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What's Happening in the Class Action Against Sony About Removing OtherOS? - Updated 2Xs
Monday, February 21 2011 @ 07:57 AM EST

I thought you'd be interested to know what's been happening in the litigation against Sony filed by customers upset that Sony took away the OtherOS capability on their PlayStation3's. Sony Computer Entertainment America, or SCEA, filed a motion to dismiss [PDF] the lawsuit. The court granted in part and denied in part. It has dismissed [PDF] all the claims against Sony except for one -- but with the right to amend -- and the one claim that survived is the one alleging that SCEA violated the Computer Fraud and Abuse Act. Right to amend means the plaintiffs can fix the deficiencies, if they can.

Some of you may conclude that there may be more justice in this world than you thought, when you reflect on the fact that now both Sony and George Hotz face claims of violating the Computer Fraud and Abuse Act.

The plaintiffs have 20 days to refile an amended complaint, but no matter what happens with those claims, the case will now proceed because the CFAA claim was *not* dismissed. And interestingly, this litigation is being heard in the US District Court for the Northern District of California in San Francisco. That's the same court hearing SCEA's litigation against Georg Hotz, but a different judge. And the plaintiffs have been following the SCEA v. Hotz case, and they noticed what they believe are contradictions between what Sony says in that case and what it says in this one.

The claims that were dismissed but that the plaintiffs can amend and refile are claims for breach of express warranty, breach of implied warranties of merchantability and fitness for a particular purpose, a California Consumer Legal Remedies Act claim, a Magnuson-Moss Warranty Act claim, and claims alleging conversion, unfair competition, and unjust enrichment. Here's the Complaint [PDF] that will need to be amended now.

The judge also denied SCEA's motion to strike [PDF] class certifications allegations, which would have "forced determinations" as the plaintiffs put it [PDF], before the plaintiffs would have ability to do discovery. The court denied SCEA's motion to strike.

The plaintiffs argue in the Complaint that Sony, or technically SCEA, advertised OtherOS, and then it took it away:

Defendant Disables the “Install Other OS” Feature And Other PS3 Functions

52. On or around March 28, 2010, Patrick Sebold, Defendant’s Senior Director of Corporate Communications and Social Media, announced on Defendant’s blog that Update 3.21 would be released on April 1, 2010 and its installation would disable the “Install Other OS” feature that was available on the PS3 systems prior to the current slimmer models, launched in September 2009.

53. On or about April 1, 2010, Defendant released Update 3.21. Defendant stated that Update 3.21 would disable the “Install Other OS” feature. PS3 owners were not “required” to install Update 3.21, but were essentially forced to do so or they would risk losing other important features of the PS3. For example, if a user failed to download Update 3.21, he or she would lose the following features: (1) the ability to sign in to the PSN; (2) the ability to use online features that require a user to sign in to the PSN, such as chat; (3) the ability to use the online features of PS3 format software; (4) playback of new PS3 software or Blu-ray discs that require Update 3.21 or later; (5) playback of copyright-protected videos that are stored on a media server; (6) use of new features and improvements that are available on PS3 Update 3.21 or later.

54. Since the ability to play Blu-ray discs and play games online through the PSN were features unique to the PS3 console and important to users, installing Update 3.21 was not optional for users wishing to retain those features. Even Defendant’s console games are increasingly reliant on online updates, online content, and online play. Defendant did not present PS3 users with a choice. Rather, users would either lose the ability to use other operating systems, an advertised and important feature if they installed Update 3.21, or they would lose the ability to access online, Blu-ray, and gaming features if they did not install Update 3.21. In other words, installing Update 3.21 renders the PS3 inoperable for its use as a computer; on the other hand, the failure to install Update 3.21 renders a users’ PS3 inoperable for its intended purpose as a gaming and Blu-ray disc console.

55. Moreover, when consumers send a defective PS3 console to Defendant for repair, Defendant’s repair service automatically installs Update 3.21. As Defendant states on its website:

Q: “I was using Linux and now my PS3 needs service. Can I use Linux after it comes back from repair?

A: No, we repair the PS3 system with the latest system software. Users will not be able to use Linux after the repair.”

http://us.playstation.com/support/answer/index.htm?a_id=469

Additional Injuries Caused By the Release of Update 3.21

56. Users that chose to install Update 3.21 lost any data stored in the “Other OS” partition if they do not back up that data on another medium. Defendant did not adequately notify its customers that all such data would be lost once they installed the update.

57. In addition, when Defendant originally sold the PS3s, the hard drive was partitioned such that part of the hard drive was dedicated to the “Other OS” function. When consumers installed Update 3.21, they not only lost whatever data was stored in that partition, they lost access to that portion of the hard drive originally partitioned for the “Other OS” function. In other words, an additional consequence of Defendant’s disablement of the “Other OS” function was to reduce the hard drive space available on the PS3 for which users had originally paid.

58. Many users purchased peripheral devices specifically for use with the “Other OS” function, such as wireless keyboards and mice and external hard drives. Such devices are rendered superfluous to users that install Update 3.21.

59. Users who chose not to install Update 3.21 were also damaged in that they lost access to many attributes of PS3 including their PSN purchases other than gaming. For example, Defendant offers Qore, an online service that offers a variety of content and news concerning PS3 functions. Users pay $24.99 for an annual subscription. However, users that purchased Qore prior to the release of Update 3.21 and who did not install the update are denied the benefit of their annual subscription. Similarly, users who do not install Update 3.21 lose access to any prepaid PSN account balances.

60. Similarly, many consumers use their PS3 to watch streaming video from Netflix, and they often pre-pay for an annual subscription. However, those users that do not install Update 3.21 are no longer able to stream Netflix using their PS3, and therefore they are damaged in the amount of their pre-paid Netflix subscription.

61. Many users who do not install Update 3.21 purchase new games for their PS3, unaware that new games cannot be played without the update. Users only become aware of that fact when they open the package and try to play the game. Retailers do not accept returns on games that are not in their original packaging, and thus users are damaged in the amount they paid for such games.

62. Since Defendant released Update 3.21, thousands of users have written complaints on Internet websites and message boards, including the message board Defendant maintains on its website, regarding Update 3.21 and its removal of the “Install Other OS” feature. Users complain that Defendant’s actions are similar to a bait and switch, where users purchased a product with a specific feature and later had it taken away. Simply put, PS3 users paid for a product that included certain features and regardless of whether they install Update 3.21, they will lose advertised and paid-for features and full functionality of their PS3 consoles....

63. Defendant originally informed users that the release of Update 3.21 – in particular, the disabling of the “Other OS” feature – was intended to protect the “security” of users systems. In emails to PS3 users, Defendant later admitted that the update was released in order to “protect the intellectual property of the content offered on the PS3 system.” This is an admission that Update 3.21 was released for Defendant’s benefit at the expense of its customers.

That's the heart of what this is all about, then. Their position is that you lose whether you accepted the "update" or you didn't. Sony's defense in a nutshell in its motion to dismiss is that it said it might do that in the terms:
As an initial matter, Plaintiffs’ primary theory of liability underlying the Consolidated Complaint – that SCEA advertised and later improperly deprived PS3 users of software features – is contradicted by the explicit terms of all applicable contracts between SCEA and Plaintiffs., i.e., SCEA’s written express warranty, the System Software License Agreement and the PSN Terms of Service. These contracts specifically provide PS3 purchasers with a license, not an ownership interest, in the software and in the use of the PSN, and provide that SCEA has the right to disable or alter software features or terminate or limit access to the PSN, including by issuing firmware updates. Plaintiffs therefore cannot succeed in any of their claims because SCEA’s alleged alteration/disablement of PS3 features, including the Other OS, was entirely proper and authorized.
That is a powerful argument, but it's not necessarily dispositive, in that the plaintiffs are arguing that Sony in other ways made promises and that the terms were not fair anyway. There was a hearing, of course, on the two motions, and there's a transcript [PDF], happily, so you can see where all the claims were argued before the judge, to give you an idea of the reasons why the judge had questions about the other claims and what the plaintiffs need to do, if they can, to address the questions.

