Coffee v. Google LLC

Background

John Coffee, Mei-Ling Montanez, and S.M., a minor represented by Montanez, brought a proposed class action against Google, LLC. They alleged that Google violated California’s Unfair Competition Law, the California Consumer Legal Remedies Act, and California unjust-enrichment law by distributing game apps containing paid randomized virtual items called “Loot Boxes” through the Google Play Store. They alleged that Loot Boxes were illegal slot machines under California and federal gambling laws and sought relief for a nationwide group of people who paid for Loot Boxes in apps downloaded from the Play Store.

The plaintiffs alleged that Coffee bought virtual currency through the Play Store and used it to buy Loot Boxes in several game apps. They alleged that S.M. similarly bought virtual currency, some of it with his parents’ money, and used it to buy Loot Boxes. The complaint identified Final Fantasy Brave Exvius and Dragon Ball Z Dokkan Battle as the games the plaintiffs downloaded from the Play Store. Google allegedly processed Play Store purchases and kept 30 percent of the revenue, while the game developers created the apps and Loot Boxes.

The court had previously dismissed the original complaint with permission to amend. In that earlier round of the case, the court found Google’s federal immunity argument and the failure-to-state-a-claim arguments meritorious but did not decide whether Loot Boxes were illegal slot machines. The plaintiffs then filed the first amended complaint, asserting four claims: unlawful and unfair business practices under California’s Unfair Competition Law, a Consumer Legal Remedies Act claim, and unjust enrichment.

Google’s federal immunity argument

Google moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legal claim. Google argued that Section 230 of the Communications Decency Act protected it from liability for publishing third-party apps and providing tools and services used by app developers.

The court applied a three-part test for this immunity. It found that Google was an interactive computer service provider because it operated the Play Store; that the plaintiffs sought to treat Google as a publisher because their requested relief depended on Google deciding which third-party apps and content to make available; and that the apps and Loot Boxes were provided by third-party developers. The court also found that Google’s Developer Distribution Agreement, payment processing, and software-development kit were neutral tools provided across the Play Store, not material contributions to the alleged illegality.

The court therefore held that Section 230 protected Google from the claims based on Google’s revenue from sales of virtual currency. The court recognized that direct sales of Loot Boxes through the Play Store might raise a different immunity question, but the first amended complaint did not allege those direct sales. The court could not rely on facts submitted outside the complaint to decide the dismissal motion. It denied Google’s motion to strike the plaintiffs’ evidence about direct Loot Box sales, but treated that evidence only as facts the plaintiffs might have tried to add by amendment.

Failure to state a claim

The court also ruled that the plaintiffs had not adequately pleaded their claims. For the two Unfair Competition Law claims, the court found that the plaintiffs had not shown the required economic injury caused by Google. The allegations showed that they received the amount of virtual currency they paid for. The court rejected the argument that all money spent on virtual currency later used for Loot Boxes automatically constituted a loss caused by Google.

For the Consumer Legal Remedies Act claim, the court held that the plaintiffs had not alleged the required damage from buying virtual currency through the Play Store. The court also noted that the later use of virtual currency to buy Loot Boxes appeared to involve transactions between the plaintiffs and third-party app developers. The court granted Google’s motion to dismiss this claim for lack of statutory standing.

For unjust enrichment, the court held that the plaintiffs had not shown that Google received an unjustly retained benefit at their expense. The plaintiffs received the virtual currency they purchased, and the complaint did not adequately show that Google was involved in or profited from the later transactions in which players used virtual currency to buy Loot Boxes. The court granted Google’s motion to dismiss this claim for failure to state a claim and did not reach Google’s additional arguments based on its terms of service or claim-duplication principles.

Whether Loot Boxes were illegal slot machines

The court separately addressed the plaintiffs’ theory that Loot Boxes were illegal slot machines. Under the California laws at issue, the court concluded that a qualifying device must offer a chance to receive a “thing of value.” The Loot Boxes offered chances to receive virtual game items or features that could enhance gameplay or provide a competitive advantage.

The court held that the plaintiffs had not shown that these virtual items were “things of value” under the relevant California gambling laws. It relied on decisions holding that virtual items lacking real-world transferable value do not meet that requirement. The court also relied on Google Play’s terms of service, which prohibited the sale or transfer of in-app content, and reasoned that prohibited secondary-market transactions could not establish the required value. The court did not decide Google’s alternative argument that Loot Boxes were excluded because they were part of games of skill.

The court further rejected the plaintiffs’ alternative theory that Google’s promotion of Loot Boxes was unfair or unjust even if the Loot Boxes were not illegal. It found that the unfair-business-practice theory overlapped with the plaintiffs’ failed theory that the Loot Boxes were illegal. It also stated that the Unfair Competition Law could not be used to condemn conduct the legislature permitted based only on subjective views that the conduct was harmful or immoral.

Disposition

The court found that the plaintiffs had already received guidance after the first dismissal but still had not stated a viable claim. Although the court found no undue delay or bad faith, it concluded that further amendment would be futile. The court therefore granted Google’s motion to dismiss the first amended complaint without leave to amend and dismissed the action with prejudice. The court also denied Google’s motion to strike the plaintiffs’ evidence concerning direct Loot Box sales.