`
`SCOTT+SCOTT ATTORNEYS AT LAW LLP
`CHRISTOPHER M. BURKE (CA Bar No. 214799)
`ALEX M. OUTWATER (CA Bar No. 259062)
`600 W. Broadway, Suite 3300
`San Diego, CA 92101
`Telephone: 619-233-4565
`Facsimile: 619-233-0508
`cburke@scott-scott.com
`aoutwater@scott-scott.com
`
`CAFFERTY CLOBES MERIWETHER
`& SPRENGEL LLP
`Anthony F. Fata (pro hac vice admission anticipated)
`Nyran Rose Rasche (pro hac vice admission anticipated)
`Nickolas J. Hagman (pro hac vice admission anticipated)
`150 S. Wacker, Suite 3000
`Chicago, IL 60606
`Telephone: 312-782-4880
`Facsimile: 318-782-4485
`afata@caffertyclobes.com
`nrasche@caffertyclobes.com
`nhagman@caffertyclobes.com
`
`Attorneys for Plaintiffs and the Class
`
`[Additional Counsel on Signature Page.]
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN JOSE DIVISION
`
`CARL BARRETT, MICHEL POLSTON,
`NANCY MARTIN, DOUGLAS WATSON,
`ERIC MARINBACH, MICHAEL
`RODRIGUEZ, and MARIA RODRIGUEZ,
`Individually, and on Behalf of All Others
`Similarly Situated,
`
`Plaintiffs,
`
`v.
`
`APPLE INC., a California Corporation;
`APPLE VALUE SERVICES LLC; and
`DOES 1 Through 10, Inclusive,
`
`Defendants.
`
`CLASS ACTION COMPLAINT
`
`DEMAND FOR JURY TRIAL
`
`CLASS ACTION COMPLAINT
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`Case 5:20-cv-04812-EJD Document 1 Filed 07/17/20 Page 2 of 47
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`Plaintiffs Carl Barrett, Michel Polston, Nancy Martin, Douglas Watson, Eric Marinbach,
`Michael Rodriguez, and Maria Rodriguez (collectively, “Plaintiffs”), individually and on behalf
`of all others similarly situated, bring this Class Action Complaint (“Complaint”) against
`Defendants Apple Inc. and Apple Value Services LLC (collectively, “Apple”) and DOES 1
`through 10 (collectively, with Apple, “Defendants”). The following allegations are based upon
`personal knowledge as to Plaintiffs’ own facts, upon investigation by Plaintiffs’ counsel, and upon
`information and belief where facts are solely in possession of Defendants.1
`NATURE OF THE CASE
`This case arises from Apple’s knowing or reckless enabling of the “iTunes gift card
`1.
`scam.” Scammers have found a uniform way of tricking victims into paying them large sums of
`money via iTunes gift cards. Apple is incentivized to allow the scam to continue because it reaps
`a 30% commission on all scammed proceeds, and knowingly or recklessly, Apple plays a vital role
`in the scheme by failing to prevent payouts to the scammers.
`2.
`The iTunes gift card scam preys upon many, including the elderly and vulnerable.
`It is prevalent. Apple dedicates a webpage to it, but apparently does little more.
`3.
`Perhaps most alarming, Apple describes the scam as “formulaic,” yet does little to
`stop it or to return its 30% commission to scammed victims (much less other moneys that Apple
`can recover from the scammers).
`4.
`Despite the fact that Apple retains the funds from purchases made using iTunes gift
`cards for four to six weeks before paying App and iTunes store vendors and keeps a 30%
`commission on scammed proceeds, Apple’s webpage and other communications falsely inform
`the public that all scammed proceeds are irretrievable:
`A string of scams are taking place asking people to make payments over the phone for
`things such as taxes, hospital bills, bail money, debt collection, and utility bills.
`*
`*
`*
`Regardless of the reason for payment, the scam follows a certain formulaic: The victim
`receives a call instilling panic and urgency to make a payment by purchasing App Store
`
`1
`Plaintiffs will work with Apple on the timing of Apple’s response to this Complaint and
`other ways of reducing the burdens of litigation on the parties, their counsel, and the Court in light
`of the ongoing COVID-19 pandemic.
