Facts

Alphabet, Inc. owns YouTube, the world's largest video-sharing service. In 2015, YouTube launched YouTube Kids, a child directed mobile application intended for children ages 2-12. That same year, the Federal Trade Commission (FTC) sent educational letters to businesses appearing to collect personal information from children to alert them of the amendments to the Children's Online Privacy Protection Act (COPPA). It was never confirmed that YouTube or Google were recipients of the letter. The FTC later investigated YouTube for alleged violations of the COPPA and eventually filed a complaint against Alphabet. The parties settled for $170 million. After the settlement, YouTube required channel owners to identify their child-directed content and limit data collection of channels aimed at children. Plaintiffs brought the current verified consolidated complaint to hold Alphabet, Inc. and its directors liable for breach of fiduciary duties and unjust enrichment based on those alleged COPPA violations.

PLAINTIFFS' CONTENTIONS: Plaintiffs alleged that Alphabet's directors failed to implement a board-level system of monitoring or reporting on child safety. Further, plaintiffs maintained that the directors failed to respond in good faith to red flags, specifically the earlier FTC investigations and consumers complaints about possible COPPA violations. Plaintiffs argued demand futility by averring that the majority of the Board did not conduct an independent and objective investigation into the purported violations in order to avoid the issue and maximize Alphabet's profits.

DEFENDANTS' CONTENTIONS: Defendants maintained that the Board reasonably thought YouTube was complaint with COPPA because the FTC labeled it a general audience site and YouTube had no actual knowledge of any violations. In particular, defendants believed YouTube was a general audience sit because most of its content was not child-directed and its terms of service prohibit children under 13 from using its services without a parent or guardian. Moreover, defendants argued that plaintiffs failed to plead demand futility since the facts plaintiffs provided were not sufficient to create a reasonable doubt that a majority of the Board was disinterested or independent.

Result

Plaintiff's motion to dismiss was granted. Leave to amend was denied since further amendment appeared to be futile.