Redbox Revisited: Just What Is An Electronic Transaction?

Loyal blog readers may recall my paean to Redbox back in September. In that earlier post, I described a putative class action filed in federal court in California. The suit alleges that Redbox collects zip codes from credit card purchasers in violation of California’s Beverly-Song Act.

The act prohibits merchants from requiring cardholders’ "personal identification information." The suit further charges that Redbox collects the zip code information to help it determine where best to locate its DVD kiosks.

(For those of you who don’t know and are too impatient to click on the link above to see my earlier post, Redbox allows customers to rent DVDs from kiosks that are strategically situated at convenience stores, supermarkets and similar locations. The appeal of the service is its economy – rentals typically cost $1 per night.)

In that post, I argued, from a policy perspective, it made no sense to hold Redbox liable for engaging in a practice that, even if plaintiff’s allegations are true, benefits consumers by making its service more convenient and causes them no conceivable harm.

Well, earlier this month, a federal judge found a legal reason to dismiss plaintiffs’ suit. The court’s decision had two main components, each of which is worthy of note.

First, the court held that the California statute on which plaintiff’s claim was based does not apply to electronic transactions. In brief, the court recited the statutory language, which prohibits merchants from requiring cardholders "to write personal identification information on the credit card form . . . ." (Emphasis in opinion.) The court construed that and similar terms to mean that the statute only applies to "pen and paper" transactions. The court bolstered its determination by noting the unique security concerns posed by electronic purchases, which may require collection of personal details not warranted in a brick-and-mortar purchase. For that reason, and invoking an earlier decision that reached the same conclusion, the court decided that electronic transactions simply fall outside the act’s scope.

While the court’s exegesis of the statute may seem somewhat dubious – many statutes use variants of the word "writing" and have been construed more broadly – its recognition of the differing imperatives of "in person" and "card not present" transactions is eminently sensible.

That did not resolve plaintiff’s suit, however. The court next had to determine whether, in this case, the Redbox kiosk transaction is more akin to a traditional brick-and-mortar purchase or an online, card-not-present transaction.

Plaintiff argued that the fact that the cardholder leaves her home and drives (or walks, bikes, Segways , etc. . .) to the kiosk renders it more like a traditional retail purchase. The court rejected that contention, noting that the hallmark of an in-person transaction is the ability of a salesperson to seek and to rely on alternative methods to verify the cardholder’s identity – for example, a visual check of the credit card or of an additional identification. In the court’s view, the fact that the kiosks are "unmanned" makes them more akin to online transactions than to in-person purchases.

The court did not expressly address plaintiff’s contention that Redbox actually uses the zip code information to determine where best to locate its kiosks, not just for transaction security or identity verification. The conclusion that the Beverly-Song Act simply does not apply to this category of transaction ended the plaintiff’s suit.

Plaintiff’s counsel has announced an intention to appeal the court’s decision to the Ninth Circuit. Beyond potentially establishing a precedent that dramatically limits the scope of the Beverly Song Act, that decision may help lend greater definition to what constitutes an "electronic" transaction for a variety of purposes. In a world of "convergence," where the lines between various media grow increasingly blurred, that aspect of the court’s decision may prove the most lasting.

As for me, I am just happy that Redbox will be able to continue collecting those zips. Who knows, maybe they’ll put a new kiosk down the street. (That 1.5 mile trek is starting to seem awfully long . . . .)