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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."
lack of mutuality. The TOS gave Linden Research the right to terminate users "for any reason or no reason," the right to invoke several one-sided remedies to protect its own rights, and the right to modify the TOS at any time, including the arbitration provision.
no more 'we can kill your account any time and you suck it' from online game companies. a lot of tos's just went invalid today. the shakeout from this will be huge in the pay for online gaming sector.
-.no
IMO it was only a matter of time until a judge ruled that he had jurisdiction, EULAs be damned.
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I wonder if this will be applied to other service on the web. It seams that every site has one of these agreements.
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Oh darn now I gotta rewrite my new program's EULA that says "if you don't like my program or it breaks your computer, go **** yourself." Lol I think it's good idea to force game makers actually responsible for stuff that happens in it and its customers well being.
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Unless I'm mistaken, this isn't an appeals court, and therefore doesn't actually set precedent. Other courts can still apply the same logic though.
I, for one, will be VERY interested to see if Blizzard responds to this in any way. Their policy is very much the same, as is their penchance for banning accounts and restricting access to real-world-value. (And remember, legality does not negate value in most cases. The IRS would have you pay income tax on your drug deals, if you follow the letter of the law.) So will the rules shift in favor of the end-user?
Likewise, what other EULA's might fall victim to the 'no viable market alternative' argument? Windows comes to mind.
This will surely die on appeal, but still, the possible implications are interesting.
While I agree that the terms of the "click-through" license are fairly ridiculous...
We ARE talking about a computer game, here. There is no *real* harm done to anyone if their account is terminated.
And more importantly, the makers/administrators of giant multiplayer games (or worlds) kind of NEED to be able to terminate accounts at will. What if a player/group of players find a bug in the game and are able to use it to cheat? Or worse, use it to gain access to the personal computers of OTHER players without their permission? If they had to go through a whole "termination process", players could wreak havoc at will in those kinds of situations. And what could the admins of the servers do? They can't terminate the accounts. They can't just shut off the servers (because that would be the equivalent of terminating *everybody's* account). The only recourse it to quickly try and patch the software before the problem gets entirely out of hand. They do that anyway, really, but it's a lot harder when the entire server is going to hell because of the exploit.
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.
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
Sadly, no! The most that will happen, save it reaching the Supreme Court, is that the decision will apply to the users/companies in the 3rd Circuit court's jurisdiction alone.
A majority of Federal courts have ruled that shrinkwrap licenses are in general unenforceable, though a minority have affirmed that it is indeed a legally-binding document.
However, we're dealing with what's called a "clickwrap" license, which hasn't nearly the legal history that shrinkwrap licenses have. This decision, if upheld (I guarantee it's going to be appealed), is certainly an important early move in the right direction.
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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.
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The contract must be *both* procedurally (e.g., take-it-or-leave it, no alternatives, pre-printed) and substantively (e.g., unfair or hidden terms) unconscionable to be unenforceable. One is *not* enough - unfair isn't enough. The process must be unconscionable as well. BTW, arbitration clauses are presumed enforceable otherwise. Please do *not* rely on this as legal advice (but especially do *not* rely on Wikipedia for legal advice!). IAALBNYL (I Am A Lawyer But Not Your Lawyer).
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As I wrote elsewhere, EULAs are mostly bull. Go and read your state's "Sale of Goods Act" - it should have one and that is pretty much all that matters. The reason is that a Sale is the default action. For a transaction to be a Lease, the parties have to jump through very specific hoops and EULAs seldom do. Therefore, If it Looks like a Sale, Quacks like a Sale and Flies like a Sale, then it is a Sale, meaning that you most likely OWN your copy of MS Windows outright, despite what MS likes to pretend for example and that is why you can resell the CDs on Ebay.
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The casinos have to deal with the Nevada State Gaming Control Board that regulates Nevada's gaming industry. Will we see some thing like that for on line games with real cash money in them?
Remember, the Federal Arbitration Act strongly favors the enforceability of arbitration agreements. This case likely came out the way it did because the practical implications of arbitration (in this specific case) would result in an unjust bias favoring Second Life or would make dispute resolution prohibitively expensive. A classic case regarding the enforceability of arbitration clauses is Adkins v. Labor Ready, Inc., 303 F.3d 496 (4th Cir. 2002) (upholding an arbitration agreement in an employment contract where the plaintiff could not show unconscionability or failure of consideration). While the enforceability of clickwrap agreements is a contemporary and evolving area of contract law, I don't think the implications of this decision are very far-reaching. This case deals specifically with an arbitration clause and so is a unique situation. I haven't read the opinion, but I suspect that the court held specifically that the arbitration clause was unconscionable as opposed to the entire clickwrap agreement. That is certainly important to note--the agreement may still be otherwise enforceable notwithstanding the arbitration clause.