For example, when discussing the motion to strike, Sony spoke first, and here's the interchange with the judge:

MS. SACKS: Nothing that is alleged anywhere in the complaint says anything about the duration, the longevity of the time in which the other OS function or, for that matter, any particular aggregate of features of the PS3 would be available.

THE COURT: Why then are we making the assumption that it must terminate at a certain point?

They're saying it's an ongoing representation; that without any termination date that you will always have the OS function. You're saying, well, they are not saying one way or the other what the time period is.

Why do we assume that it terminates?

MS. SACKS: Well, Your Honor, a manufacturer's obligation for anything having to do with a product itself is only defined by its express warranty, its express promises.

If SCEA, Sony, had said, "We guarantee that the other OS function would be supported," if they said, "We guarantee PlayStation Network access will always be available," anything about the duration, plaintiffs might have an argument. The only thing that Sony told anyone about the duration of any feature of the PS3 is what it said in the one year express limited hardware warranty. It said "one year."

And as the Daughtery case, as the Bardin case, and as subsequent federal court authorities have noted, where something arises after the duration of that promised one year, the purchaser can have no expectation.

So, Your Honor, if the purchaser can have no expectation of the PlayStation 3 functioning at all after the expiration of that one-year warranty, how can it somehow have a greater expectation about the availability of one feature? If SCEA cannot have liability under California law for the PS3 completely failing to perform after one year, how can it have liability for the fact that it does 99 percent of what it was advertised to do, and just not one?

That discussion is about express warranty. Sony is arguing that all they promised was one year's worth, and maybe less. So how can anyone sue them for taking away OtherOS years later? I know you may find that leaves you with a bad taste in your mouth, in that it seems like Sony is arguing that it only has to be nice if the law says it has to be nice, or that Sony can do whatever it wants unless it promised not to in very precise language.

Keep in mind as you read all this that judges in the US can only follow the law, not create it. By that I mean, they don't decide a case based on a gut feeling. They can't wing it based on who they think is naughty or nice. Rather, they look at the laws on the books that apply to the facts in the case, if any. And the laws are not written by judges. The US has a system of checks and balances, so no one branch of government can overpower the others. That's the original concept, anyway. So they try to match the claims with the law, and if they don't match, the judge can't help you, even if he'd like to. Sometimes you'll hear a lawyer say that not every wrong has a legal remedy. That's what they mean. People and companies do bad things sometimes, but if there was no law in advance making it illegal, then that is that. The judge can't make up a law on the spot.

Now, you could write a book about laws and how they get written, and various views on how equitable the system is, but my point is that if you read a ruling from a judge you don't like, many times it isn't the judge, it's the law. Laws draw a line someplace, because it's the nature of laws, and there is a precision to it, and you either are covered or you are not. If not, the judge can't help you.

I mention that because as you read the reasons why the judge dismissed the various claims, albeit with leave to amend, I think you'll find the law about implied warranty will make your blood boil, many of you. It's written such that if you buy a product from a vendor, like BestBuy, instead of directly from Sony or whoever, it can affect your rights.

So keep your blood pressure meds handy, because here's [PDF] part of Sony's argument regarding the express warranty:

SCEA issues a Limited Hardware Warranty And Liability (the “Warranty”) with every PS3 sold new at retail, which states:
[SCEA] warrants to the original purchaser that the PS3TM hardware shall be free from material defects in material and workmanship for a period of one (1) year from the original date of purchase (the “Warranty Period”)..... This warranty does not apply to any system software that is pre-installed in the PS3TM hardware, or is subsequently provided via update or upgrade releases. Such system software is licensed to you under the terms and conditions of a separate end user license agreement....
A separate section of the Warranty titled “Service Policy” underscores that modifications or enhancements to PS3’s software or firmware may be required and that such changes may alter the settings of the PS3 after purchase:
You understand and acknowledge that any time SCEA services your PS3TM system (either within the Warranty Period or under a separate service arrangement), it may become necessary for SCEA to provide certain services to your PS3TM system to ensure it is functioning properly in accordance with SCEA guidelines. Such services may include the installation of the latest software or firmware updates, or service or replacement of the PS3TM hard disk or the PS3TM system with a new or refurbished product. You acknowledge and agree that some services may change your current settings, cause a removal of cosmetic stickers or system skins, cause a loss of data or content, or cause some loss of functionality.
Ah, I hear you thinking, but I didn't read all that stuff. Yes. But you should have, because later, if you agree to it by buying that product on those terms, you're legally stuck when it comes time to get mad. They told you they might do this, and they did. "What's your beef?" Sony is, in effect, asking the plaintiffs. You said you agreed to the clickwrap too, and it also told you the same thing, that you had no ownership rights in the software and that there would be updates to it:
The SSLA also makes clear that software updates may be made automatically by SCEA and whether automatic or available for download by users, may disengage or alter some functions:
From time to time, SCE may provide updates, upgrades or services to your PS3TM system to ensure it is functioning properly in accordance with SCE guidelines or provide you with new offerings. Some services may be provided automatically without notice when you are online, and others may be available to you through SCE’s online network or authorized channels. Without limitation, services may include the provision of the latest update or download of new release that may include security patches, new technology or revised settings and feature which may prevent access to unauthorized or pirated content, or use of unauthorized hardware or software in connection with the PS3TM system. Additionally, you may not be able to view your own content if it includes or displays content that is protected by authentication technology. Some services may change your current settings, cause a loss of data or content, or cause some loss of functionality. It is recommended that you regularly back up any data on the hard disk that is of a type that can be backed up.
The terms of use also spelled out what upgrades or updates might do to your ability to use the Playstation Network, including that the license to you was revocable and that Sony didn't have to tell you in advance about an "automatic" update:
From time to time, it may become necessary for SCEA to provide certain content to you to ensure that Sony Online Services and content offered through Sony Online Services, your PlayStation3TM computer entertainment system, the PSPTM (PlayStation Portable) system or other SCEA-authorized hardware is functioning properly in accordance with SCEA guidelines. Some content may be provided automatically without notice when you sign in. Such content may include automatic updates or upgrades which may change your current operating system, cause a loss of data or content or cause a loss of functionalities or utilities. Such upgrades or updates may be provided for system software for your PlayStation3TM computer entertainment system, the PSPTM (PlayStation Portable) system, or other SCEA-authorized hardware.
To Sony, this covers their back. They made the change to OtherOS functionality for security reasons, and they have the right to do that in the terms that you said I Agree to. And nobody forced anybody to accept this particular update anyhow. You had a choice:
As the Consolidated Complaint and complaints in the underlying consolidated actions concede, SCEA released Update 3.21 for “security reasons” i.e., to protect its intellectual property from unauthorized access by hackers.

PS3 owners were not required to install Update 3.21. But according to Plaintiffs, “if a user failed to download Update 3.21, he or she would lose the following features: (1) the ability to sign in to the PSN; (2) the ability to use online features that require a user to sign in to the PSN, such as chat; (3) the ability to use the online features of PS3 format software; (4) playback of new PS3 software or Blu-ray discs that require Update 3.21 or later; (5) playback of copyright-protected videos that are stored on a media server; (6) use of new features and improvements that are available on PS3 Update 3.21 or later.” Those that installed Update 3.21 lost use of the Other OS feature.

