Kochava Says FTC Can’t Use Walmart Case to Defeat Its Motion to Dismiss

The FTC’s argument “lacks merit” that the March 27 opinion in FTC v. Walmart denying in part Walmart’s motion to dismiss an FTC enforcement action (see 2304040010) supports the commission’s opposition to Kochava’s motion to dismiss the agency’s privacy complaint for failure to state a claim, said Kochava’s response Thursday (docket 2:22-cv-00377) in U.S. District Court for Idaho in Coeur D’Alene.

The FTC seeks a permanent injunction enjoining Kochava from acquiring consumers’ geolocation data and selling it in a format that allows entities to track their movements to sensitive locations. Kochava contends there’s no way to determine whether a particular individual is at a particular place using the device identifier and geolocation data that Kochava sells to third parties.

As the FTC itself admits, the Walmart opinion isn’t “binding” on the Idaho district because it was issued in the Northern District of Illinois in Chicago, said Kochava. The doctrine of stare decisis (let the decision stand) doesn’t compel “one district court judge to follow the decision of another,” it said.

To the extent that the Idaho court considers the Walmart opinion “persuasive,” the opinion “actually compels the granting” of Kochava’s motion to dismiss, said Kochava. In applying the test for a violation of Section 5 of the FTC Act -- namely, whether a practice is unfair -- the court in Walmart “relied on the facts alleged in the complaint that are different in nature and character than those alleged here against Kochava,” it said.

The Chicago case involves telemarketers who conned consumers into sending money using Walmart’s money-transfer services. The FTC alleges Walmart knew it was processing fraudulent money transfers and failed to do enough to protect consumers. The court’s partial denial of Walmart’s motion to dismiss allows the FTC to proceed on a theory of liability under Section 5 of the FTC Act. The Walmart opinion noted a practice is unfair under Section 5 when it causes or is likely to cause substantial injury to consumers, which isn’t reasonably avoidable by consumers themselves, and isn’t outweighed by countervailing benefits to consumers or to competition.

As applied in the FTC’s case against Kochava, those same elements don’t exist “because there is no misconduct by Kochava that allegedly causes or is likely to cause any actual -- let alone substantial -- injury to any consumer,” said Kochava. All that’s left in the FTC’s complaint against Kochava is “mere conjecture” about the tracking of devices in proximity to what the FTC has unilaterally deemed “sensitive locations,” it said. That’s all based on location data “that consumers consented to provide upon data ingestion into the mobile app voluntarily installed and used by consumers for a host of pro-competitive and legitimate purposes,” it said.

Though the focus of Section 5, as the Walmart opinion states, is on whether a practice causes substantial injury to consumers, which the FTC fails to allege in its case against Kochava, the Walmart court “agrees that public policy remains relevant to whether there is a violation of Section 5,” said Kochava. As Kochava argued in its motion papers, “the lack of an alleged public policy violation favors the dismissal” of the FTC’s complaint, it said.

There are no allegations in the FTC’s case against Kochava, unlike in Walmart, that Kochava took advantage of defrauded consumers by profiting from transactions while withholding reasonably available information from them, said Kochava. That’s especially so, “given the lack of articulated laws that were allegedly violated or notice of same, including any consent orders, prior adjudication of the accused conduct, consumer complaints, or public policy,” it said.

The injunctive relief that the FTC seeks against Kochava is “unavailable” to the agency “because no violations or consumer harm has occurred at all, much less continues,” said Kochava. “This is in stark contrast to the allegations in the Walmart case,” where the court “made a specific finding that the alleged money transfers were ongoing,” it said. Unlike the findings in the Walmart opinion, Kochava instituted a “privacy block” function in its data transactions, it said. That’s a “prophylactic” measure that ensures “none of the alleged harm materializes,” it said.