. 183; see also id., Ex. 2.) Digital River managed the storefront until October 2009. (Second Van Gelder Decl., Ex. 2 at 17:20-18:5.) Although Digital River managed the storefront, Symantec dictated the content and offerings of the website, as well as the disclosures Digital River made to customers. (Second McNamara Decl., Ex. 2 at DR-0054160-DR-0054172; Second Van Gelder Decl., Ex. 3 at 78:22-25.) Between October 2009 and June 2010 Symantec began transitioning sale of its Norton products to a new online storefront managed by Symantec, and at the end of June 2010 Digital River ceased managing the sale of Norton products. (Gibbs Decl., Ex. 4 at 38:15-39:3; id., Ex. 5 at 21:24-22:7.)
II. THE DISPUTED PRODUCTS
A. Purchasing Downloadable Norton Products
During the relevant time period, a Symantec customer who purchased a downloadable Norton product online would receive access to a hyperlink that the customer could click to begin the software's automatic download. (Gibbs Decl., Ex. 7 at 56-57; id., Ex. 8 at 25.) The customer's click would cause the software to automatically be downloaded and installed upon the customer's computer. ( Id., Ex. 8 at 60, 65.) During installation, the customer's unique "product key" associated with the purchased software would be "injected" or added to the software - allowing the software to run on the customer's computer. ( Id., Ex. 10 at 93:20-94:2; id., Ex. 11 at 21:22-22:5; Second Van Gelder Decl., Ex. 9 at 86:11-16.) After purchasing the product, a customer would have sixty days within which to download and install the product. (Gibbs Decl., Ex. 14 at 62:9-12; id., Ex. 15 at 53:11-13.) During this sixty-day window, customers were able to redownload and reinstall the product an unlimited number of times by accessing their Norton account and reinitiating the automatic download process. ( Id., Ex. 14 at 62:9-12.)
B. Downloading Extension Products
1. Electronic Download Service
During the time period that Digital River was managing Symantec's online storefront, Symantec authorized Digital River to offer a product called Electronic Download Service ("EDS"). (Second McNamara Decl., Ex. 2 at DR-0054170; Digital River's Answer at 6, Apr. 11, 2012, Docket No. 86.) EDS allowed customers to redownload the Norton software they had purchased after the original sixty-day period had expired. (Second McNamara Decl., Ex. 10; Digital River's Answer at 3-4.) If, for example, customers lost their Norton software through a computer crash or purchased a new computer, they could redownload their software using EDS for up to a year after their purchase. (Gibbs Decl., Ex. 18 at 197:10-25.) To activate EDS, customers would visit Symantec's online storefront and enter identifying information, which would bring them to a list of Norton products they had purchased. ( Id., Ex. 20 at 86:10-20; id., Ex. 21 at 136:10-137:1; Second Van Gelder Decl., Ex. 3 at 292:24-293:4.) Products for which EDS had been purchased (as well as products that had been purchased less than sixty days prior to the site visit) would display download links. (Gibbs Decl., Ex. 20 at 86:10-20; id., Ex. 21 at 136:10-137:1.) Clicking the download link would redownload and install the exact version of the software the customer had originally purchased, and the customer's unique product key would be automatically injected into the software. ( Id., Ex. 19 at 134:12-135:6; Second Van Gelder Decl., Ex. 3 at 292:19-293:9.)
A representative of Digital River testified that the title EDS was carefully chosen to give customers a particular impression about the product, recognizing that "the title of EDS was probably more impactful than... the fine details." (Second McNamara Decl., Ex. 16 at 94:22-25; see id., Ex. 16 at 95:13-16 ("Again, people are more likely to pay attention to the title of a product versus all of the details of a product.").)
2. Norton Download Insurance
In October 2009, when Symantec began selling its Norton products through its own online storefront, it offered customers a product similar to EDS called Norton Download Insurance ("NDI"). ( Id., Ex. 8; Gibbs Decl., Ex. 8 at 39.) NDI operated almost identically to EDS, allowing customers to redownload previously purchased software for up to one or two years depending on the license period selected. (Gibbs Decl., Ex. 22 at 26:10-15; id., Ex. 26 at 281:1-10.) After a customer logged into her Norton account, she could click a download button that would automatically download and install a product key injected version of the software. ( Id., Ex. 22 at 26:10-15; id., Ex. 23 at 34.) In contrast to EDS, which redownloaded the exact version of the product originally purchased, NDI would download the most recent edition of the product the consumer had originally purchased. ( Id., Ex. 22 at 26:6-15; id., Ex. 23 at 35.) Symantec stopped selling NDI in the United States on March 10, 2011. ( Id., Ex. 25 at 51.)
