Commentary Addressing Risks and Opportunities Through the Lifecycle of Data, Technology, Advertising and Innovation

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Editor's Note: This post is a joint submission with BakerHostetler's <a href="http://www.classactionlawsuitdefense.com/">Class Action Lawsuit Defense</a> blog.
On July 11, 2013, the U.S. District Court for the Central District of California dismissed a majority of the claims brought against Blizzard Entertainment, Inc. after a data breach suffered by Blizzard in 2012. In granting the motion for judgment on the pleadings, the decision highlights the continued difficulties faced by plaintiffs asserting claims against an entity that experiences a security breach.
Blizzard is a video game developer that produces online video games. Before playing any Blizzard game, customers must register for a <a href="http://battle.net/">Battle.net</a> account. When registering for a <a href="http://battle.net/">Battle.net</a> account, account holders agree to its terms of use and privacy policy. In addition, Blizzard introduced an additional level of security in 2008, the Authenticator, which created a random code which account holders must enter when logging in. In August 2012, Blizzard became aware that hackers gained access to <a href="http://battle.net/">Battle.net</a> account holders&rsquo; email addresses, answers to personal security questions and cryptographically scrambled versions of <a href="http://battle.net/">Battle.net</a> passwords. In response, a class action complaint was filed asserting the following claims against Blizzard: (1) violation of the Delaware Consumer Fraud Act (&ldquo;CFA&rdquo;); (2) unjust enrichment; (3) negligence per se; (4) negligence; (5) breach of contract; and (6) bailment.
In its decision, the Court dismissed all of the common law claims. In regards to the unjust enrichment claim, the plaintiffs alleged that Blizzard was unjustly enriched when it sold products that lost value as a result of security breaches, and then passed the costs associated with the security system onto the class members. The basis for plaintiffs&rsquo; allegations stem from the alleged assurances made in Blizzard&rsquo;s terms of use and its privacy policy. Because the claim relates only to representations in contract (the terms of use and the privacy policy), the unjust enrichment claim could not survive.
To support their negligence per se claim, the plaintiffs alleged that Blizzard failed to inform its <a href="http://battle.net/">Battle.net</a> players of the breach in a timely manner which allegedly prevented plaintiffs from taking steps to protect their personal information. However, the factual allegations asserted by plaintiff did not state that any of their &ldquo;personal information&rdquo; as defined by the breach notification statute was taken nor did plaintiffs allege what information would be accessed if the hackers had gained access to their <a href="http://battle.net/">Battle.net</a> accounts. Therefore, the negligence per se claim was dismissed.
For the negligence and breach of contract claims, the Court held that plaintiffs failed to allege adequate harm. The Court noted that the plaintiffs did not allege that they were the victims of identity theft. The Court rejected plaintiffs&rsquo; argument that the increased risk of further harm was sufficient to support their claims. In addition, the Court found that the economic loss doctrine barred recovery for the decreased value of the video games purchased by plaintiffs. As a result of the plaintiffs&rsquo; failure to alleged sufficient harm, any alleged harm suffered by the plaintiffs as the result of the breach was speculative. Therefore, the negligence and breach of contract claims could not survive.
Finally, the Court dismissed plaintiffs&rsquo; bailment claim. Plaintiffs alleged that the duty of bailment arose when plaintiffs provided their personal information with Blizzard in order to create a <a href="http://battle.net/">Battle.net</a> account. The Court dismissed the bailment claim, noting that no court has held that personal information is chattel that can be bailed.
The Court permitted the claims under the CFA to move forward, but on narrow grounds. The plaintiffs claimed that Blizzard violated the CFA by omitting or misrepresenting the quality of its security measures. Specifically, plaintiffs alleged that Blizzard violated the CFA by failing to inform account holders that the purchase of the Authenticator is required for account safety. The Court found that Blizzard did not fraudulently misrepresent the security of plaintiffs&rsquo; personal information. In addition, Blizzard&rsquo;s failure to disclose to account holders that they would be required to enter private information before playing games did not violate the CFA. However, because Blizzard could provide no explanation to the Court for why it failed to advise account holders that the purchase of the Authenticator at the point of sale would result in account safety, the Court permitted the CFA claim to go forward.
The Blizzard opinion follows a growing line of federal and state court cases dismissing negligence claims based on data breaches for lack of injury, particularly in cases like Blizzard, where the plaintiffs could not allege identity theft. In addition, the Blizzard decision shows the difficulty faced by plaintiffs in alleging common-law claims where plaintiffs and defendants have a contractual relationship.

Another Blow to Data Breach Class Actions: Bell, et al. v. Blizzard Entertainment, Inc.