News Column

Calif. Supreme Court Makes It Easier for Online Businesses to Collect Personal Data

Feb. 4, 2013

Howard Mintz, San Jose Mercury News

angry man with computer

A divided California Supreme Court on Monday made it easier for online merchants such as Apple (AAPL) and Ticketmaster to collect personal information from customers making credit card purchases.

In a 4-3 decision, the Supreme Court found that a 22-year-old California consumer protection law does not apply to the multibillion-dollar online commerce world, siding with Apple and other e-retailers in a legal battle over how much personal information buyers must provide in credit card transactions.

Apple argued that the law, called the Song-Beverly Credit Card Act, applies only to brick-and-mortar businesses, and the Supreme Court agreed.

Justice Goodwin Liu, writing for the majority, ruled that the Legislature has not extended the law to online commerce, and essentially invited lawmakers to change the law if they want to add online credit card purchases to its protections. But the decision concluded that consumers can be required to give personal data, such as home address and phone number, to verify a credit card when buying a downloadable product from Apple, such as an iTunes song.

"While it is clear the Legislature enacted the Credit Card Act to protect consumer privacy, it is also clear that the Legislature did not intend to achieve privacy protection without regard

to exposing consumers and retailers to undue risk of fraud," Liu wrote, joined by Chief Justice Tani Cantil-Sakauye and Justices Kathryn Mickle Werdegar and Carol Corrigan.

Three justices dissented, warning that the decision erodes privacy protections for consumers online, a growing concern of civil liberties groups who argue that merchants are abusing the collection of personal information. Lawyers for consumers argued in the case that online merchants can protect against fraud without forcing buyers to turn over so much personal information in credit card transactions.

"The majority's decision is a major win for (merchants), but a major loss for consumers, who in their online activities already face an ever-increasing encroachment upon their privacy," Justice Joyce Kennard wrote in dissent.

The Supreme Court case is the latest in a line of legal tangles over the online commerce privacy issue. In 2011, the court ruled that traditional stores, in a case involving Williams-Sonoma, violated the credit card act by collecting ZIP codes from customers, saying it was unnecessary to verify credit card purchases. That led to dozens of class action lawsuits against other retailers accused of collecting that information.

Gas station owners, meanwhile, were able to withstand similar legal challenges to requiring ZIP codes for credit card purchases at the pump because they proved that information was necessary in California to detect fraud.

Meanwhile, lawyers filed class actions against Apple, eHarmony and Ticketmaster seeking to apply the same law to online commerce. In the Apple case, plaintiffs alleged the practice of requiring address and phone number to establish an iTunes account violated the California law.

As a result of the Supreme Court decision, those cases will be blocked from proceeding. The court said the law did not envision online commerce when it was enacted, but noted that the Legislature "may wish to revisit the issue of consumer privacy and fraud prevention in online credit card transactions."

Howard Mintz covers legal affairs.

Source: (c)2013 the San Jose Mercury News (San Jose, Calif.) Distributed by MCT Information Services

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