Because the class claims arising out of the sale of EDS and NDI are almost identical, the remainder of this Order discusses the facts surrounding the sale of these two products (collectively, "download insurance") holistically, unless otherwise noted.
C. Circumstances Surrounding Purchases of Download Insurance
When a customer purchased any Norton Product, download insurance was automatically added to the customer's shopping cart. ( See Gibbs Decl., Ex. 8 at 39; id., Ex. 29 at 66.) A customer who did not want to purchase the download insurance was required to "opt out" and remove it from the cart. (Second Van Gelder Decl., Ex. 12 at 50:4-16; Second McNamara Decl., Ex. 2 at DR-0054171.) Information about download insurance available to customers at the point of sale varied somewhat over time because Defendants changed the location, display, and content of the information to "improve" the online shopping experience. (Second Van Gelder Decl., Ex. 4 at 19-20; id., Ex. 7 at 34:1-15.) For example, Defendants tested different names for download insurance including "Download Backup Service, " "Download Insurance, " and "Download Protection Service." ( Id., Ex. 17.) In the sections that follow, the Court sets forth details regarding the purchase of download insurance that form the basis of the parties' dispute regarding class certification.
Defendants charged between $4.99 and $16.99 for the download insurance products. (Carrane Decl. ¶ 4; Second McNamara Decl., Ex. 25 at 138; id., Ex. 6 at 20.) Download insurance was essentially "pure profit" for Defendants, as it cost almost nothing to provide the service. (Second McNamara Decl., Ex. 5 at DR-0918108; id., Ex. 6 at 20; Third Decl. of Douglas J. McNamara, Ex. 51 at 5, Oct. 4, 2013, Docket No. 228 ("NDI generates approximately $20M dollars a year for eCommerce with huge margins.").) Defendants did not price download insurance based upon what it cost to provide the customer with the service, but instead priced it based upon what "the consumer is willing to pay based on the value they perceive." (Second McNamara Decl., Ex. 1 at 68:17-69:6; see also id., Ex. 7 ("Depending on the incoming product (product the customer is purchasing) we have noticed that EDS attachment rates actually increase as the price of EDS increases.... By increasing the price of EDS to be more in-line with that of the product [the customer is] purchasing, the customer's perceived value of this product increases and so does the attachment rate.").
2. The "What's this" Link
The download insurance displayed in a customer's shopping cart was typically accompanied by a "What's this" or "What is Extended Download Service" link. (Gibbs Decl., Ex. 8 at 39; id., Ex. 29 at 66; Second Van Gelder Decl., Ex. 2 at 23:14-19.) From 2004 to approximately August 2008, clicking on the "What's this" link revealed a pop-up description, (Second Van Gelder Decl., Ex. 7 at 95:17-25), stating, in relevant part:
What is the Extended Download Service?
When you order a downloadable product from the Symantec Store you are automatically granted a 60 day window in which your purchase can be redownloaded at any time. After this 60 day window has passed your download will no longer be available unless the Extended Download Service is also purchased. When this service is purchased, we will keep a backup copy of your file on our server for one full year after the date of purchase, meaning that you can redownload whenever necessary during that extended period.
(Gibbs Decl., Ex. 29 at 66). In 2008, the description revealed by clicking the "What's this" link changed to:
What is the Extended Download Service?
When you purchase downloadable software from Symantec's online store, Digital River, Symantec's authorized online retailer, automatically grants you 60 days from the date of purchase to download your software order.
If you add Extended Download Service to your downloadable software purchase order, Digital River will keep a backup of all the software on your order for ONE YEAR[.] If you need to re-download your software, or access your Serial Key, it will be available 24 hours a day, 7 days a week for ONE YEAR from the date of purchase by going to www.findmyorder.com.
(Gibbs Decl., Ex. 29 at 67 (formatting omitted).) A Digital River executive testified that these two descriptions conveyed "fundamentally the same message." (Second McNamara Decl., Ex. 1 at 97:16-101:19.)
The description for NDI stated:
Norton Download Insurance
When you purchase downloadable software from the Norton Store you automatically receive the ability to download your software for 60 days from the date of purchase. Norton Download Insurance extends the time you can access your downloadable software by providing you the freedom and flexibility to download or re-download your software for one year.
