Online Terms of Service Cannot undo Damage from Exaggerated Advertising
Peloton, the treadmill and exercise bike company, cannot seem to get off the legal hamster wheel. First, in 2019, a group of music copyright owners sued Peloton, alleging it had improperly and without license from the copyright owners synchronized exercise videos to the music owners’ music. (Downtown Music Publishing LLC v. Peloton Interactive, Inc., No. 19-2426, S.D.N.Y.) That case ended in a confidential settlement, but some terms in the settlement became apparent when Peloton removed many videos from its library. This led to the second case, in which Peloton was sued by its users for removing the videos from its library. (Fishon v. Peloton Interactive, Inc., No. 19-11711, S.D.N.Y.)
Arguments and Findings
In Fishon, Peloton was sued under New York’s Consumer Protection Act because its video library had shrunk (as a result of the Downtown case), but Peloton had advertised that its video library was “ever-growing.” Peloton argued that its “ever-growing” ad was “mere puffery,” or “exaggerated general statements that make no specific claims on which consumers could rely.” However, in ruling on a motion to dismiss, the court held that the “ever-growing” claim was not puffery because it made a “concrete representation.” (Fishon v. Peloton, 2020 U.S. Dist. LEXIS 208871 at 16-18 (S.D.N.Y. Nov. 9 2020).)
In Fishon, Peloton also argued that its Terms of Service, to which the plaintiff had agreed before gaining access to Peloton’s library, created a contract that expressly permitted Peloton to remove videos from the library (and not replace them, so that on balance, the library would shrink, not grow). The pertinent portion of the Terms of Service stated that “Peloton reserves the right to modify the Peloton Service, including … removing any Content … at any time, in its sole discretion … Peloton provides the Peloton Service on an ‘AS IS’ and ‘AS AVAILABLE’ basis.”
The court found this argument unavailing. First, the court pointed out that the Terms of Service did not “dispel the false inference” from the advertisement. The court explained that the Terms of Service forewarned a consumer that a particular class may be removed from the library, but the consumer had the right to expect, from the “ever-growing” assertion in its advertising, that the removed class would be replaced by at least two others so that the library would grow. The ever-growing ad and the Terms of Service were “not inconsistent with one another.”
Second, the court focused on the small print of the Terms of Service compared with the front-and-center, large-print “ever-growing” advertising. The court analogized to a Second Circuit 2018 case, Mantikas v. Kellogg Co., 910 F.3d 633 (2d Cir. 2018), in which a defendant was found liable for misleading advertisements when a snack was prominently labelled “WHOLE GRAIN,” but the first ingredient in the fine-print list was “enriched white flour.” The court said that “a reasonable consumer, having viewed Peloton’s advertisements on its website and having decided to purchase a Peloton product based on the understanding that the library would grow should not be expected to discover the truth … from the Terms of Service.”
In this second argument, the court seemingly ignored the difference between fine print on a product label and fine print in an agreed-to contract. This reasoning calls into question the extent to which the court will find the provisions in the Terms of Service to be a binding contract. In Fishon, there may have been a binding contract, but at least for part of its opinion, the court relegated the contractual language to the same category as non-contractual fine print.
In another online consumer protection case, Serrano v. Cablevision Sys. Corp., 863 F. Supp. 2d 157 (E.D.N.Y. 2012), Cablevision had advertised its “blazing fast speed,” but some customers found that their speeds were not quite blazing. There, the court found first that the “blazing” statement was mere puffery. It also found that the Terms of Service to which the plaintiff had agreed formed a binding contract that gave Cablevision the right to limit bandwidth and speed to customers.
In Serrano, the court was able to dismiss the advertisement as “mere puffery,” and that was the primary reason that the court found no violation. But the court also credited the Terms of Service as a binding contract that explicitly gave Cablevision the right to limit internet speed, i.e., it gave Cablevision the right to act contrary to its advertisement. In contrast, the Terms of Service in Fishon did not respond directly to the challenged advertisement, which helped the court explain why the Terms of Service did not rescue Peloton from liability.
Fishon illustrates pitfalls in the online advertising of goods and services. As always, and as with other forms of advertising, businesses must be careful not to give false expectations about their products, regardless of disclaimers they may put in the fine print of Terms of Service. While Terms of Service may be effective tools to define the terms of the relationship between the user and the website operator, they may not save the operator from false or deceptive advertising claims.