I'm leaving off the footnotes, which are references to the various legal documents they are quoting from. SCEA goes on to say that it never expressly promised anything to anybody about OtherOS being available forever and ever. The plaintiffs' provided lots of advertising wording about the Playstation3 being a computer, not just a game console, but that, SCEA, argues, doesn't alter the legal documents, and anyway, SCEA didn't stop customers from using it as a computer:
Finally, SCEA’s reference to the PS3 as a “personal computer” does not constitute an express warranty that has been breached. Plaintiffs concede that those who downloaded Update 3.21 (and thereby disabled the Other OS) continue to use their PS3s to play video games, movies, music, Blu-ray discs; browse the Internet; view photographs; and access the PSN. And those that did not download Update 3.21 continue to utilize the Other OS function on their PS3s to develop software applications, to create “supercomputer clusters,” and run “more than 1,000 applications.” In both circumstances, the subject PS3s are functioning as “personal computers.”
Implied Warranties of Merchantability and Fitness for a Particular Purpose -- The Privity Issue

But the plaintiffs also had claims of implied warranties of merchantability and fitness for a particular purpose. What's that? It means that if you buy a product that says it's a toaster on the box, you expect it to be able to toast bread, at least, when you take it home and plug it in. That's what you buy a toaster for. And the plaintiffs argued that they bought the PS3 to use it as a Linux personal computer and to play games online. They certainly lost at least one of those things.

Well, SCEA replies, too bad, so sad. There are no such implied warranties in California unless you plead facts supporting the requisite elements of such a claim, and one limitation is that you can only assert such a claim against the party from whom you bought the product. As lawyers put it, "vertical privity is a prerequisite in California". Believe it or not, that means that if you are an end user and you bought your console not directly from Sony but from some BestBuy or whatever instead, you can't sue over the breach of said implied warranties.

I know. Tell your California legislators if you don't like that law. But there it is. I'm not sure the judge actually registered one argument that the plaintiffs made at the hearing on the issue of privity, though, because he ruled there was a lack of privity and that the plaitiffs had acknowledged it, but this is what they argued at the hearing about the implied warranties and privity:

MR. PIZZIRUSSO: Okay. The reason why we allege we are in privity is because of the fact that there is an express warranty. And implied warranties flow from express warranties, Your Honor. This is all part of the same kind of relationship here.

THE COURT: Okay. Let's do it this way. I understand that part of your argument. What other arguments do you have on the privity issue on implied warranty?

MR. PIZZIRUSSO: Well, let's look at one of the exhibits to Carter Ott's declaration in support of this motion. It's Exhibit B, Your Honor. Exhibit B says this is the system software license agreement between the plaintiffs and the defendants --

THE COURT: Okay.

MR. PIZZIRUSSO: -- that they say controls here. We've said -- they have said, "Take judicial notice." We oppose that.

But to the extent the Court is going to take judicial notice, you should read the whole thing. Because, what it says is this agreement between a consumer -- I'm reading. The "between a consumer" part isn't in there. But this agreement is a contract with SCE. So the license agreement that Sony contends applies here, they say is a contract between them and the plaintiff. So if you're in a contract with Sony, we think that's privity.

Then they say, "SCE and its licensors reserve the right to bring legal action in the event of a violation of this agreement." So they're saying, "We can sue you, but you can't sue us because we're not in privity." That's one.

Number two, you know, I'm not in the other PlayStation case. I don't know what they alleged in terms of the direct dealings. But here we allege there are many. As part of the package that you buy when you buy the PlayStation, you are buying firmware updates; you are contacting Sony; you are going onto the PlayStation Network....

So just to be clear, Your Honor, we allege there's privity in the express warranty which creates privity in implied warranty. We allege that there are direct dealings between Sony, including the transfer of funds. And we elect that their own documents that they say control here create a privity. They say we are in contract with you.

THE COURT: Okay.

MR. PIZZIRUSSO: So that's privity.

Yet the judge in the order writes that the plaintiffs acknowledge that privity in its strict sense is absent but should not be required. I don't see that in the hearing as plaintiffs' argument at all.

Contradictions

I mentioned that the plaintiffs had noticed some differences in what Sony is telling this court and the other judge in the Hotz litigation. You'll find an example of that in this Declaration of Rosemary M. Rivas [PDF], one of plaintiffs' lawyers, and when you read what she points to, it is about this issue of privity:

4. In the RJN, Plaintiffs request the Court to take judicial notice of filings in the recently filed action Sony Computer Entertainment America, LLC v. Hotz, et al., Civil Action No. 3:11-cv- 00167-SI (N.D. Cal.) (“Hotz”).

5. As explained in the accompanying memorandum and the RJN, in the filings in Hotz, Defendant Sony Computer Entertainment America, LLC (“SCEA”) makes statements that directly contradict its argument in support of its motion to dismiss plaintiffs’ breach of warranty claim in the present case, which was heard on November 4, 2010, and is currently under submission.

6. Plaintiffs submit that the documents attached to the RJN are properly subject to judicial notice under Rule of Evidence 201(b).

And here's the RJN, filed *after* the hearing in November:
INTRODUCTION

Pursuant to Civil Local Rule 7-11, Plaintiffs respectfully submit this administrative motion for permission to file the Request for Judicial Notice in Further Opposition to Sony Computer Entertainment, LLC’s Motion to Dismiss (“RJN”), attached to the Declaration of Rosemary M. Rivas (“Rivas Declaration”), filed herewith. In the RJN, plaintiffs request the Court to take judicial notice of filings in the recently filed action Sony Computer Entertainment America, LLC v. Hotz, et al., Civil Action No. 3:11-cv-00167-SI (N.D. Cal.) (“Hotz”). As explained herein, in the submitted filings made in Hotz, defendant Sony Computer Entertainment America, LLC (“SCEA”) makes statements that directly contradict its argument in support of its motion to dismiss plaintiffs’ breach of warranty claim in the present case, which was heard on November 4, 2010, and is currently under submission. Plaintiffs sought a stipulation under Local Rule 7-11(d) to the relief requested, but could not obtain it. SCEA will oppose this administrative motion.

ARGUMENT

A. Plaintiffs’ Breach of Implied Warranty Claim.

This case concerns SCEA’s unilateral decision to effectively terminate the advertised “Other OS” feature on its PS3 console. Plaintiffs allege that this conduct rendered each PS3 console not fit for the ordinary purposes for which it was sold, and assert a claim against SCEA under California Commercial Code §2314, which provides in relevant part that “a warranty that the goods be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind” and that “goods to be merchantable must be at least ... as fit for the ordinary purposes for which such goods are used.” SCEA moved to dismiss plaintiffs’ breach of implied warranty claim by arguing that plaintiffs and SCEA lacked privity because plaintiffs did not purchase the product directly from SCEA. [Docket No. 97]. As explained in Plaintiffs’ opposition to SCEA’s motion to dismiss [Docket No. 104], Plaintiffs can establish the requisite vertical privity for their breach of implied warranty claim, regardless of whether they purchased the PS3s directly from SCEA.

B. SCEA’S Statements in Hotz.

In Hotz, SCEA sued several PS3 users for injunctive relief and damages in connection with their purported unauthorized access to and copying of SCEA’s proprietary PS3 technology. In the complaint, SCEA claimed privity of contract with the defendant PS3 users, although the users did not purchase their PS3s directly from SCEA, but rather at retail. SCEA’s complaint in Hotz (attached to the RJN as Exhibit A) states, in pertinent part, as follows:

15. This Court has personal jurisdiction over each Defendant for the following reasons, among others:

(a) On information and belief, Hotz has purposely availed himself of the benefits of this district by doing business with PayPal, Inc., a company located in San Jose, California. Specifically, Hotz has utilized his PayPal account to solicit and obtain financial benefits in connection with the unlawful conduct alleged herein. Hotz is also subject to personal jurisdiction pursuant to the PlayStation Network Terms of Service and User Agreement (“PSN User Agreement”), which is attached hereto as Exhibit A. On information and belief, Hotz has used software updates delivered by SCEA for one or more PS3 Systems he is using. To obtain such software, users must consent to the terms and conditions of the PSN User Agreement, which require that both parties submit to personal jurisdiction in California and further agree that any dispute arising from or relating to this Agreement shall be brought in a court within San Mateo County, California.