`
`1
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`CLASS ACTION COMPLAINT
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`Case 5:20-cv-04812-EJD Document 1 Filed 07/17/20 Page 3 of 47
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`& iTunes Gift Cards or Apple Store Gift Cards from the nearest retailer (convenience
`store, electronics retailer, etc.). After the cards have been purchased, the victim is asked
`to pay by sharing the code(s) on the back of the card with the caller over the phone.
`*
`*
`*
`Never provide the numbers on the back of a Gift Card to someone you do not know.
`Once those numbers are provided to the scammers, the funds on the card will likely
`be spent before you are able to contact Apple or law enforcement.
`See Apple, About Gift Card Scams, https://support.apple.com/itunes-gift-card-scams. [Emphasis
`added.]
`The last sentence is highly misleading, and falsely suggests that there is nothing
`5.
`Apple can do for consumers who report the scam to it. Apple retains 30% of the spent funds for
`itself. At all times, this amount remains retrievable to the consumer. Apple holds the remaining
`spent funds for four to six weeks before paying the third-party vendors on the App and iTunes
`stores on which the stored value was spent, meaning the remainder is also retrievable to the
`consumer.
`The iTunes gift card scam deprives consumers of hundreds of millions of dollars or
`6.
`more. The overwhelming majority of victims do not report the scam to the Federal Trade
`Commission (“FTC”). Yet even the limited iTunes gift card scams reported to the FTC during
`2015-2019 exceed $93.5 million, with the dollar amounts increasing significantly each year. These
`publicly reported dollar amounts include the losses of only the subset of victims who fill out a
`detailed online FTC form asking for their personal information. As a result, this $93.5 million
`figure appears to be only the tip of the iceberg. Even if only 10% of scam victims report to the
`FTC (versus local police, attorney general offices, Apple, or nobody at all), the iTunes gift card
`scam would approach $1 billion, with Apple retaining $300 million in commissions.
`7.
`As set forth in detail below, scammers monetize scammed gift card values in one
`of two ways. First, they can use the stored value on the iTunes gift cards they obtain through
`scams to purchase App and iTunes store content for apps that they control. Using this method,
`scammers receive payment from Apple (less Apple’s 30% commission) four to six weeks after
`spending the stored value from the wrongfully obtained iTunes gift cards. Apple has shut down
`apps for violating its fraud policies, begging the question of what happened to the fraudulently
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`CLASS ACTION COMPLAINT
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`Case 5:20-cv-04812-EJD Document 1 Filed 07/17/20 Page 4 of 47
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`obtained proceeds. Second, scammers can sell the gift card numbers to third parties who then use
`them to purchase App store or iTunes products, but this latter method involves significant counter-
`party risk and steep discounts. Regardless of which method the scammers use, Apple keeps 30%
`of the scammed proceeds.
`8.
`Not only does Apple keep 30% of the scammed proceeds, it is able to track all key
`points in the scheme. Apple has long bragged about its App Store “ecosystem.” The App Store is
`a marketplace created by Apple, over which it has full control, and into which it has full visibility.
`There are four key steps in the iTunes gift card scam:
`9.
`Step One: The Point of Sale. Apple knows when, where, and in what amount the
`victim purchases the gift card. At the point of sale, the retailer must communicate with Apple to
`“activate” the gift card and record the stored value.
`10.
`Step Two: The Apple ID Upload. Apple knows the Apple ID onto which the gift
`card number is uploaded. An Apple ID is a unique Apple “account” identifier through which
`customers on the App and iTunes stores transact. Apple iTunes gift card numbers must be
`uploaded to an Apple ID before being used in the App and iTunes stores. The amounts associated
`with these gift card numbers are referred to as “stored value” or “stored credit.” Apple reserves
`the right to void the stored value if it merely “suspects” that the store credit was obtained
`fraudulently.
`Step Three: Spending Stored Value on an App. Apple also knows where the Apple
`11.
`ID spends stored value in the App store ecosystem because each purchase must be made from an
`Apple ID.
`Step Four: Payment of U.S. Dollars (Less Commission). Apple knows the identity
`12.
`and financial account information of the App and iTunes store proprietors who receive U.S. dollars
`from the gift card purchases because, four to six weeks after the purchase, Apple sends them the
`U.S. dollars (minus Apple’s commission).
`13.
`Reverse Mapping. If a victim calls Apple and provides the gift card number that
`was scammed, Apple can use the gift card number to find out which Apple ID(s) and which App
`or iTunes products were involved in converting the scammed gift card number into U.S. dollars.
