Second Life Arbitration Clause Unenforceable

NewYorkCountryLawyer writes "In a decision that could have far-reaching implications, a federal court in Pennsylvania has held that the California arbitration clause in the 'take it or leave it' clickwrap agreement on the Second Life website is unconscionable, and therefore unenforceable. In its decision (pdf) in Bragg v. Linden Research, Inc., No. 06-4925 (E.D. Pa. May 30, 2007), the Court concluded that the Second Life 'terms of service' seek to impose a one-sided dispute resolution scheme that tilts unfairly, 'in almost all situations,' in Second Life's favor. As a result, the case will stay in Pennsylvania federal court, instead of being transferred to an arbitration forum in California."

Comments

Finally

[Scrameustache]

IMO it was only a matter of time until a judge ruled that he had jurisdiction, EULAs be damned.

Re:Will this carry over to other online services?

[Zironic]

The problem would be that for most other services there are "reasonable available market alternatives". The thing I wonder though is that if all the companies have the same crappy TOS does that then mean that there isn't any reasonable option and all the TOS's get invalidated?

I hope this is challenged...

[RyanFenton]

I'd like this decision to be reinforced at every level of the American justice system: No matter what you force someone to sign, you can't take away their right to challenge you on a legal issue in a public court.

America shouldn't be in the business of forcing people to obey the random "magical wishes' contained within every contract some jerk forces people to sign.

The next thing I fear: We'll have to find a federal judge to sign our EULAs to authorize the active denial our own rights before we get to play a game. Either that, or a law passed by congress or a new ruling by the justice department to take away the rights they can't get by contract anymore.

Ryan Fenton

Re:I hope this is challenged...

[timeOday]

Forced to sign? Care to share which contracts you have been forced at gun point to sign?

That argument is a sham. It relies on the assertion that a person could realistically read and understand the ridiculously complicated legal agreements that govern a hundred different things you do every day, from credit card agreements to software EULAs. That assertion is false. Pretending people could take the time and have the expertise to plow through multitudes of lengthy legal documents is just absurd. Business-to-individual contracts are obviously unequal. A business could no more realistically enter into a different contract with every individual, than a individual can enter into a different contract with every business - yet that's exactly what we require of individuals legally. The payoff is this allows businesses to dictated whatever terms they desire.

Instead, there should be only a fixed set of end-user licenses from which businesses can choose. Or, at the very least, there should be a set of consumer protection clauses which apply to all end-user licenses, overriding whatever wishes the businesses may have.

Re:I hope this is challenged...

[Hal_Porter]

What happens if all the alternatives games have these terms? Or there are no alternative games?

And example would be banking in the UK. Even thóugh in theory there are four or five highstreet banks and you can change between them, few people do because most banks have the same terms. For example they all decided to charge for cash withdrawals from other banks machine within days of each other. Similarly, when charges for cashing cheques increase, the increase is done by all the banks simultaneously. So it's not cynical to say that a cartel is operating and the government should start to check for unconscionable terms. Actually, the banks seem to understand this. If you write to them and complain the back down, and every so often they will make some change which is outrageously expensive and then one of them will buckle under public pressure. And then of course all the others do, which is just more evidence of a cartel.

Now there's nothing except convenience stopping people using an offshore bank for example, but many of those are being bought up by high street banks or building societies.

Actually, in an efficient capitalist country like the UK or the US, it is almost inevitable that this sort of thing will develop. State of the art business is about state of the art contracts, and those are the ones which benefit you most. Even Adam Smith knew about this

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

One of the things I liked about Sweden was that businesses have much less of a tendency towards unconscionable contract terms. But that's partly because it is a less capitalist place. It seems to me that you need capitalism but yout also need some cartel busting system of laws. Which the US seems to have, if this judgement is representative.

Re:I hope this is challenged...

[NMerriam]

Government is all about the organized and authorized use of violence, by definition.

It is?

I'm not sure how an "ultra-liberal" could hold the idea that the only purpose of government is to force people to do things with guns. I really am not sure in what way your professor could be ultra-liberal in a traditional political sense if he genuinely believed governments had no legitimate function -- political liberalism generally relies heavily on the notion of collective action for greater good. Are you sure he wasn't libertarian, most are socially very liberal but have a distrustful view of government (indeed I consider myself a libertarian of that stripe, just not the crazy Ayn Rand/von Mises kind).