53. All PS3 System users who have used software updates delivered by SCEA for the PS3 System are bound by the PSN User Agreement or similar agreement. A copy of the PSN User Agreement is attached as Exhibit A and incorporated herein by reference. On information and belief, Defendants herein have consented and are subject to the terms of the PSN User Agreement or similar agreement.

92. SCEA is informed and believes and thereon alleges that Defendants agreed to the terms of the PSN User Agreement or similar agreement and entered into that contract or similar agreement with SCEA. The PSN User Agreement or similar agreement is a written contract that limits their use of the PS3 System, related hardware, and related code, including restricting access and governing allowable uses.

97. SCEA has contractual relationships with users of the PlayStation Network.

SCEA further claims in its Ex Parte Motion for Temporary Restraining Order, Order to Show Case Re: Preliminary Injunction, and Order of Impoundment; Memorandum of Points and Authorities in Support (“TRO Motion”), filed on January 11, 2011, that “Hotz is bound by the ‘Playstation Network Terms of Service and User Agreement.’” RJN, Exhibit B. The Court ultimately issued the TRO sought by SCEA. RJN, Exhibit C. Thus, in Hotz, SCEA itself argues that SCEA maintains contractual privity with all PS3 users, which supports plaintiffs’ breach of implied warranty claim, and contradicts arguments made by SCEA in its motion to dismiss that claim.
This was filed with the court on February 17. The judge's order was on that same date, so presumably he didn't consider this when he issued the order, but can do so now, if he wishes. Obviously, Sony should get the two law firms to coordinate better than this. It's hard when you are working in emergency mode, as was the case in Hotz, but now there is a real problem in this picture. You can't have privity in one case and then argue there isn't any in another, without causing both judges to scratch their heads.

But getting back to Sony's arguments about the implied warranties, it argued that unless the product was defective at the time it was sold, it was merchantable and fit. If something happens to it later, it's not going to lead to a proper claim of breach of those warranties:

Here, Plaintiffs do not complain of any problem at the time of sale. Instead, they assert that problems began much later when SCEA released Update 3.21 – an independent event occurring at least a year after the purchases at issue. Because Plaintiffs’ PS3s were merchantable and fit for the particular purpose at the time of delivery, they have no claim for breach of implied warranty....

To establish the implied warranty of fitness existed, Plaintiffs must allege that SCEA had “reason to know” of their special purpose, i.e., to use the PS3 in perpetuity for all advertised features and functions including the Other OS; that Plaintiffs relied on SCEA’s expertise; and that SCEA had “reason to know” of their reliance on the continued availability of all features and functions. Plaintiffs have not only failed to allege these requisite facts, they indeed cannot due to the explicit language of SCEA’s Warranty, SSLA, and Terms of Service. Specifically, because SCEA had the right to terminate or alter any feature or function, it had no reason to believe that Plaintiffs purchased their PS3s particularly with the expectation and belief that all features, including the Other OS, would be available for the “life” of the PS3. Stated differently, Plaintiffs could not have relied on SCEA with regard to perpetual availability of features and functions -- SCEA had expressly reserved the right to alter or discontinue features and functions, particularly in the instance of “unauthorized or pirated content, or use of unauthorized hardware or software”, i.e., to protect its intellectual property.

Time for those meds, I expect. We didn't know, SCEA has the guts to argue, that you wanted the OtherOS functionality to last for the life of your console. We told you we might alter what you could do -- don't you remember? At the hearing, plaintiffs pointed out that Sony first decided that Playstation 3 wouldn't have OtherOS functionality, and people who had the older model were up in arms, and a Sony employee made a promise:
MR. PIZZIRUSSO: But, one more point, Your Honor. We think that there is at least one cite that we have that does kind of go to this temporal element that it was really for the life of the product. And that's paragraph 44.

Because what happened here is, Sony first decided that the newer PlayStation models wouldn't have the other OS feature at all. So people got all up in arms. They said, "Wait a minute. What about those of us who have the old unit?" The slim model is what they called it. And Sony said don't worry -- here is their exact quote.

Jeffrey Lavond (phonetic), who was the Linux maintainer for Sony, said, SCE -- that's Sony Computer Entertainment -- is committed to continue the support for previously sold models that have the install other OS feature, and that this feature will not be disabled in future firmware releases. So this is one example of a statement that they had made that indicates that this was going to be around for the life of the product. So there is an element there that we think we've alleged.

Here's paragraph 44 from the complaint that he was referencing:
44. Defendant knew that the ability to run other operating systems was considered to be important and material to users. On or around August 18, 2009, Defendant announced the release of the PS3 “slim” model available on September 1, 2009. The PS3 slim did not include the ability to install other operating systems. However, Defendant’s PS3-Linux maintainer, Geoffrey Levand, assured users via email that “SCE [Sony Computer Entertainment] is committed to continue the support for previously sold models that have the ‘Install Other OS’ feature and that this feature will not be disabled in future firmware releases.”
There's a footnote that reads "Levand’s email, as posted by a user on Defendant’s blog: Posting of jayyy91, to http://blog.us.playstation.com/2010/03/28/ps3-firmware-v3-21-update/comment-page-33/ (March 29, 2010, 2:50 pm)." Perhaps some of you have that email too?

I'll skip the other Sony arguments in the interests of your health, because you won't like the rest of them any better than the warranty-privity argument, and I'll let the strong-hearted read the rest of that filing on their own. But you'll see in the judge's ruling, where he references these arguments, so now at least I hope you'll understand what he's talking about.

Violation of the Computer Fraud and Abuse Act

But what about the CFAA claim? Plaintiffs in the Complaint alleged that claim like this:

COUNT V

Violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, et seq.

126. Plaintiffs incorporate by reference and reallege all paragraphs previously alleged herein.

127. The PS3 is a “computer” within the meaning of 18 U.S.C. § 1030(e)(1).

128. Plaintiffs’ and Class members’ PS3 consoles are used in interstate commerce or communication, and are “protected computers” within the meaning of 18 U.S.C. § 1030(e)(2)(B).

129. Defendant knowingly caused the transmission of software and intentionally caused damage without authorization to Plaintiffs’ and Class members’ PS3 consoles; and/or intentionally accessed Plaintiffs’ and Class members’ PS3 consoles without authorization and recklessly caused damage; and/or intentionally accessed Plaintiffs’ and Class members’ PS3 consoles without authorization and caused damage and loss. Defendant’s purpose was to protect its intellectual property although it informed Plaintiffs and Class members that the purpose was for security reasons.

130. Defendant knowingly caused the transmission of software code and intentionally caused damage without Plaintiffs’ authorization to Plaintiffs’ and Class members’ PS3 consoles. Defendant knowingly and admittedly released Update 3.21 for the specific purpose of removing the “Install Other OS” feature – a feature that Defendant had advertised as part of the console and for which Plaintiffs and Class members had paid. As a result of this knowing transmission, Defendant intentionally caused damage by disabling the “Install Other OS” feature. The damage was unauthorized because a failure to download Update 3.21 resulted in the loss of other features, as described herein. Further, Defendant’s stated purpose was for security reasons although in reality it was to protect its intellectual property.

131. Defendant intentionally accessed Plaintiffs’ and the Class’ PS3 systems and transmitted software without authorization and recklessly caused damage.

