Peloton music library class action fails because consumers probably didn’t see the claim

Passman v. Peloton Interactive, Inc., 2023 WL 3195941, No. 19-cv-11711
(LJL) (S.D.N.Y. May 2, 2023)

Interesting discussion of the way in which the objective
reasonable consumer standard allows consumers classes to bring certain probabilistic
claims, where some consumers might have different interpretations, although the
court ultimately denies certification because of damages/price premium issues.

Plaintiffs’ claims under New York law were based on the
offer of an “ever-growing” or “growing” library of live and on-demand studio
classes, which offer was allegedly false because a bunch of classes were pulled
from the library because of unlicensed music use. After it was sued in 2019, Peloton
removed approximately 6,500 on-demand classes from its library, leaving
approximately 7,000 classes available to its members.

The court initially held that problems with plaintiffs’
expert’s conjoint damages model went to weight rather than admissibility, since
it was a model that was consistent with their theory of liability.

Materiality and falsity were common questions subject to an
objective inquiry into how a reasonable consumer would react. Peloton argued that
there was too much variation in how, when, and why consumers bought subscriptions.
“Defendant’s argument confuses the question of whether a reasonable consumer
would likely be misled by an allegedly false advertisement with the separate
question—relevant where reliance is at issue—of whether an individual consumer
was misled by the advertisement….  The
inquiry demands an objective analysis of the understandings a reasonable
consumer would draw from a challenged statement, not the significance of that
challenged statement to an individual consumer’s purchasing decision.” While
context is relevant to that, it’s ad context, not any possible context:

[W]hat is relevant to the analysis
is not the number of products purchased, their exact identity, or the
circumstances under which they were purchased; what matters is the nature of
the allegedly false statement and how consumers interact with the false
statement and therefore understand it. Thus, courts generally have no
difficulty finding named plaintiffs typical of a class so long as the
challenged statement is consistent across the class.

Peloton also argued that falsity wasn’t a common question
because there wasn’t 100% agreement in plaintiffs’ survey on the meaning of “ever-growing”—the
survey found that only 76.5% of respondents thought that “ever growing” meant
“increase over time.” But misleadingness is an objective inquiry. “Evidence
that actual consumers, in fact, interpreted the challenged statement in line
with ‘the plaintiffs’ proffered theory of deception’ is relevant to, and may be
necessary for, the ultimate conclusion that a reasonable consumer would have
been deceived.” But  “the fact that
consumers may have interpreted the statement differently does not preclude
certification.” Differences in understanding might bear on injury, but falsity
itself “cannot differ from case to case or be based upon whether the case is
prosecuted on an individual or a class basis; it turns upon an objective
analysis that applies across cases.”

Nonetheless, because causation, injury and damages weren’t
common among the putative class members, individual questions predominated and
a Rule 23(b)(3) class couldn’t be certified. The evidence submitted didn’t show
a price premium or propose a methodology which could be used to demonstrate a
price premium.

Peloton presented affirmative evidence that there was no
price premium and “compelling evidence” that plaintiffs failed to carry their burden
on predominance. The challenged claim wasn’t on a product label or package:

[N]o purchaser of a Peloton product
need have been exposed to the Challenged Statement and the evidence suggests
that many of the purchasers were not exposed to the Challenged Statement. The
Challenged Statement did not appear in every Peloton advertisement and did not
appear on all of Peloton’s marketing materials. Rather, the Challenged
Statement appeared in a relatively small subset of Peloton’s advertisements, and
did not appear in any television advertisements, which represented Defendant’s
largest advertising channel during the Class Period. The Challenged Statement
also appeared on only four of the 269 pages of Pelton’s website, the primary
place where consumers purchase Peloton products.

Even when it did appear, the claim wasn’t alone or the most
prominent. E.g.: “Experience unlimited access to the world’s best instructors
anytime, anywhere, with 15+ daily live classes and an ever-growing library of
9,000+ classes available on-demand.”

Website tracking data suggested that, at most, 10.99% of
website visitors could have been exposed to the statement, but that didn’t show
that they actually saw/noticed it.Peloton’s expert did a survey about whether
consumers even noticed the claim. She found that only 0.7%-1.3% of the test
group noticed the statement and that there was no statistically significant
difference between the test and control with respect to their conclusions about
the Peloton products after viewing the webpages. And, despite its statements
above, the court also gave weight to plaintiffs’ own survey that showed that
people ascribed “different meanings”: while 76.5% understood that the number of
classes in the Peloton library would increase over time, 61.8% of them expected
the number of classes to increase because no classes would be removed from the
library, while 31.4% believed that more classes would be added than removed.
Also, 79.8% interpreted the statement to mean the number of classes would
increase each day, week, or month, while 3.7% thought the increase would be
annual (the remainder had no view). This wasn’t fatal: “materiality is an objective
inquiry and thus subject to common proof.”

But this evidence does bear on
whether the Challenged Statement could have caused a price impact. That many
had differing views over what the Challenged Statement meant and took different
meaning from it suggests both that the statement did not have a powerful
marketing impact and that those who saw the Challenged Statement may not have
interpreted it in such a way as to give rise to a price premium.

In addition, the price of each relevant Peloton offering
remained constant both before, during, and for almost eighteen months after the
class period. While those results “could perhaps be explained away if there
were other confounding factors, including if Defendant offered something
additional of value to consumers after the takedown or if sales fell markedly,”
Peloton’s expert looked for other confounding factors and found none. The
burden of demonstrating that there was a price premium (and thus that the
predominance requirements of Rule 23(b)(3) have been met) was plaintiffs’ and
they did not satisfy it. Plaintiffs’ conjoint model assumed that individuals
saw and noticed the challenged statement to generate its price premium
calculations, but that assumption wasn’t supported by the evidence. Plaintiffs’
survey also didn’t distinguish the value of Peloton’s library of classes—a Peloton
innovation—from the value of its purported “ever-growing” size.

In addition, plaintiffs didn’t show that there was a model
capable of measuring the damages attributable to their theory of liability,
since their model conflated the existence of a library with its ever-growing
size. “Courts routinely reject price premium methodologies under Comcast when
the proposed methodologies do not attempt to isolate the premium due only to
the allegedly misleading marketing statement.” The model also didn’t consider
the impact of supply-side factors. “Because Defendant might have responded to
the decreased demand by producing fewer Peloton products, the damages of the
putative class members would presumably be less.” Nor did the model “consider
how competitors would have reacted to a decrease in demand for Peloton
products, which could in turn affect the supply of Peloton products.” It would be
different if the products had only one relevant attribute and that attribute
was falsely advertised, since there the entire price paid would be based on
falsity and no price premium analysis would be required. [The hypothetical is a
joint pain cream that doesn’t cure joint pain; note that this is not a
one-attribute product, since there are non-cream treatments for joint pain, so
in fact there are at least two attributes, one of which is true in the hypo.]

The same flaws doomed plaintiffs’ omission theory, which
relied on a consumer survey showing that 48.9% of respondents would be either
extremely or moderately concerned if Peloton were forced by legal action to
remove 50% of their classes. Peloton’s designated witness testified that there
were only “a single-digit number of subscription cancellations that were
directly attributable to … the on-demand classes removed from [Peloton’s]
library in March 2019.”

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