Re:Not a good decision, really

[jt418-93]

--]I won't even get into the whole idea of Second Life property being equivalent to "real" property. That's just ridiculous, and I expect this guy to lose his case because of that anyway.

except linden has set up a direct dollar to linden exchange procedure, giving things a real world value. that is something they created themselves.

as to other games, whether you agree or not, as long as someone will pay real money for something, it has value and is treated 'real'. they're going to tax your online income if it exceeds XXX$, it doesn't matter if you made it on ebay or selling 'the uber codpiece of erections' in some game. money is money, and where there is money, there are lawyers.

The end of Microsoft's EULA?

[Randym]

(a) Procedural Unconscionability: A contract or clause is procedurally unconscionable if it is a contract of adhesion. Comb, 218 F. Supp. 2d at 1172; Flores v. Transamerica HomeFirst, Inc., 113 Cal. Rptr. 2d 376, 381-82 (Ct. App. 2001). A contract of adhesion, in turn, is a "standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it."

The interesting thing about this is that is being adjudicated under *Federal* law, rather than state law, because it involves interstate commerce. Any EULA -- not just Microsoft's -- is now in jeopardy, because, according to this ruling, an EULA is -- by definition -- a "contract of adhesion".

The next thing that they should go after is the concept that you don't actually *own* software that you purchase, you only "license" it. That could certainly be seen as a "contract of adhesion" ('procedurally unconscionable') imposed in a one-sided way and thus unlawful as well.

Re:Not a good decision, really

[ponos]

We ARE talking about a computer game, here. There is no *real* harm done to anyone if their account is terminated.

To the extent that the people involved pay real money and to the extent that they feel genuinely frustrated about losing the account, the harm is very, very real. Using your logic, there is no harm in being publicly ridiculed or finding out that your girlfriend enjoyed a whole soccer team. An MMO can be an important social activity (in the sense that it involves people) and please realize that even if you (or me, for that matter) don't feel attached to their avatar or game "lives", other people do.

P.

Re:Not a good decision, really

[hibiki_r]

That's backwards: If it can be converted into money, it has real value. You can exchange US dollars for linden dollars and vice versa, by going through the developer itself!

Besides, what does taxing have to do with anything? If I don't pay taxes on something that the tax code claims should be taxed you are not dealing with something with no value: what you have is tax evasion. Don't put the cart before the horse

Re:An eye on WoW

[sampson7]

One key element of the Judge's (very well written) opinion is that Second Life holds itself out as granting something akin to a traditional property right in the virtual world that it has created. Blizzard's policy, in contrast, has always been that it owns the virtual "property" and grants you a license to play with it.

In other words, Second Life offers to let you buy a portion of its sandbox, while Blizzard merely lets you play in it. In one case, you can take your toys and go home since you own the toys, in the other, you cannot.

Re:BLIZZARD does the exact same thing

[Anonymous Coward]

The major difference between World of Warcraft and Second Life:

- In World of Warcraft, Blizzard states that they own everything. That epiced out level 70 character with a top arena ranking isn't yours. It is property of Blizzard. It has no monetary value. Instead, you are merely paying for access to that resource with your monthy fees.

- In Second Life, I believe that your characters, items created by you, etc. are considered to be your property. In addition, I recall the game's currency has been given a fixed exchange rate with the US Dollar.

In the first instance, if Blizzard kicks you off their server for violating their TOS, they are just denying you access to their property.

In the second instance, if Linden Labs kicks you off their server for violating their TOS, they are denying you access to YOUR PROPERTY.

Re:this seemed to be the important one for most ga

[mr_matticus]

What world are you living in where a majority of jurisdictions have ruled shrinkwrap licenses "generally unenforceable"?! Name just one jurisdiction in the US to have done so.

Re:Not a good decision, really

[VidEdit]

"I think there's something illegal about creating your own tender or money in the US."

It isn't about creating "your own legal tender," it is about creating something which has value. And in the case of Second Life, the value can be potentially bartered or sold.
Keep in mind that stocks are virtual property, too, but you wouldn't want the NYSE kicking out of trading and keeping your stocks. Also, the IRS **is** looking into the possibility of taxing virtual property in games.

"Kind of like how they put "no cash value" on coupons huh?"

Coupons are **discounts** and are not at all comparable to Second Life property.

Arbitration

[Stormcrow309]

Several state judicial systems have already found that out-of-state arbitration limits due process. Alltel got hit hard for this and their 'consumer pays all arbitration fees' clause a couple of years back. I don't think arbitration will last much longer, especially since many businesses are moving to mediation for b2b stuff.