132. Defendant intentionally accessed Plaintiffs and the Class’ PS3 systems without authorization and caused damage and loss. Although Plaintiffs and Class members may have authorized a firmware update for security reasons, they did not authorize the disabling of the “Install Other OS” feature. Defendant did not present Plaintiffs and Class members with any actual choice because either downloading Update 3.21 or not downloading the update would both result in disabling certain advertised features. Defendant’s unauthorized access caused damage to Plaintiffs’ and Class members’ PS3 consoles and caused Plaintiffs and Class members to suffer losses, including, but not limited to, the ability use other operating systems and the money paid for this feature. Plaintiffs’ and Class members’ consoles were reduced in value by Defendant’s conduct because a gaming console that allows Defendant to remove and disable advertised and material features is worth less than a gaming console that does not allow these unconsented-to removals.

133. Through Defendant’s intentional transmission of the software and the unauthorized access of Plaintiffs’ and Class members’ PS3 systems, Defendant impaired the integrity of Plaintiffs’ and other individual Class members’ systems and removed a feature that Plaintiffs and Class members had paid for. As a direct result of engaging in such acts, Defendant caused damage exceeding an aggregate of $5,000 in value during a one-year period.

At the hearing, plaintiffs argued like this:
MR. PIZZIRUSSO: On the Consumer Fraud Act, Your Honor, again, we have -- we allege that we did not authorize Sony to come in and disable this feature; that there was no real choice here. And just looking at basic contract law, if I'm dangling somebody over a hotel balcony and saying, "Sign this agreement," and then say, "Okay," well, I have their authorization. That's clearly not authorization under basic contract.

THE COURT: You are equating the decision on whether or not to do the upgrade as being dangled over a cliff?

No, I am not being facetious.

MR. PIZZIRUSSO: I am, Your Honor. It was a Hobson's choice. Either way, you lose functionality. You are going to lose features either way. And we said that's not a real choice.

SCEA's rebuttal in its motion to dismiss:
The Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. section 1030 et seq. was intended to address hacking, i.e., trespass into computers in the course of computer fraud. The Consolidated Complaint asserts SCEA violated Section 1030(a)(5) of CFAA, which requires that a defendant
(A) knowingly causes the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization, to a protected computer; (B) intentionally accesses a protected computer without authorization, and as a result of such conduct, recklessly causes damage; or (C) intentionally accesses a protected computer without authorization, and as a result of such conduct, causes damage and loss.
However, Plaintiffs cannot establish there was any “damage” “without authorization.” The SSLA and Terms of Service explicitly set forth that SCEA may disable or alter any software feature, particularly to prevent unauthorized use or access to its intellectual property, which Plaintiffs concede was SCEA’s reason for issuing Update 3.21. It was therefore always within purchasers’ expectations that SCEA may take away or limit the Other OS function as well as access to the PSN. Furthermore, SCEA notified the public in advance that it intended to release a software update that, if downloaded by a user, would disengage the Other OS option, and confirmed that it was doing so due to security concerns related to its intellectual property. Accordingly, it cannot be said that SCEA disabled the Other OS feature “without authorization.”
At the hearing, Sony argued this way about that claim:
MS. SACKS: Finally, Your Honor, you talked about the CFAA issue and whether or not the idea of the disablement is an unauthorized intrusion onto someone's computer.

Again, though, there's no CFAA case that the plaintiffs have come forward with that comes anywhere close to the facts here.

The reality is that notwithstanding just the license authorization that we assert Sony had, the fact is the plaintiffs had a voluntary choice there. Sony did not automatically put that update -- we'd have, possibly, a different argument if in fact this was non-voluntary. And I know you'll recall that in the PlayStation 3 case, there is an assertion there that it was effectively a forced update.

That's not what we have here. So that's why they may have a claim for a breach of license agreement, whatever, but it's not a claim for the CFAA.

THE COURT: I agree with you that Section 1030 is routinely not used in this particular -- I've not seen it used in this context. But if you read the language of Section 1030, I'm not sure I see why it couldn't be. I agree with you that there isn't a body of law out there where this type of claim has then been distilled into a CFAA claim. I don't disagree with you. But I don't think simply reading Section 1030, you come away with the notion that there is no way in which this could conceivably fit under those provisions.

MS. SACKS: Your Honor, I think the problem is that in order to accept the notion that Sony made an unauthorized intrusion onto the plaintiffs' PS3s, you have to start with the assumption that what was, quote/unquote, disabled was something that the plaintiffs had an ownership interest in.

I've got an ownership interest in my computer and my hardware and what I have sitting on my hardware drive. So if somebody hacks into my computer, they have literally made an unauthorized intrusion.

But that's not what we're talking about here. We're talking about if you are so interested in keeping this one feature, then you're not going to be able to access the PSN anymore. You may not be able to play some games. But that is not hacking into somebody's computer, which is the essence of the CFAA.

The judge, however, was not persuaded. At the hearing, Sony's lawyer argued that users can still make use of their Playstation 3 consoles whether or not they chose to download the update:
MS. SACKS: For those people who the other OS function and running Linux was important to them, they do have the option to continue to run it.

THE COURT: By not downloading.

MS. SACKS: By not downloading. And, in fact, two of the named plaintiffs are in exactly that position. They admit they did not download it.

Then, again, if you look at several of the other plaintiffs and you look at what they say this effect of downloading has been on them, the only real effect is that they can't access the PlayStation Network.

They can still browse the Internet. That's a function that's provided by the native operating system. They can still play all the games and all the movies and all the music that they had purchased before update 3.21 came out.

They claim there may be games in the future that they can't play. We'll take that as a given. But the reality is, everything that they were doing the day before update 3.21 came out, even if they downloaded, they can still do it now, except access Sony's PlayStation Network, which Sony certainly has a right to place a limit on.

If you compare this case to the Apple case, I think this contrast really helps understand this idea of unconscionability, whether you think of it as conversion, Computer Fraud Abuse Act. The Apple update not only affected a feature, it bricked the entire phone. You couldn't use it at all. You couldn't even get it repaired afterwards.

The plaintiffs admit that they are doing everything, with the exception of accessing the PlayStation Network, that they were doing before. The core features of the PS3 are still available to them.

So the idea that we imposed this update on people and that somehow is shocking or unconscionable, just doesn't play out when you look at the reality of the facts.

That, of course, depends on how you view Linux. To Sony, it's peripheral, obviously, to argue as they did. I mean, turn it around. Suppose Sony turned off gaming. It kept OtherOS, but it told the world that according to its licenses and terms, it didn't need to maintain Playstation 3 as a gaming console. Do you think for a minute a court would let it, regardless of the wording of the license? To people who bought a Playstation 3 rather than another gaming console precisely because of the OtherOS functionality, it's a central feature, probably the very reason why it bought a Playstation 3, but they wanted the gaming too, and to give up gaming to keep OtherOS is a huge loss. Gaming is, after all, a core feature of the Playstation 3.

And here's the ruling [PDF] from the court, again, so we can focus on that part, and as you'll see, the court was not convinced:

H. Computer Fraud and Abuse Act (“CFAA”) Plaintiffs contend that Sony violated the CFAA by “knowingly caus[ing] the transmission of a program, information, code, or command, and as a result of such conduct, intentionally caus[ing] damage without authorization, to a protected computer.” 18 U.S.C. § 1030(a)(5)(A)(i). Sony argues that it did not act “without authorization” either because the terms of the software license permitted it to take the actions it did, or because plaintiffs’ “voluntarily” downloaded Update 3.21, knowing the effect it would have. At this juncture, Sony has not conclusively established that disabling a PS3 capability of the nature of the Other OS feature is within the scope of the license agreement provisions on which it relies, nor has it shown that those plaintiffs who downloaded the Update thereby necessarily “authorized” the removal of the feature within the meaning of the statute. Accordingly, this prong of the motion will be denied, without prejudice to Sony’s ability to challenge any CFAA claim in an amended complaint, based on the same or expanded arguments.
The Motion to Strike

What's that about? Well, you know how when a music company wants to sue a lot of people, it prefers to group them together in one action, if possible? They like to do that because it's cheaper than suing hundreds of people individually. But the flip side of that is that when a company is instead the one being sued, it prefers to force a group to sue individually. Why? Again, because it tilts in the company's favor.

