If you make available a service through a free app, and you subsequently decide to migrate users of that app to a paid subscription model, that shouldn’t create any problems, right?
Well, app developer LogMeIn did just that, and became the target of a class action lawsuit filed in the Eastern District of California. Although the claims against LogMeIn were recently dismissed, the case, Handy v. LogMeIn, Inc., highlights the potential legal risks in seeking to transition app customers from a “no charge” (or a “one-time only charge”) business model to another business model, especially where the new business model will require those customers to pay ongoing subscriptions fees.
LogMeIn made available a free app, LogMeIn Free, which allowed users to use a laptop or desktop computer to access remotely a separate desktop computer. The company also offered, for $29.99, a second app, Ignition, which provided the same remote access but from a tablet or smartphone.
In 2014, LogMeIn notified its customers that it would no longer offer LogMeIn Free, and that it was planning to migrate all users of that app and the Ignition app to a paid subscription service, which offered a few extra features. The plaintiff—a user of LogMeIn Free and a purchaser of Ignition—brought suit under California’s False Advertising Law (FAL) and Unfair Competition Law (UCL), alleging that the company had failed to properly notify users that it would discontinue these products and that, had he known LogMeIn would do so, he would not have purchased Ignition.
LogMeIn filed a motion to dismiss the plaintiff’s claims and a motion for summary judgment. Because the court considered evidence outside the pleadings, it applied summary judgment standards and ruled in favor of LogMeIn.
Failure to Identify Any Affirmative Misrepresentation
The plaintiff claimed the following: (1) LogMeIn had misled consumers to believe that LogMeIn Free and Ignition apps were both being discontinued and that, in order to continue to receive the services provided through these apps, users had to pay for an annual subscription; and (2) LogMeIn had led users to believe that the free app and the paid subscription were “companion services” and, as such, had failed to inform users that the discontinuation of the free app would make the subscription app less valuable. The court rejected both theories.
First, the court held that LogMeIn had not misrepresented its intention to discontinue its free app and the Ignition product. LogMeIn explained its migration plan and offered consumers a six-month free subscription to the new subscription-based service. It further explained that, regardless of whether users accepted the complementary subscription, they could continue to use Ignition until it was discontinued. This is exactly what the plaintiff did: he continued to use the Ignition product throughout 2014 and 2015. Because the plaintiff was not “tricked” by LogMeIn’s statement and did not buy the new subscription-based product because of any alleged misrepresentation, he could not base a claim on LogMeIn’s statement of its migration plan. The court noted:
While [the plaintiff] may be outraged by what he feels occurred to others, the Court is not clear why he believed that this outrage makes him aggrieved such that he can vindicate this grievance in this litigation.
Second, the court held that the plaintiff failed to show that the free app and Ignition were “companion services” such that Ignition was less valuable without the free app. It noted that the plaintiff used the free app for more than a year before buying Ignition and then used Ignition for more than a year after the free app had been discontinued. The products, therefore, were not dependent on one another.
Further, the court noted that, prior to receiving access to the LogMeIn Free app, the plaintiff and other customers had been required to “click accept” the terms and conditions governing use of that app and the Ignition app, and, in such terms and conditions, LogMeIn had made clear that it reserved “the right to modify or discontinue” either LogMeIn Free or Ignition “for any reason or no reason,” thereby undercutting the plaintiff’s position that use of one was dependent on the other.
App developers (and other companies, for that matter) should take note that, even though LogMeIn ultimately prevailed, migrating users off of a free app or a “one-time only charge” app to a paid subscription model can spark unwanted and costly litigation, no matter how baseless that litigation might be; accordingly, app developer will want to proceed with caution and ideally consult experienced counsel before undertaking such an initiative.
That being said, the Handy decision highlights some of the challenges that a plaintiff will have in pursuing any such litigation. As the Handy plaintiff learned, fraud-based claims under the FAL and UCL are subject to heightened pleading requirements. Moreover, plaintiffs must allege reliance on specific statements and injury in fact as a result. Further, courts are increasingly dismissing claims that fail to allege such individualized reliance and injury.
Finally, Handy shows how a carefully drafted set of terms and conditions governing app usage can help to bolster an app developer’s defenses to FAL, UCL and other claims arising out of a shift to a new business model. Such terms and conditions of use ideally should provide notice to users that the app (including any associated services) may be modified or discontinued, and that the app developer reserves the right to charge fees or to increase fees in connection with the app. Moreover, as in Handy, app developers can further strengthen the impact in litigation of an app’s terms and conditions of use by requiring customers to affirmative consent to such terms and conditions.