Gain flexibility and peace of mind!
If you decide to replace your PC or if your PC has problems, is damaged or stolen and you need to reinstall your software, with Norton Download Insurance you have the peace of mind of knowing you can re-download your software at anytime for one year. Norton Download Insurance may be refunded within 60 days from the date of purchase.
(Second McNamara Decl., Ex. 15 at 45.) Digital River employees believed that the description of EDS was "almost word for word" of the NDI description. ( Id., Ex. 15 at 44.)
During the relevant time period, Defendants contend that some customers may have seen slightly different variations of the "What's this" message, as Defendants livetested different versions of language on customers. ( See, e.g., Gibbs Decl., Exs. 30-31; Second Van Gelder Decl., Ex. 4 at 19-20.) For example, a different version of the description language stated:
The Extended Download Service (also known as Download Warranty Service) is available for purchase on the payment page when there are downloadable items present in your shopping cart. Upon payment of the specified fee, Digital River, Inc., agrees to provide to you a service that enables you to make multiple downloads of digital computer software products purchased by you in a single order and downl[oa]ded from Symantec's online store for a period of one year after the date of your purchase.
(Gibbs Decl., Ex. 30 at 70.) Another stated:
Save Time and Safeguard Your Purchase with EDS (Extended Download Service).
Securely Back Up Your Software Online for One Year.
Now purchasing software online is more convenient than ever. Our Extended Download Service frees you from the time-consuming - but critical - chore of backing up your new software.
Simply purchase EDS as part of your order. We'll automatically store on our server a back-up copy of the software that you purchased and downloaded for one full year from the date of purchase. System crash? Hard disk error? No Worries! You can re-download your files anytime during your extended protection period.
(Gibbs Decl., Ex. 31.)
Defendants did not track which of its customers clicked on the "What's this?" link. Although there is no direct evidence that everyone clicked on the "what's this" link, in one product trial group consisting of twenty-two people, every single person clicked on the link in the shopping cart because they did not understand why a product had suddenly appeared in the cart as part of their purchase. (Second Van Gelder Decl., Ex. 11 at 7.)
3. Information Available Through Customer Service
Customers could also contact customer service for more information about the download insurance products. Digital River provided customer service for Symantec's online store until August 2006. (Gibbs Decl., Ex. 32 at 19:8-13; id., Ex. 33 at 19:12-20:25.) While Digital River was providing Symantec's customer service, customer service representatives used a "knowledge base" or "internal data assistant" to help them answer customers' questions. ( Id., Ex. 34 at 30:16-31:21.) The internal data assistant was an online resource containing answers to frequently asked questions that had been drafted by Defendants. ( Id., Ex. 34 at 30:4-8, 31:14-32:1.) The customer service center was not, however "a scripted call center." ( Id., Ex. 35 at 149:8-16.) Each representative had the same internal data assistant information available, ( id., Ex. 35 at 33:10-13), but "each rep would have their own way of saying it. It wasn't 100 percent consistent across the entire call center" ( id., Ex. 35 at 149:16-21). Even so, a Digital River executive testified that with respect to EDS, customer service representatives would have a script with fundamentally the same information as that provided by the online descriptors. (Second McNamara Decl., Ex. 1 at 223:22-224:8, id., Ex. 11 at 72:3-17, id., Ex. 17 at 81.) Customer service consistently told customers to purchase EDS if they wished to be able to download their software more than sixty days after purchase. ( Id., Ex. 1 at 224:9-14.)
If a customer emailed customer service regarding the purchase of EDS, a customer service representative would respond with a form e-mail stating:
Thank you for choosing Symantec store. When you order a downloadable product from the Symantec store, you are automatically granted a 60-day window in which your purchase can be re-downloaded at any time. After the 60-day window has passed, your download will no longer be available unless the Extended Download Service is also purchased.
( Id., Ex. 11 at 116:9-117:10; id., Ex. 18 at 93.)