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`3
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`CLASS ACTION COMPLAINT
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`Case 5:20-cv-04812-EJD Document 1 Filed 07/17/20 Page 5 of 47
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`Apple can also interrogate the Apple ID and the App and iTunes transactional data to determine if
`there were other suspect transactions and, if so, suspend the Apple ID and the App. At minimum,
`Apple knows that it has kept 30% of the scammed gift card value.
`14.
`Rather than publicizing its omniscience in this Apple “ecosystem” and its 30% take,
`Apple, as noted above, falsely tells victims that 100% of their money is irretrievable.
`15.
`Plaintiffs bring this class action on behalf of themselves and an objectively
`identifiable class consisting of all victims of scams involving Apple iTunes gift cards.
`PARTIES
`Plaintiff Carl Barrett is a resident and citizen of Prince George’s County, Maryland,
`16.
`living in Hyattsville, Maryland. Plaintiff Barrett is 57 years old.
`17.
`Plaintiff Michel Polston is a resident and citizen of Marion County, Oregon, living
`in Salem, Oregon. Plaintiff Polston is 71 years old.
`18.
`Plaintiff Nancy Martin is a resident and citizen of Sarasota County, Florida, living
`in Nokomis, Florida. Plaintiff Martin is 61 years old.
`19.
`Plaintiff Douglas Watson is a resident and citizen of Butte County, California,
`living in Chico, California. Plaintiff Watson is 64 years old.
`20.
`Plaintiff Eric Marinbach is a resident and citizen of Queens, New York, living in
`Bayside, New York. Plaintiff Marinbach is 55 years old.
`21.
`Plaintiff Michael Rodriguez is a resident and citizen of Los Angeles County,
`California, living in Walnut, California. Plaintiff Michael Rodriguez is 50 years old.
`22.
`Plaintiff Maria Rodriguez is a resident and citizen of Los Angeles County,
`California, living in Walnut, California. Plaintiff Maria Rodriguez is 68 years old.
`23.
`Defendant Apple Inc. (“Apple”) is a business incorporated under the laws of the
`State of Delaware with its principal place of business at 1 Infinite Loop, Cupertino, California
`95014. Apple is engaged in the business of designing, manufacturing, distributing, and selling,
`inter alia, smartphones, tablet computers, wearable technology, headphones, laptops and desktop
`computers that come with software programs that Apple develops pre-installed. Apple designs its
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`CLASS ACTION COMPLAINT
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`Case 5:20-cv-04812-EJD Document 1 Filed 07/17/20 Page 6 of 47
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`products in California, and its marketing efforts emanate from California. Defendant Apple is a
`citizen of the State of California.
`24.
`Defendant Apple Value Services LLC is a Virginia corporation with its principal
`place of business located at 1 Infinite Loop, Cupertino, California 95014. Defendant Apple Value
`Services is a citizen of the State of Virginia.
`25.
`The true names and capacities of the Defendants sued herein as DOES 1 through
`10, inclusive, are currently unknown to Plaintiffs, who therefore sue such Defendants by such
`fictitious names. Each of the Defendants designated herein as DOE is legally responsible in some
`manner for the unlawful acts referred to herein. Plaintiffs will seek leave of Court to amend their
`Complaint to reflect the true names and capacities of the Defendants designated herein as DOES
`when such identities become known.
`JURISDICTION AND VENUE
`This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
`26.
`§1332 because: (1) there are 100 or more (named or unnamed) class members; (2) there is an
`aggregate amount in controversy exceeding $5,000,000, exclusive of interest or costs; and (3) there
`is minimal diversity because at least one Plaintiff and Defendants are citizens of different states.
`This Court has supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. §1367.
`27.
`This Court may exercise jurisdiction over Defendants because Apple is a citizen of
`this State and District and maintains its principle place of business in this District, has continuous
`and systematic contacts with this District, does substantial business in this State and within this
`District, receives substantial revenues from marketing, distribution, and sales of iTunes gift cards
`in this District, and engages in unlawful practices in this District as described in this Complaint,
`so as to subject itself to personal jurisdiction in this District, thus rendering the exercise of
`jurisdiction by this Court proper and necessary.
`28.