Why? Because if there is a group who each suffered a $100 loss, there is no realistic way to sue to recover such a small sum, so normal people won't bother. But conversely, there is practical wisdom in suing as a class, not as individuals, because although it will cost a lot more than $100 to sue and no one sues, or no one normal sues, unless the payout is greater than the cost, if all the $100-damaged individuals get together with all the others, if there are enough of them, they can pool their resources, and then the expense can be worth it, because everyone in the class gets the $100 and by sharing the lawyer, it can be worth it. So whenever a bunch get together, they try to persuade the judge that they are representative of a large enough group to make it legal for them to sue as a class instead of as individuals. And the company tries, if possible, to avoid it.

Here's how the plaintiffs have defined the class:

Plaintiffs’ proposed class definition includes: “All persons who purchased, in the United States and its territories, a new PS3 with the Open Platform feature for personal use and not for resale and continued to own the PS3 on March 27, 2010.” Complaint ¶ 70. This definition readily identifies a specific class, namely consumers that purchased a specific product, the PS3, and who still owned the PS3 on a specific date (March 27, 2010).
Usually, the court doesn't decide on the issue of whether a class can be certified until after discovery has progressed a while. Sony was trying with its motion to strike to make the court decide the issue now. Sony's position was essentially that the definition needed to be amended to exclude those who didn't buy a Playstation 3 to use it with Linux, who maybe never saw any advertisements about that or never visited Sony's website or who just didn't care about Linux.

Here's the Plaintiffs’ Memorandum of Points and Authorities in Opposition to SCEA's Motion to Dismiss. This is their opposition to Sony's motion to strike, titled "Plaintiffs’ Opposition to Defendant’s Motion to Strike Class Allegations", where the definition of the class proposed came from.

Sony is, as you've seen in the Hotz litigation, very aggressive in its legal positions, and here it was aggressive in arguing that it wouldn't be possible for a court to figure out who still owned a console in 2010 or who bought it for personal instead of business reasons, etc. Here's a footnote from the plaintiffs opposition to Sony's motion to strike, and you'll see, I think, why I call their style aggressive:

3 SCEA’s citation to Complaint ¶¶ 10, 12, 14, 16, 18, 70 & 84 for the proposition that “Plaintiffs concede [that] individuals purchased PS3s for various reasons, including personal and/or business reasons,” Def. Mem. at 15, is, to be kind, misleading. In fact, each of the Plaintiffs expressly allege that they purchased their PS3s “for personal, family and household uses.” Complaint ¶¶ 10, 12, 14, 16, 18. Paragraph 70 states the class definition, specifically including only users that purchased PS3s for personal use. The mere fact that SCEA’s warranty of merchantability covered both “personal and business” use, Complaint ¶ 84, does not infer that Plaintiffs purchased it for other than personal use.
Sony was arguing that it would be impossible to figure out who was in the class. It used as an example comments people had left online saying they were not interested in using OtherOS, so how would you know why someone bought it for that feature? You'd have to read their minds. Anyway, it failed as a tactic. I remember when the PlayStation 3 came out. I couldn't afford one at the time, but I really wanted one, and what I wanted it for was to use it as a Linux computer. It was undeniably advertised in a way that would imply to me that your purpose could be to run Linux on it and use it as a computer. But in fairness to Sony, it wasn't asking that the motion be granted with prejudice, but rather than the plaintiffs amend the definition to exclude those who didn't have an injury. The judge basically responded that it was too soon for class certification issues to be decided.

This case, then, as the plaintiffs describe it, "concerns SCEA’s unilateral decision to effectively terminate the advertised 'Other OS' feature on its PS3 console." Sony's defense is the terms and licenses, that at the time of sale there was a reservation of rights allowing Sony to disable written in black and white in the license agreement and, therefore, there's no misrepresentation, no harm, in that customers accepted those terms.

Update: Here's a comment that seems pertinent on the Playstation Forum, a comment from XrobX trying to explain to someone who said he cared only about OtherOS why people are upset about the Hobson's choice Sony presented to them:

wow...... really?

i bought the ps3 to play games too. i could already play ps1, ps2, and ps3 games on it, but it used to be able to play nes, snes, genesis, game boy, arcade, etc. games using linux where i have literally THOUSANDS of games to play (legal backups of course), as an all in one system using linux, and the update takes that away from me. not to mention the MONTHS of fooling around with linux to find out ways to get this stuff working that would have been all for nothing. that's why i decided i'd rather get a second ps3 rather than lose it all and won't update. so now maybe you can see it from someone else's p.o.v. and i'm fully aware i could do the same thing with a computer and even better but it doesn't beat having it all in one system. the ps3 was advertised as a computer, this has been stated several times, this is basically what justified the 600 dollar price tag for me. so yeah, this is why people are upset

And here's another guy, SmokeNMirrors, who went out and bought a second:
I have 2 PS3's still on FW3.15. I wound up forking out another $300 for a Slim so that I could access the hundreds of dollars of PSN content Sony cut me off from. Buying an additional PS3 is our only 'option' to retain our full functionality. I also found that Sony flatly refuses to deactivate FW3.15 systems. So now I've lost 40% of my ability to use DLC that I've already paid for. This whole debacle sure feels like extortion to me. The only recourse left is to hope for a consumer victory in court.
Update 2: On the topic of how long customers expected to have their PS3s still functional, take a look at this interview, specifically the quote by Peter Dille, senior vice president of marketing at Sony Computer Entertainment America:
"So when we say we take a long-term view, we firmly believe that the PS3 will not only be around in 10 years but it'll be driving the business -- driving this industry."
The full interview is here. It goes on about the how the PS1 an PS2 are 10-year platforms, and the PS3 will be nothing less. Count on them to be there for a decade, etc.

And then there is Kazuo Hirai, Chairman of SCE, the head of all Sony gaming, here:

"Last time I checked, they've never had a console that's been on the market for more than four or five years and we've committed to a ten year life cycle, so you do the math."
And with that introduction, with the disclaimer that this is actually just touching the surface, here's the court's order as text:

************************************

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

IN RE SONY PS3 OTHER OS
LITIGATION

_______________________

No. C 10-1811 RS

ORDER GRANTING MOTION TO
DISMISS, WITH LEAVE TO AMEND,
AND DENYING MOTION TO STRIKE

________________________

I. INTRODUCTION

In 2006, defendant Sony Computer Entertainment America LLC introduced the PlayStation® 3 (“PS3”) gaming system. Plaintiffs in this putative class action contend that Sony promoted the PS3 as having capabilities beyond those of prior game consoles, including specifically an “Other OS” feature, which enabled users to install Linux or other operating systems and use the devices as personal computers. In 2010, Sony released a software update for the PS3 that, among other things, intentionally disabled the Other OS feature, ostensibly for the purpose of enhancing security or protecting intellectual property. Although PS3 owners had the choice of declining to install the software update, without it they would no longer have access to certain online features

and entertainment, and would be unable to play any new games that might require the update to function.

