Intuit Inc. v. HRB Tax Gp., Inc., 2024 WL 5320392, No.
5:24-cv-00253-BLF (N.D. Cal. Dec. 3, 2024)
Intuit, which makes TurboTax and
has had some advertising
troubles of its own (hey, check out the IRS Free
File program, for taxpayers with AGI of $84,000 or less and with many fillable
forms for those with more), sued HRB (Block) for its advertising of a competing
tax product, and succeeded in part.
TurboTax has three tiers: TT Do-it-yourself (DIY), Live
Assisted, and Live Full Service. Live Assisted, the focus of this case, allows
customers to prepare their tax returns largely independently, but it also
provides “unlimited access to tax experts to help them with any questions that
they may have,” among other features. (Live Full Service, by contrast, involves
actually turning over all the taxpayer’s documents to a tax professional to
prepare the return.)
Within TT Live Assisted, there are multiple individual
products that a customer may select based “upon the level of tax complexity” of
their situation. TT Live Assisted Basic might apply to a consumer with just a
W-2 and no additional schedules. TT Live Assisted Deluxe is for a “slightly
more complex” tax situation, e.g. “additional deductions and credits” or
“mortgage interest.” Live Assisted Premium, “essentially includes all tax forms
[and] schedules.” But all have tax expert assistance including “expert final
review,” following a prompt asking whether the consumer wants to connect with
an expert about their tax return.
Block has two tiers: Do-It-Yourself (DIY) and “File with a
Tax Pro.” Within DIY, there are a further four tiers, including Free Online,
Deluxe, Premium, and Self-Employed. DIY Free Online is geared toward simple tax
returns and is free. DIY Deluxe is for consumers with more complex tax
situations, such as those seeking to “maximiz[e] deduction and credits,” so it
includes more tax forms. DIY Premium allows reporting of investment or rental
income. DIY Self-Employed is for self-employed taxpayers who need to file a
Schedule C.
DIY Deluxe had live expert help, artificial intelligence
assistance, an automated accuracy review or error check, year-round support,
and various guarantees, among other features. Separately, Block offers “Tax Pro
Review” as an add-on, which allows “a DIY consumer, after they have filled out
their taxes, the ability to send their tax return to a tax expert” along with
their source documents, so that the tax expert can review, sign, and file the
return.
Intuit challenged five of Block’s ad claims: (1) claims that
Block’s products with expert and AI assistance features start at a lower price
than Intuit’s products with similar features; (2) claims that Block’s paid DIY
products are comparable to TurboTax Live Assisted; (3) claims that Block’s products
with AI and expert assistance cost “[a]t least $54 less than TurboTax Live”; (4)
claims that Intuit’s Live Full Service product “starts at” $169; and (5) claims
suggesting that “5 million ‘TurboTired’ TurboTax consumers ‘switched’ to Block
in 2023.”
For example, Block advertised: “Fed up with hidden fees?
Make the switch to H&R Block with upfront transparent pricing.” TT
challenged the middle tile’s claim that Block offered “expert help” “[s]tarting
at $35” when Intuit’s “starting at” price for the same “expert help” was $0.
 |
| comparative ad |
Also, relevant to claim (2), the ad compared a TurboTax Live
Assisted product—Live Assisted Deluxe—with Block’s paid DIY products that don’t
include a final expert review, which Intuit alleged was a material difference. TT
Live and Live Assisted included guarantees that Block didn’t for its paid DIY
products. Finally, Intuit, argued that Block’s products used chatbots to make
it “incredibly difficult, if not impossible, to actually engage with an
expert,” whereas TT didn’t.
For claim (4), Intuit dropped the price of Live Full Service
to many customers at a starting price of $89, although in prior years the
starting price had been $169; until it was contacted by Intuit regarding the
inaccuracy, Block ran ads stating that the starting price for Intuit’s Live
Full Service product was $169.
For (5), Intuit pointed to an email: “It’s Better with Block”
that also included “TurboTired? Switch and save with Block” and concluded:
“Join the 5 million+ who switched to Block last year.”
 |
| TurboTired/join the 5+million who switched ad |
Intuit offered Professor Joel Steckel of the New York
University Stern School of Business as an expert who conducted several surveys.
He testified that respondents looking at Block’s home page—which displayed an
advertisement similar to the challenged ads—believed that “there were at least
as many features in the Block website and that the Block product costs less.” Based
on another study, in combination with a review of academic literature, Dr.