`Venue is proper in this judicial District pursuant to 28 U.S.C. §1391(b) because
`Apple is headquartered in this District, advertises in this District, receives substantial revenues and
`profits from the sale of iTunes gift cards which it directs into the stream of commerce in this
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`Case 5:20-cv-04812-EJD Document 1 Filed 07/17/20 Page 7 of 47
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`District; therefore, a substantial part of the events or omissions giving rise to the claims alleged
`herein occurred in this District.
`29.
`Intradistrict Assignment (L.R. 3-2(c) and (e) and 3-5(b)). This action arises in
`Santa Clara County, in that a substantial part of the events which give rise to the claims asserted
`herein occurred in Santa Clara County. Pursuant to L.R. 3-2(e), all civil actions that arise in Santa
`Clara County shall be assigned to the San Jose Division.
`FACTUAL ALLEGATIONS
`
`Apple’s Digital Products
`30.
`Apple owns and operates online platforms including the App and iTunes stores.
`Consumers who access the App and iTunes stores can purchase and download digital applications
`for mobile devices (“apps”) or digital multimedia (such as songs, movies, and television shows).
`Apple describes the App Store as an “ecosystem” it created and controls.2 The App
`31.
`Store hosts millions of apps that consumers purchase or download directly from the App Store.
`Apple separates the apps available on the App Store into different categories, including various
`types of free apps and paid apps.3
`Apple’s Oversight of Its Platforms
`32.
`Apple reviews all apps before they are made available for consumers. Before an
`app is available on the App Store, developers must submit the prospective app to Apple for review
`and approval.4 Apple “carefully review[s] each app” before it becomes available on the App Store
`using “a combination of automated systems and hundreds of human experts.”5 Apple may require
`the developer to modify or remove functions from the app.6
`
`2
`See, e.g., In re Apple iPhone Antitrust Litigation, 139 S. Ct. 1514 (2019), Petition for Writ
`of Certiorari at 6 (“Apple designed – from the ground up – an ecosystem for the use, development,
`sale, and distribution of apps.”).
`3
`See App Store – Principles and Practices, APPLE (https://www.apple.com/ios/app-
`store/principles-practices) (last visited July 16, 2020).
`4
`See App Review – App Store, APPLE (https://developer.apple.com/app-store/review) (last
`visited July 16, 2020).
`5
`See supra note 3.
`See supra note 4.
`
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`Case 5:20-cv-04812-EJD Document 1 Filed 07/17/20 Page 8 of 47
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`Apple represents that most apps are reviewed “within 24 hours of the developer’s
`33.
`submission.” Apple says it rejects 40% of app submissions for issues such as “minor bugs [and]
`privacy concerns.”7 Apple thus has knowledge of the contents and design of all apps available on
`the App Store.
`34.
`One of the purposes of Apple’s review process is to determine whether the app will
`be used for or facilitate illegal activity. Apple reserves the right to reject any app used for illegal
`or criminal activities.8 After Apple approves an app, it becomes available to purchase or download
`from the App Store. Apple reserves the right to suspend an approved app if it is suspected of
`facilitating illegal activity.9
`Payment for Apple’s Digital Products
`35.
`Apple receives a 30% commission on all sales of paid apps, purchases made within
`apps (often called “in-app purchases”), and paid subscriptions to apps.10 On information and
`belief, Apple take a similar 30 % commission for purchases from iTunes.11
`36.
`To purchase digital content from either iTunes or the App Store, consumers must
`create and register an account with Apple, called an “Apple ID.”12 Purchasing songs, movies, or
`apps from either iTunes or the App Store requires the purchaser to sign in with the user’s unique
`Apple ID and provide Apple with a valid method of payment.
`
`7
`
`See id.
`8
`APPLE
`Developer,
`Apple
`–
`Guidelines
`Review
`Store
`App
`See
`(https://developer.apple.com/app-store/review/guidelines) (last visited July 16, 2020); Apple
`Developer Agreement – English, APPLE (June 8, 2015) (https://developer.apple.com/terms/apple-
`developer-agreement).
`9
`See Apple Developer Agreement – English, supra note 8.