In the operative Consolidated Complaint, plaintiffs seek damages and/or an injunction that would require Sony to restore the Other OS feature. Sony moves to dismiss, arguing that all of plaintiffs’ claims for relief contain pleading defects, and more fundamentally, that under the facts pleaded and the terms of the written warranty and software license agreement that accompany PS3 systems, it had every right to disable the Other OS feature when providing software updates that users were free to accept or decline. While it cannot be concluded as a matter of law at this juncture that Sony could, without legal consequence, force its customers to choose either to forego installing the software update or to lose access to the other OS feature, the present allegations of the Complaint largely fail to state a claim. Accordingly, with the exception of one count, the motion to dismiss will be granted, with leave to amend. Sony’s further request for a ruling as to viability of this matter proceeding as a class action is premature, and therefore its motion to strike the class allegations will be denied.

II. BACKGROUND

Plaintiffs contend that when Sony introduced the PS3, it touted it as “the most advanced computer system that serves as a platform to enjoy next generation computer entertainment.” Plaintiffs identify four “core” attributes of the system, in addition to stand-alone game play, that Sony purportedly advertised widely: (1) a built-in Blu-ray disc player, (2) access to online gaming through the PlayStation Network (“PSN”), (3) the Other OS feature, and (4) the capability to receive software (or “firmware”) updates to maintain and enhance system functionality.

In 2009, Sony introduced a new model of the PS3 that eliminated the Other OS feature. At that time, however, Sony assured owners of older PS3 systems that they would continue to have access to the feature on their machines. In 2010, however, Sony issued Firmware Update 3.21. If a user downloaded Update 3.21, it would disable the Other OS feature. Users who chose not to download the update lost access to PSN and would not be able to use any future games, Blu-ray video discs, or other features that might require it. According to the Complaint, Sony initially stated

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that disabling the Other OS feature was intended to enhance the “security” of users’ systems, but it later admitted that the purpose was to “protect the intellectual property of the content offered on the PS3 system.”1

III. LEGAL STANDARDS

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a claim may be dismissed because of a “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

In reviewing a complaint under Rule 12(b)(6), all allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Marceau v. Blackfeet Hous. Auth., 540 F.3d 916, 919 (9th Cir. 2008); Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1999). The Court, however, is not required “to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1056-57 (9th Cir. 2008); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Although they may provide the framework of a complaint, legal conclusions are not accepted as true and “[t]hreadbare recitals of elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009); see also Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

Additionally, Rule 9(b) of the Federal Rules of Civil Procedure requires that “[i]n allegations of fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” To satisfy the rule, a plaintiff must allege the “who, what, where, when, and how” of the charged misconduct. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). In other words, “the circumstances constituting the alleged fraud must be specific enough to give defendants notice of

3

the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Vess v. Ciba-Geigy Corp. U.S.A., 317 F.3d 1097, 1106 (9th Cir. 2003).

III. DISCUSSION

A. Breach of Express Warranty

Under California law, to prevail on a breach of express warranty claim a plaintiff must prove (1) the seller’s statements constitute an affirmation of fact or promise, or a description of the goods; (2) the statement was part of the basis of the bargain; and (3) the warranty was breached. Weinstat v. Dentsply Intern. Inc., 180 Cal. App. 4th 1213, 1227 (2010); California Uniform Commercial Code § 2313; see also Keith v. Buchanan, 173 Cal.App.3d 13, 20 (1985)).

Plaintiffs’ express warranty claim is based on a variety of statements appearing in such places as the PS3 user manual, the Sony website, and in publicity materials. Some of the statements do not refer to the availability of the Other OS Feature except by implication. For example plaintiffs rely on comments by Sony officials that the PS3 “is clearly a computer,” and allows users to “play games, watch films, browse the Web, and use other computer functions.” While other statements, such as those allegedly appearing in the user manual or on the website, explicitly refer to installing another operating system, such as Linux, none of them can reasonably be characterized as a “promise,” and it is difficult to discern exactly what “affirmation of fact” or “description of the goods” those statements comprise that plaintiffs contend constitutes the warranty. For this reason alone further clarification in the pleading is necessary, at a minimum.

More fundamentally, even assuming that plaintiffs have already pleaded, or subsequently plead, that Sony made an express affirmation of fact, or description of the PS3, that the system included the Other OS feature at the time they made their purchases, they must still somehow address the temporal aspect of the express warranty claim they are attempting to make. Plaintiffs are not suggesting that their PS3 systems lacked the other OS feature when they acquired them. Plaintiffs must therefore either allege that Sony made some express representations as to the continued availability of that feature, or they will have to show both that there were implied

4

representations as to continued availability and that an express warranty claim may legally proceed even where it is based in part on such implied representations. 2

Finally, Sony also argues that the express warranty claim fails because plaintiffs have not adequately alleged that they read or heard the purported statements and relied on them in making their purchases. In fact, the named plaintiffs allegedly each conducted “extensive research on the Internet” prior to choosing the PS3 over competing systems, and in most instances specifically reviewed the representations on Sony’s website. Moreover, actual reliance is no longer an element of an express warranty claim under California law. Weinstat, supra, 180 Cal. App. 4th 1213, 1227 (“Pre-Uniform Commercial Code law governing express warranties required the purchaser to prove reliance on specific promises made by the seller . . . . The Uniform Commercial Code, however, does not require such proof.”) Nevertheless, in light of the issues identified above, the express warranty claim must be dismissed, with leave to amend.

B. Breach of Implied Warranty

Plaintiffs assert two counts for breach of implied warranty—one for the general warranty of merchantability, and one for a warranty of fitness for a particular purpose. Sony contends that both counts fail for two reasons. First, Sony points out that plaintiffs are not in privity with it, as they purchased their PS3 systems from independent retailers, not Sony itself. Plaintiffs acknowledge that privity is absent in a strict sense, but argue that it should not be required. Relying on U.S. Roofing, Inc. v. Credit Alliance Corp., 228 Cal. App.3d 1431 (1991), plaintiffs suggest that their implied warranty claim is viable because they had “direct dealings” with Sony—i.e., they obtained and

5

installed Update 3.21 directly from Sony’s website, and their purchases of PS3 systems, “inherently and necessarily included access” to PSN.

In U.S. Roofing, however, the question was whether the plaintiff had purchased a crane directly from its manufacturer or indirectly through a third party that provided financing. See 228 Cal.App.3d at 1441 (“The trial court . . . determined that the identity of the parties to the sale was a factual issue for the jury to decide.”) Among other things, there was evidence that the plaintiff had paid substantial sums directly to the manufacturer. Id. at 1438. In U.S. Roofing, the court concluded that the jury’s finding of a breach of implied warranty could stand because there was substantial evidence to support a conclusion that the crane was sold pursuant to an oral agreement between the manufacturer and the plaintiff, not because there is some “exception” to the privity requirement where there are some “direct dealings” to which a plaintiff can point. Here, there is no dispute that plaintiffs purchased their PS3 systems from retailers, and that at no time did they make any direct payments for the systems to Sony. Accordingly, U.S. Roofing aids them little. 3

Plaintiffs also rely on dicta in Atkinson v. Elk Corp. of Texas, 142 Cal. App. 4th 212 (2006), suggesting that the privity requirement for an implied warranty claim might be “relaxed” where plaintiff had also alleged actual reliance on an express warranty to the same effect. The Atkinson dicta, however, is not consistent with clear California precedent that privity remains a requirement in implied warranty claims even though it has been eliminated in express warranty claims. See Blanco v. Baxter Healthcare Corp., 158 Cal.App.4th 1039, 1058-59 (2008); Evraets v. Intermedics Intraocular, Inc. 29 Cal.App.4th 779, 788 (1994); see also Postier v. Louisiana-Pacific Corp, 2009 WL 3320470, *6 (N.D. Cal. 2009) (“Atkinson appears to be an anomaly”). Accordingly, plaintiffs have not established that an exception to the privity rule applies here.