Steckel concluded that “Block’s conduct, which resulted in the perception of an
equal or superior product at a lower price, could cause negative feelings
regarding the pricing of TurboTax products and harm the TurboTax brand.” And a
third study looking at the TurboTired ad led him to conclude that claims that
“5 million+” people switched to using Block products “likely did influence …
consumers to switch to Block” because those consumers “would have understood
that … the 5 million-plus who switched to Block had all switched there from
TurboTax.”
Block’s own expert, Hal Poret, critiqued these surveys and
the related testimony, including use of controls.
Claims about expert/AI help: Intuit argued that Block
“falsely claim[s] that its paid DIY products offering ‘expert’ and ‘AI’
assistance ‘starting at’ $35 were cheaper than Intuit’s product with expert and
AI help.” These challenged ads were “literally false,” according to Intuit,
because TurboTax Live Assisted Basic—which is free for certain
customers—includes expert and AI assistance. Block responded that the point of
the ad was not to compare the starting price for expert/AI assistance in any
circumstance, but rather to compare Block’s DIY Deluxe product with Intuit’s
TurboTax Live Assisted Deluxe product, and that the prices listed were
literally true insofar as those were the products being compared.
The court found that Intuit’s reading of the ad was correct
and that the ad was literally false by necessary implication. Block’s own witness
testified that the bullet points listed on the relevant advertising tile
pertained to various Block products, not just Block’s DIY Deluxe product: the
tile mentions “[o]ptions for deductions, investors, and self-employed,” a
statement that alludes to Block’s DIY Premium and DIY Self-Employed products.
Thus, it wasn’t credible that the ad was supposed to compare
TurboTax Live Assisted Deluxe with Block DIY Deluxe based on “the tax
situations that th[ose] product[s] cover” and “the tax forms that are
available” in those products. The advertising tile clearly emphasized the
availability of expert assistance—other than the $35 price, the most prominent
text on the tile states “File your taxes with expert help.” And it said nothing
about the specific tax forms available through Block’s DIY Deluxe product;
instead, it alluded to multiple different Block products. “Block could easily
have emphasized certain specific tax forms if indeed that was the basis for the
price comparison, but it did not do so. Instead, it told customers about the
starting price for Block’s products that include expert help. A viewer of this
ad would readily recognize the ‘necessary implication’ that the TurboTax
product it listed as a comparison was the lowest-priced TurboTax product with
expert assistance.” The court therefore presumed actual deception as well.
The court also found likely success on materiality. (Here’s
where harm causation gets tricky—since Intuit doesn’t directly benefit from
anyone who uses the free product with expert assistance, and people who pay for
TT because they mistakenly thought they’d get to use the free product are more
accurately characterized as victims of false advertising rather than as beneficiaries,
the “value” that Intuit gets here is actually at most “brand value” rather than
the value of a truthful claim. We’re in a world where that’s enough, I guess.)
Steckel’s study of the ad at issue concluded that
“respondents thought that there were at least as many features in the Block
website and that the Block product costs less.” He also found that “price [was]
extremely important,” and he also found that approximately one-third of survey
respondents identified availability of tax expert assistance as important. He
also summarized academic literature showing that “price comparisons …
increase[ ] the purchase likelihood of the brand making the comparison and
reduce[ ] consumers’ intent to search for more information.” “In combination,
Dr. Steckel’s findings support his conclusion that claims that tax expert
assistance is available starting at a lower price through Block’s products are
likely to affect consumer purchasing decisions, since a significant number of
consumers are interested in expert assistance and a significant number of
consumers also care strongly about the price of the product they select.”
Block’s critiques were insufficient; Poret primarily
challenged the lack of a proper control group, which went primarily went to
misleadingness/deception. And even without a proper control, the court wasn’t “persuaded
that it should ignore Dr. Steckel’s finding that 25 percent of respondents who
viewed the original advertisement thought it showed that Block’s products
included comparable or more features than the comparator product.”
The court also found likely injury to Intuit, applying a
presumption of injury when there’s direct competition and a tendency to mislead,
as well as testimony of Intuit’s Director of Marketing Strategy of her
belief that the ads “absolutely were
harmful” to Intuit, in the form of both reputational harm and economic harm and
Steckel’s testimony that “Block’s conduct, which resulted in the perception of
an equal or superior product at a lower price, could cause negative feelings
regarding the pricing of TurboTax products and harm the TurboTax brand” and
conclusions from the academic literature that “price comparisons … increase[
] the purchase likelihood of the brand making the comparison and reduce[ ]
consumers’ intent to search for more information.”