IANAL, but when I read the decision, they based large parts of the reasoning on California law (due to the license saying that it was governed by California law). So that may make it harder to apply in other states. I think they even mentioned some cases under another state (PA?) and said that that precedent didn't apply because of that clause putting it under CA law.
I think this sets some precedent already, but also that it can end up in the Federal Court of Appeals, and eventually the Supreme Court if it gets to that. However, IANAL, so I'm not sure if this is even an appealable order (not every order is).
One of the most interesting parts to me were the notion that this is a LOT less expensive than arbitration. Or, at least, the judge thought so. That seemed to be a major factor in the decision per my non-lawyer reading. Which is odd to me because I thought that companies liked binding arbitration because it was supposedly faster and cheaper. Or maybe they just don't end up paying out as much money, I dunno. I was kinda surprised that we have a federal case made out of $300 of virtual land, though. Couldn't that go to small claims? Or maybe their whole account was worth more, who knows?
Now, unfortunately, I don't see this destroying EULAs so much as rewriting them, but I DID find it very interesting that, at least using the CA law they did, the contract might be unconscionable if you can't find anyone who doesn't give such harsh terms of service ("we can disconnect you if we feel like it", which is WAY too "standard" when you sign up for internet service). There was some other talk about that being except if there are "business realities" (which you either have to prove or describe in your contract), but I'd dearly LOVE to see the "CYA clause" as I call it stricken from ISP terms of service. Comcast with their "abuse of service" crap if you break their secret bandwidth limits on their "unlimited" service (by which they allegedly mean "always on", not "without limit").
I wonder if anyone will retain a lawyer and become the test case for that one?
IANAL.
But the judge didn't rule it unenforceable because there was no law stating that clickwrap agreements were valid. He ruled that the terms were so one-sided that it was "unconscionable" (horribly one-sided), and therefore invalid. If the same terms were in a shrinkwrap license, or even a signed contract, the same terms would have had the same problem.
The statement that it doesn't apply everywhere until upheld by the Supreme Court is, however, quite correct.
Similarly, if an artist or musician wants to get paid for painting or recording, he can find someone who'll agree to pay him for it. If he wants $10,000 to make a painting, and someone is willing to pay him $8000, he has the same options: accept the lower offer, look for another customer, or enter another line of work where customers are willing to pay more. What he doesn't need or deserve, however, is the option to make his painting for free, plaster copies of it all over walls and galleries, and then force anyone who looks at it or makes their own copy to pay him $10,000. That's just a way to avoid honest negotiations.
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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.
No, federal district court jurisdiction is granted either via diversity jurisdiction (plaintiffs and defendants from different states in suits exceeding $75K) or federal question jurisdiction. In this case, since the court is obviously using state law, diversity is how they got into court (and of course the judge finding CA arbitration unenforceable). Pennsylvania plaintiff, California defendant, = federal court diversity jurisdiction using state substantive law (but federal civil procedure and evidence).
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.
Also wrong! Read the case or the article, for a contract to be unenforceable, it must be both procedurally and substantively unconscionable. Contracts of adhesion are enforceable if they do not contain grossly unfair terms. And software licenses are generally considered enforceable (assuming no grossly unfair terms - read the article or case!).
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unilateral "cancel at any time" clauses can be illusory (a promise that isn't real, therefore non-binding, therefore no contract). What is generally required is a minimum time before they can cancel (e.g., "after 30 days") or notice requirement (e.g., "on 5 days notice"). A contract which allowed you to cancel or alter it 5 minutes after it was signed (or clicked) would not be a contract; it would be illusory.
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Yes, you need both Procedural and Substantive Unconscionability, but the implication of the statements in the judgement is that (based on prior case law) you already have one of the two in a click-through EULA. In III.C.1.(a) on page 27 it states (citations removed):
"A contract or clause is procedurally unconscionable if it is a contract of adhesion. 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." Under California law, "the critical factor in procedural unconscionability analysis is the manner in which the contract or the disputed clause was presented and negotiated." "When the weaker party is presented the clause and told to 'take it or leave it' without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present."
This implies that Procedural Unconscionability is present in any and all click-through licenses, since they are drawn up by the party with the stronger position and presented in a "take it or leave it" manner. Given that a click-through license is implicitly Procedural Unconscionable any term that is Substantive Unconscionability is unenforceable.
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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.
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