`10
`See id.; see also Apple Inc. v. Pepper, No. 17-204, 587 U.S. (2019), Brief of Petitioner
`to the Supreme Court of the United States at 9 (Apple acknowledges that it “review[s]apps for
`safety and compatibility, host[s] the App Store, act[s] as the developers’ sales and delivery agent,
`collect[s] the purchase price (if any) from consumers on the developers’ behalf, and remit[s]
`proceeds to developers from around the world” and that “developers agree to pay Apple an annual
`$99 membership fee, and a 30% commission on their sales revenue from paid apps and in-app
`purchases.”).
`11
`See e.g., iTunes Connect Resources and Help, APPLE (https://itunespartner.apple.com/
`en/music/faq/Payments%20and%20Financial%20ReportsReading%20Your%20Financial%20Re
`ports) (last visited July 16, 2020).
`12
`See Apple ID FAQ, APPLE (https://appleid.apple.com/faq/#!&page=faq) (last visited July
`16, 2020).
`
`7
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`CLASS ACTION COMPLAINT
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`To create an Apple ID, consumers must provide Apple with a valid email address,
`37.
`credit card or billing information, and their date of birth.13 Apple requires that all Apple ID
`accounts be verified with a telephone number or the email address associated with the Apple ID
`account.14
`Consumers make purchases from the App or iTunes stores by providing Apple with
`38.
`their credit or debit card information, through PayPal or Apple Pay, or with Apple iTunes gift
`cards.15 Even if consumers wish to use only Apple iTunes gift cards for purchases, Apple requests
`valid credit card or billing information.16
`App Developers
`39.
`Individuals and companies who develop apps distributed on the App Store are
`called “Apple Developers.” Apple Developers are required to create and register an Apple ID,
`enroll in the Apple Developer Program, enter into the Apple Developer Program License
`Agreement, and pay an annual fee of $99.17
`40.
`If Apple Developers wants to distribute an app which charges a fee for download
`and/or has in-app purchases, they must enter into Apple’s Schedule 2 agreement. By entering into
`the Schedule 2 agreement, Apple Developers appoint Apple as their agent relative to their apps
`made available on the App Store.
`41.
`Apple pays Apple Developers after a consumer purchases a Paid App from the App
`Store, makes an in-app purchase, or pays a subscription to an app downloaded from the App Store.
`Apple makes all payments to Apple Developers electronically.18 In order to be paid by Apple,
`
`13
`See Create Your Apple ID, APPLE (https://appleid.apple.com/ account#!&page=create)
`(last visited July 16, 2020); How to Create a New Apple ID, APPLE (https://support.apple.com/en-
`us/HT204316#macos) (last visited July 16, 2020).
`14
`See id.
`15
`that you can use with your Apple
`See Payment methods
`(https://support.apple.com/en-us/HT202631) (last visited July 16, 2020).
`16
`See Redeem App Store & iTunes Gift Card and content codes – Apple Support, APPLE
`(https://support.apple.com/en-us/HT201209) (last visited July 16, 2020).
`17
`– Apple Developer, APPLE
`See Purchase
`and Activation
`–
`Support
`(https://developer.apple.com/support/purchase-activation) (last visited July 16, 2020).
`18
`See iTunes Connect Resources and Help, APPLE (https://itunespartner.apple.com/en/
`movies/faq/Banking%20and%20Tax_Banking) (last visited July 16, 2020).
`8
`CLASS ACTION COMPLAINT
`
`ID, APPLE
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`Apple Developers must provide Apple with their bank account information, and may also be
`required to submit tax forms to Apple.19
`42.
`Apple does not pay Apple Developers immediately after consumer transactions.
`Instead, Apple waits for its fiscal month (the monthly period during which the purchase was made)
`to close, and then waits up to 45 days after the close of that fiscal month before it electronically
`transfers the money to the Apple Developer’s bank account.20 Moreover, Apple will not transfer
`payment unless the Apple Developer meets the minimum payment threshold for that period.21 As
`such, there is a delay of several weeks between the time a consumer purchases an app from the
`App Store or makes in in-app purchase or subscription payment, and the time Apple pays the
`Apple Developer.
`iTunes Gift Cards
`
`Apple sells iTunes gift cards for use on iTunes, in the App Store, or inside of apps
`43.
`purchased or downloaded from the App Store (as noted, the latter are often called “in-app
`purchases”). iTunes gift cards are sold by Apple both directly to consumers, and indirectly to
`consumers through retailers.
`44.