To the extent Block was enjoined from claiming that expert
and AI assistance “starts at” a lower price with Block than with Intuit, Block would
likewise be barred from claiming that expert and AI assistance costs at least
$54 less with Block than with Intuit, given that Intuit provides expert and AI
assistance for free through TurboTax Live Assisted Basic, so such assistance is
actually available for less with Intuit than with Block.
What about the claims comparing Block’s paid DIY products
with TT Live Assisted? Intuit identified several putative material differences:
(1) although both companies’ products offer “as-you-go” expert assistance, only
TurboTax Live Assisted has the additional “expert final review” feature without
additional cost; (2) this also allows a free upgrade for an expert to prepare,
sign, and file the review; (3) TurboTax Live Assisted includes a guarantee that
consumers will be reimbursed for any penalties assessed due to errors made by
the tax expert who assisted the Live Assisted consumer; (4) TT’s access to live
experts is easier.
Block argued that comparing the two was not misleading and
that these putative differences were marketing gimmicks that weren’t significantly
different; the vast majority of TT Live Assisted consumers, it said, didn’t get
an expert final review, since they must take proactive steps to prompt the
review process.
Lanham Act case law accepts an apples-to-oranges theory of
falsity for comparative advertising when an ad “omits differences which would
have been material to recipients.” The court found that Intuit’s feature was
genuinely different from Block’s on expert final review, citing some redacted
evidence. Its tools “enable Intuit’s experts to proactively identify any
overarching concerns about consumers’ prepared returns.” Although both
companies’ products permit unlimited question-and-answer with live experts, at
the end of the process, an Intuit customer can request a final review in which
the expert conducting the review proactively looks for issues and uses unique
tools to help target any such issues. Block doesn’t have that “proactive”
feature for its paid DIY products.
In addition, TT Live Assisted permits a tax expert to
“complete, sign, and file” a consumer’s return on their behalf, while a Block
consumer looking for a similar sign-and-file service must “pay the add-on fee
for Tax Pro Review.” Although this free upgrade occurs in only a “tiny fraction”
of cases (again, redacted), the court found that this was also a genuine
difference. However, the argued ease of
access to expert assistance was not shown to be a genuine difference. Both
products included “as-you-go” assistance from experts that can be reached using
a “help button” from virtually any page of the tax preparation software
experience. Both had live help via web chat, phone call, or screen share. Although
Block’s web chat uses an “AI Assistant” to ask an initial set of questions
before connecting a consumer to a live expert, the court was persuaded Block’s
evidence and arguments showing that the exchange with the AI assistant was
quite brief. And although some Block experts are located in India, they receive
the same training and interact with consumers the same way regardless of their
location.
Finally, Intuit’s argument that the parties’ guarantees were
meaningfully different was mistaken.
So, were expert final review and/or free sign-and-file used
in a “tiny fraction” of cases material? The court indicated that materiality
could be assessed in two ways: whether the omitted information was “ ‘likely to
influence the purchasing decision’ of consumers,” generally demonstrated
through use of consumer surveys, or whether “the defendants misrepresented an
inherent quality or characteristic of the product.” While the “inherent
qualit[ies] or characteristic[s]” of a product may sometimes be
self-explanatory, any doubts as to what counts as “the very nature” of the
product “must be addressed by evidence of why a consumer sought out a given
product—i.e., the primary purpose(s) that drove their consumption activity.”
Expert final review was neither an “inherent quality or
characteristic” of Live Assisted nor a “key product feature” going to “the very
nature” of an online tax preparation product, unlike the way that “the amount
of beef in a burger is an inherent quality or characteristic of a burger.” Evidence
that a redacted percentage of Live Assisted consumers take advantage of the
expert final review feature didn’t help. [Hmph.] “The Court is skeptical that a
feature that must be affirmatively invoked—and if not invoked, is not
experienced by the consumer—counts as part of ‘the very nature’ of a product.”
There was no other evidence that the prospect of such review drove consumption.
Evidence that consumers who used expert final review really liked it did not
mean it was material to a purchase decision. Nor did Steckel study expert final
review specifically. “[I]t is possible that consumers do not see a difference
in value between the type of expert final review offered by Intuit and the
as-you-go expert assistance offered by a live expert through either party’s
products.” For the extraordinary remedy of a preliminary injunction, this was
insufficient.
Similar problems hampered Intuit’s showing on the materiality
of the free sign and file service, especially since Intuit doesn’t widely
advertise this service, which requires “dig[ging] deep enough” online to even
know that such an upgrade is available and “the fraction of individuals who are
upgraded in this way is vanishingly slim.”