In August 2006, Symantec switched from having Digital River provide its customer service and to using third party vendors. (Gibbs Decl., Ex. 32 at 19:8-13; id., Ex. 33 at 19:12-20:25.) Symantec alleges that when it took over customer service operations, its representatives used an "entirely different" set of materials to answer questions about EDS and NDI. (Symantec's Mem. in Opp'n to Mot. for Class Cert. at 10, Aug. 23, 2013, Docket No. 216.) Symantec's customer service representatives used a knowledge base system in which a representative would have access to numerous documents, each providing content with information about a particular topic. (Gibbs Decl., Ex. 36 at 22:5-16.) The content and instructions to representatives about specific topics changed over time, as did representatives' responses to customer questions. For example, one customer asked whether he was required to purchase EDS in order to download software outside the sixty-day window, noting that he had always been able to redownload outside the sixty-day period previously, even though he had not purchased EDS. ( Id., Ex. 43.) The customer service representative responded that "[i]f there is no extended download service, you will be able to download only within 60 days of the purchase, " and indicated that this changed the previous policy of allowing for downloads outside the sixty-day period through other, non-download insurance, means. ( Id., Ex. 43 at 9; see also id., Ex. 80 at 39 (describing customer solution center answers to questions about redownloading stating that "[t]o redownload the product you need to purchase the Extended Download Service").) Some customer service representatives noted that the purchase of download insurance was optional, but did not alert customers to other mechanisms they could use to redownload their Norton product outside the sixty-day window. ( See id., Exs. 44-45.) Other representatives told customers that they could redownload their Norton product using trialware, and explained that the only advantage of purchasing download insurance was to save some time in redownloading the product. ( Id., Ex. 46.) The record suggests that the general trend in customer service was to attempt to sell a customer EDS first, and then suggest trialware or another download alternative if a customer refused to purchase EDS. (Second McNamara Decl., Ex. 11 at 81:24-82:6.)
4. Information Available Through Other Sources
Defendants contend that information about the download insurance products, available from various sources, rendered disclosures in the shopping cart not misleading because consumers could learn that it was not a necessary product through these other sources.
A "FAQ" page on Symantec's website available beginning in November 2007 under the heading "I want to re-download my Norton product" provided customers with instructions on how to redownload their Norton product outside the sixty-day window that did not involve using download insurance. (Gibbs Decl., Ex. 47.) Additionally, Symantec created video tutorials available on YouTube to assist customers in downloading Norton products without purchasing download insurance. ( Id., Ex. 48.) Symantec also hosted Norton community discussion forums online, and would explain to customers how to access available alternatives to download insurance. ( Id., Ex. 49 (describing online chatroom advice given in 2010 and 2011).)
Information about alternatives to download insurance also existed in public fora that were not sponsored by Defendants. ( See id., Ex. 50 (describing Defendants' download insurance products and accompanying descriptions as "[u]nfair business practice" and advising consumers about their ability to always redownload their purchased software through other avenues). Affiliate sites that sold Norton products also allegedly told customers not to purchase EDS, although the record is unclear as to how frequently or in what manner this information was communicated. ( Id., Ex. 51 at 58.) Additionally, it appears that upon learning of these practices Defendants took steps to have the domains of those affiliates terminated. ( Id., Ex. 51 at 57-58.)
D. Purchase Rates and Use of Download Insurance
Approximately half of the customers that bought Norton products also purchased some form of download insurance. (Second Van Gelder Decl., Ex. 4 at 87:4-88:11.) Defendants' data about the use of EDS reveals that 97% of download activity occurred during the first month following purchase of a North product, and 3% occurred in the second month - within the sixty-day window for download provided by purchase of the original product. (Third McNamara Decl., Ex. 57 at 124.) There were "virtually no downloads for the remainder 10 months of the [EDS] service." ( Id. )
E. Contracts Potentially Governing Download Insurance
A customer purchasing EDS was bound by the terms and conditions of an Extended Download Warranty Service Agreement ("the EDS Agreement"), unless they unchecked a box at the end of the agreement. (Second McNamara Decl., Ex. 10; id., Ex. 11 at 53:23-54:15.) The EDS Agreement contained a Minnesota choice of law clause with respect to claims against Digital River, providing that:
Any and all claims or disputes relating to the Services shall be governed by the laws of the State of Minnesota. For the purpose of resolving conflicts relating to the Service, [Digital River] and the End User agree that venue shall be in the State of Minnesota only, and, in addition, the End User hereby consents to the jurisdiction of the federal and state courts in the State of Minnesota.
( Id., Ex. 10.)
Additionally, customers that accessed Symantec's website agreed to certain terms and conditions contained in a "Legal Notice" section of the website. ( Id., Ex. 12 at 31.) One of those terms was entitled "governing law and jurisdiction" which stated:
You agree that all matters relating to your access to, or use of, this web site shall be governed by the laws of the state of California. You agree and hereby submit to the exclusive personal jurisdiction and venue of the Supreme Court of Santa Clara County in California and the United States District ...