`iTunes gift cards are country/region specific. iTunes gift cards sold in the United
`States cannot be used outside of the United States.22
`45.
`iTunes gift cards generally are sold for the amount shown on the face of the iTunes
`gift card (or an amount selected by the consumer within the range reflected on the face of the card),
`and generally reflect a stored value equal to the amount paid by the consumer.
`46.
`Every iTunes gift card has a unique redemption code and PIN on the back of the
`card. iTunes gift cards are not active until purchased. Once purchased, the retailer activates the
`card. Unless properly activated, an iTunes gift card cannot be redeemed. Accordingly, Apple
`
`19
`See Agreements, Tax, and Banking Overview – Apple Store Connect Help, APPLE
`(https://help.apple.com/app-store-connect/#/devb6df5ee51) (last visited July 16, 2020).
`20
`Help,
`See
`iTunes
`Connect
`Resources
`and
`(https://itunespartner.apple.com/en/apps/faq/app%20) (last visited July 16, 2020).
`21
`See id.
`22
`See If You Can’t Redeem Your App Store & iTunes Gift Card, Apple Music Gift Card, or
`Content Code, APPLE (https://support.apple.com/en-us/HT201195) (last visited July 14, 2020).
`9
`CLASS ACTION COMPLAINT
`
`APPLE
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`knows the moment a particular iTunes gift card has been purchased and the amount of “stored
`value” on the card because the retailer must activate the card at the point of sale.
`Apple IDs
`
`A valid Apple ID is required to redeem iTunes gift cards. Consumers redeem
`47.
`iTunes gift cards by logging into their Apple ID account and entering the redemption code and
`PIN on the back of the card. The value of the iTunes gift card is then transferred to the consumer’s
`Apple ID account, and is immediately available to make purchases on iTunes, from the App Store,
`or in apps. Once an iTunes gift card has been redeemed, the physical card is worthless, as the
`entire value of the iTunes gift card has been transferred to the redeemer’s Apple ID account.
`48.
`Apple tracks redemption codes on iTunes gift cards to ensure that a single iTunes
`gift card is not redeemed multiple times. Therefore, when an iTunes gift card is redeemed, Apple
`knows which iTunes gift card was redeemed and which Apple ID account redeemed the iTunes
`gift card.
`The packaging for iTunes gift cards contains minimal terms and conditions.23 For
`49.
`example, the outer packaging, which is visible to consumers prior to purchase on iTunes gift card
`packaging, often provides:
`Terms and Conditions
`Valid only on purchases made in the U.S. from Apple Media Services. Use requires
`an Apple ID and prior acceptance of license & usage terms. Not redeemable for
`cash, for resale, for shipments outside the U.S. & no refunds or exchanges (except
`as required by law). Data collection and use subject to Apple’s Privacy Policy; see
`apple.com/privacy. Neither Apple nor Issuer is responsible for any loss or damage
`resulting from lost or stolen cards or for use without permission. Void where
`prohibited. Terms apply; see apple.com/us/go/legal/gc. App Store and iTunes gift
`cards are issued and managed by Apple Value Services (“Issuer”). © 2017 Apple
`Inc. All rights reserved.
`50.
`The web address on the back of the iTunes gift card packaging directs users to the
`full terms and conditions for iTunes gift cards (the “Online Terms and Conditions”). The Online
`Terms and Conditions, which apply to iTunes gift cards and their related codes (together, “Store
`Credit”) provide, inter alia, that:
`You agree to not use Store Credit in any manner that is misleading, deceptive,
`unfair, or otherwise harmful to Issuer, Apple or its customers. We reserve the right,
`
`23
`Apple occasionally changes the language on the iTunes gift card packaging, but the terms
`on all iTunes gift card packaging are all substantially similar.
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`without notice to you, to void or deactivate [iTunes gift cards] (including a portion
`of your Account balance) without a refund, suspend or terminate customer
`accounts, suspend or terminate the ability to use the Services, cancel or limit orders
`and bill alternative forms of payment if we suspect Store Credit was obtained, used,
`or applied to an Apple ID fraudulently, unlawfully, or otherwise in violation of
`these terms and conditions.
`
`*
`*
`*
`Risk of Loss: Neither Issuer nor Apple is responsible for lost or stolen Store Credit
`or Content Codes. . . . Apple reserves the right to close accounts and request
`alternative forms of payment if Store Credit or a Content Code is fraudulently
`obtained or used on the Service.