Sony’s second challenge to both breach of implied warranty counts asserts that plaintiffs have failed to allege the PS3 systems were defective at the time of purchase. Plaintiffs’ theory, however, is that their purchase of the systems included the right to future updates that would

6

maintain and enhance the functionality of the machines. If their claim is otherwise viable, the fact that the problem did not arise until delivery of Update 3.21 will not be dispositive.

Sony further attacks the count for breach of the implied warranty of merchantability on grounds that the warranty only “provides for a minimum level of quality.” At the pleading stage, though, it is not feasible to determine whether providing a PS3 that lacks only the Other OS feature would satisfy the warranty implied under all the circumstances of the original sales.

Finally, Sony contends that the count for breach of the implied warranty of fitness for a particular purpose lacks allegations that Sony has “reason to know” of plaintiffs’ desire to use the Other OS feature indefinitely. Plaintiffs respond that Sony had every reason to know that consumers would expect to have access to all the features advertised and promoted by Sony. While that may be true, at least in the abstract, it is unclear what “special purpose” plaintiffs contend the systems failed to serve.

Accordingly, the implied warranty claims must be dismissed. Although it is not clear how plaintiffs may be able to cure the privity problem, leave to amend will be granted.

C. Magnuson-Moss Warranty Act

Plaintiffs assert a count under the Magnuson-Moss Warranty Act, 15 U.S.C. section 2301 et seq., which provides a federal private right of action for state law warranty claims. 15 U.S.C. § 2301(d)(1). With exceptions not implicated here, “disposition of the state law warranty claims determines the disposition of the Magnuson-Moss Act claims.” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 2008). Accordingly, the Magnuson-Moss Act count will be dismissed, with leave to amend.

D. California Consumer Legal Remedies Act (“CLRA”)

Plaintiffs contend Sony violated three provisions of the CLRA – California Civil Code subsections 1770(a)(5), (7), and (9), which prohibit “representing” or “advertising” goods or services in a false or misleading manner. For the same reasons discussed above in the context of breach of express warranty, plaintiffs must more clearly identify the particular representations on

7

which they rely, and articulate why they were false or misleading. Such specificity is all the more important here, because the CLRA claims sound in fraud, thereby implicating Rule 9(b). See Vess v. Ciba-Geigy Corp., 317 F.3d 1097,1103-1104 (9th Cir. 2003) (finding Rule 9(b) applicable to CLRA claim). Again, plaintiffs must address the fact that none of the representations they have thus far identified include any express promise that the Other OS feature would be available indefinitely or for any particular period of time. 4 Accordingly, the CLRA claim will be dismissed, with leave to amend.

E. Unjust enrichment

Sony contends, and plaintiffs concede, that California law does not recognize a separate claim for “unjust enrichment.” See Jogani v. Superior Court, 165 Cal.App.4th 901, 911 (2008). Plaintiffs nonetheless argue that they have alleged facts sufficient to give rise to an equitable remedy of “restitution,” regardless of the precise label. The complaint, however, does not presently articulate a sufficient basis for relief. Among other things, plaintiffs have not adequately explained how Sony has been wrongfully “enriched” or what payments they made to Sony that should now be returned. Accordingly, this claim for relief will be dismissed, with leave to amend. 5

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F.Unfair Competition Law (“UCL”)

Plaintiffs seek “restitution” under California’s UCL, Cal. Bus. & Prof. Code §§ 17200 et seq.6 As with their claim for “unjust enrichment,” plaintiffs have failed to allege sufficient facts showing sums paid by them to Sony that should be refunded. Furthermore, as plaintiffs impliedly concede, these claims are largely or wholly dependent on their ability to plead successfully one or more of their other claims. Accordingly, the counts under the UCL will also be dismissed, with leave to amend.

G. Conversion

“Conversion is the wrongful exercise of dominion over the property of another.” Oakdale Village Group v. Fong 43 Cal.App.4th 539, 543-544 (1996). The elements of a conversion are the plaintiff’s ownership or right to possession of the property at the time of the conversion; the defendant’s conversion by a wrongful act or disposition of property rights; and damages. Id. As Oakdale explains, “[i]t is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.” Id. Nevertheless, the facts alleged by plaintiffs here do not show that Sony assumed control or ownership of any of plaintiffs’ property, or applied any such property to its own use. Accordingly, the conversion claim must be dismissed, with leave to amend.

H. Computer Fraud and Abuse Act (“CFAA”)

Plaintiffs contend that Sony violated the CFAA by “knowingly caus[ing] the transmission of a program, information, code, or command, and as a result of such conduct, intentionally caus[ing] damage without authorization, to a protected computer.” 18 U.S.C. § 1030(a)(5)(A)(i). Sony argues that it did not act “without authorization” either because the terms of the software license

9

permitted it to take the actions it did, or because plaintiffs’ “voluntarily” downloaded Update 3.21, knowing the effect it would have. At this juncture, Sony has not conclusively established that disabling a PS3 capability of the nature of the Other OS feature is within the scope of the license agreement provisions on which it relies, nor has it shown that those plaintiffs who downloaded the Update thereby necessarily “authorized” the removal of the feature within the meaning of the statute. Accordingly, this prong of the motion will be denied, without prejudice to Sony’s ability to challenge any CFAA claim in an amended complaint, based on the same or expanded arguments.

I. Motion to strike

Sony urges the Court to conclude at this juncture that plaintiffs’ class allegations are untenable, rather that awaiting class certification proceedings. Under the circumstances here, Sony has not persuasively shown that the relevant issues are more appropriately addressed at the pleading stage, or even that the appropriateness of class certification necessarily could be determined based solely on the allegations of the complaint. Accordingly, the motion to strike will be denied.

IV. CONCLUSION

Sony’s motion to dismiss is granted, with the exception of the claim under CFAA. The motion to strike is denied. Plaintiffs shall file any amended complaint within 20 days of the date of this order.

IT IS SO ORDERED.

Dated: 2/17/11

[signature]
RICHARD SEEBORG
UNITED STATES DISTRICT JUDGE

____________
1 This appears to imply that disabling to Other OS feature was intended to make it more difficult to evade protections against copying game and video disks.

2Sony argues that it would make no sense to have any warranty liability for disabling the Other OS feature after the expiration of the one year written warranty it provided on the PS3 systems when they were sold. As Sony points out, had a plaintiff’s PS3 failed completely after one year, he or she would have no recourse. Certainly, were plaintiffs complaining that the Other OS feature no longer functioned as the result of the failure of some system component, the terms of the written warranty likely would govern. Contrary to Sony’s contention, however, it would not be irrational to apply a different rule to a manufacturer’s deliberate disabling of a product feature on machines that were otherwise still functioning as originally marketed and sold. Whether a claim would sound in warranty, or only under some other legal theory, however, remains to be seen.

3Plaintiffs argue that at least in some cases they pay monies directly to Sony in connection with using PSN. That would not, however, support a conclusion that Sony was the seller in the transactions by which plaintiffs acquired their PS3 systems.

4 Plaintiffs may very well be able to state a claim even in the absence of any such express promises, provided they sufficiently allege factual circumstances from which a trier of fact could conclude that Sony’s express statements about the Other OS feature were at least misleading in light of Sony’s retention of a purported right to disable it at any time. While plaintiffs argue that the present complaint does exactly that, the ultimate viability of such a theory is more appropriately addressed in light of such amended allegations as plaintiffs may offer.

5 Sony also argues that the CLRA claim is defective insofar as it alleges that Sony included unconscionable provisions in its software license agreement for the PS3. While a conclusive determination must await any amended complaint, it presently appears that the issue may not be subject to resolution in Sony’s favor at the pleading stage.

6While Sony does not expressly address the fact that the complaint contains a separate count under Cal. Bus. & Prof. Code §§ 17500 et seq. for false advertising, the same issues apply.

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