Claims that over five million consumers switched to Block,
when only redacted [ugh!] did: Intuit argued that 5 million was the total
number of new Block customers. Block added a disclaimer to that effect on its
website after Intuit filed suit, but Intuit argued that it was insufficient.
Block also argued that it discontinued any combination of this claim with the “TurboTax
switcher” message so the claim was moot. The court disagreed, because voluntary
cessation doesn’t moot a claim unless there’s no reasonable expectation that
the wrong will be repeated. Here, Block only added a disclosure after the TRO
hearing and that was just an asterisk linked to small text at the bottom of the
page, not directly below the claim.
The court found likely success on falsity. The ad at issue
necessarily implied that over 5 million people switched from Intuit to Block. The
phrases “TurboTired? Switch and save with Block,” “Switch from TurboTax® now,”
and “Join the 5 million+ who switched to Block last year” all appeared in the
same content box within the email. Plus, even if it weren’t false by necessary implication,
Steckel’s survey showed likely deception in more than 50% of respondents; even
with the disclaimer language in the body of the email, Steckel found that 47
percent of respondents still came to the same conclusion.
Poret critiqued the survey by arguing that TurboTax and
H&R Block are the “dominant names” in the field of online tax preparation,
so people would just guess they’d switched from TT. But “Block has offered no
case law supporting Mr. Poret’s conclusion that a net deception measurement of ‘10
to 20 percent or higher’ is necessary to show ‘enough evidence that an ad is
misleading.’” Then there are redactions that make the discussion hard to
comprehend, but seem to have something to do with Block’s intent. “In other
words, Block itself has created relevant ‘noise’ that may lead respondents to
believe the ‘5 million+’ switched language refers to people switching from
TurboTax specifically, regardless of whether the specific iteration of the
advertisement the respondents review says anything about TurboTax.”
Anyway, the court found that the ad was false, without need
of a “net deception baseline (or a specific quantitative value thereof),” as
informed by the court’s own “experience and understanding of human nature.” While
the materiality burden was high, for a preliminary injunction, “Intuit has a
slightly more forgiving burden for proving actual or likely deception.” Steckel’s
testimony met this burden. “That a large portion of respondents were also
confused by Dr. Steckel’s control version of the email does not change the fact
that many viewers of Block’s advertising claim came away from it with the wrong
conclusion.” [It just means the control also was deceptive!]
Materiality/injury: Block’s own redacted internal materials
supported materiality. [What were they????] “Block clearly believes that
advertising about switching to Block has in past years successfully encouraged
consumers to make such a switch.”
Claims that TT Live Full Service started at $169: Intuit
argued that Full Service was available at $89 to a redacted [!!] percentage of
customers as “test pricing.” Block argued that its pricing team checked TT’s
website and saw the $169 price and had no reason to believe that Intuit would
change its prices in January. Block contended that it couldn’t be held liable “if
Intuit is posting two different prices online” without disclosing that prices
may differ in certain test markets.
Although false advertising is nominally strict liability,
and although the strength of this argument as a matter of consumer protection
is very hard to evaluate given the redaction (if the test pricing was available
to 2% I’d feel very differently than if it was available to 75% of customers),
the court was attracted to the mootness argument here to avoid the issue. Block’s
witness testified that a Block manager checked Intuit’s website every day to
validate the $169 comparison price. When Block was contacted by Intuit’s team
about the $89 price, Block “put a process in place to update that content and
correct the mistake on [Block’s] site,” and Block represented that it does not
plan to run ads using an inaccurate starting price for TurboTax Live Full
Service in the future. There were no circumstances “raising the specter of
gamesmanship” here; this was just a mistake that had been addressed, and the
court denied the request for an injunction as moot.
For the claims that survived the other factors, there was a
presumption of irreparable harm, which Block didn’t rebut, and “[e]vidence of
threatened loss of prospective customers or goodwill certainly supports a
finding of the possibility of irreparable harm.” Plus there was Steckel’s
testimony that “Block’s conduct, which resulted in the perception of an equal
or superior product at a lower price, could cause negative feelings regarding
the pricing of TurboTax products and harm the TurboTax brand” and could
“influence … consumers to switch to Block.” Thus, Intuit was entitled to an
injunction against Block ads (1) suggesting that the “starting” price for
expert and artificial intelligence assistance is lower with Block’s products
than with Intuit’s products, and (2) placing language about “5 million+” people
having switched to Block in proximity to language about switching from TurboTax
or other language inviting the inference that all 5 million+ people switched to
Block’s products from Intuit’s products.
from Blogger http://tushnet.blogspot.com/2025/01/annoyingly-redacted-opinion-finds-block.html
Rebecca Tushnet 