`Governing Law Except [for residents of certain foreign countries], this Agreement
`and the relationship between you and Issuer shall be governed by the laws of the
`State of California, excluding its conflict of laws provisions. You and Issuer agree
`to submit to the personal and exclusive jurisdiction of the courts located within the
`county of Santa Clara, to resolve any dispute or claim arising from this
`Agreement.24
`51. When consumers purchase an iTunes gift card at retail, they become bound by the
`terms on the packaging, which incorporate the full Online Terms and Conditions. However, no
`victim of an iTunes gift card scam is bound by Apple’s attempt to limit its own liability for iTunes
`gift cards which are lost, stolen, or used without permission. Even if that limitation of liability
`applied by its terms – which it arguably does not – Apple cannot disclaim liability for loss or
`damage resulting from scams which it intentionally aids, abets, and perpetuates. Any attempt by
`Apple to disclaim liability for loss or damage resulting from iTunes gift card scams would be
`unconscionable and unenforceable in light of its role in those scams and the profit that it makes
`and retains from such scams.
`The iTunes Gift Card Scam Costs Hundreds of Millions of Dollars or More
`52.
`The overwhelming majority of iTunes gift card scam victims do not report the scam
`to the Federal Trade Commission (“FTC”). Yet even the losses of the small percentage of victims
`who do report to the FTC exceeded an estimated $93.5 million during 2015-2019, with the dollar
`amounts increasing significantly each year. According to FTC data, iTunes gift cards make up
`approximately 23.7% of all gift card scams. Applying this 23.7% figure to the total gift card scams
`reported results in the following estimated figures of scams reported to the FTC: 2015-
`
`24
`See Legal – iTunes Gift Cards and Codes, APPLE (Mar. 20, 2018) (https://www.apple.com/
`legal/internet-services/itunes/giftcards/us/terms.html).
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`$4.7 million; 2016-$6.4 million; 2017-$9.5 million; 2018-$18.5 million; 2019: $24.4 million; and
`2020: $30 million; for a total of $93.5 million. This dollar amount is limited to consumers who
`fill out a detailed online FTC form asking for their personal information. Given the time required
`to fill out the FTC form and its potential privacy implications, it can reasonably be inferred that
`only a small percentage of victims submit a report to the FTC (versus another governmental entity).
`As a result, this publicly reported $93.5 million figure appears to be only the tip of the iceberg. If
`only 10% of scam victims reported to the FTC (versus local police, attorney general offices, Apple,
`or nobody at all), the iTunes gift card scam would approach $1 billion in scammed proceeds, with
`Apple retaining $300 million in commissions.
`53.
`Apple is aware of the widespread nature of the scam and has been for years. Apple
`has been receiving inquiries from victims (beginning on a date known only to Apple) and requests
`for information from law enforcement officials. Since July 1, 2016 (the date for which Apple first
`began separately disclosing this data), U.S. government entities have asked Apple to provide
`customer data related to more than 60,000 “specific financial identifiers,” such as credit card
`numbers or gift card numbers. Apple has noted in its public transparency reports that the “[h]igh
`number” of “financial identifier requests” from government entities in the United States is
`“predominantly due to iTunes Gift Card and credit card fraud investigations.”25
`54.
`Of course, the large number of financial identifiers included in law enforcement
`requests are, again, only the tip of the iceberg. Many victims don’t report gift card fraud to any
`law enforcement entity,26 and even if they do, there is no guarantee their information will be
`investigated, much less included in a law enforcement subpoena or other formal government
`request for information to Apple.
`
`25
`Apple Transparency Report: Government and Private Party Requests, January 1–June 30,
`2019 at 5, 20, APPLE (https://www.apple.com/legal/transparency/pdf/requests-2019-H1-en.pdf).
`26
`See, e.g., Tamara Lytle, Give Gift Cards to Friends and Family – Not Fraudsters, AARP
`(Nov.
`7,
`2019),
`(https://www.aarp.org/money/scams-fraud/info-2019/prevent-gift-card-
`fraud.html) (director of fraud victim support at the American Association for Retired Persons, or
`AARP, says that victims often do not contact law enforcement because “[t]hey are embarrassed
`and ashamed and they don’t think it does any good”).
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`iTunes gift cards are the most re