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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
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.
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?
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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I think you missed what the judge decided.
So far the judge has decided it is unreasonable to expect users to have to go through Arbitration court since it gives all the benefits to the company and all the downsides to the user.
The case itself though will most likely be lost by the user since virtual property doesn't have any real value (if it had you would have to pay tax for it and I wouldn't want to do that).
What I would like to see is that admins get to keep their ability to ban people for whatever reason but that users get a fair chance to defend themselves if they feel they became unjustly banned.
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
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.
Correct, it is obviously for censorship.
Forced to sign as in "Agree to this or waste the money you spent buying this game because you can't play unless you do and few companies accept returns with opened boxes, a prerequisite to seeing this screen."
I don't know of any recourse you can take to get your money back in the case you don't agree with, say, Battlefield 2142's EULA. The moment you see that EULA none of the game stores I know of will let you refund as you opened the box and the company's just going to tell you to accept it.
Force doesn't necessarily mean physical force. In many cases the most potent forces are the ones of the mind, a blackmailer doesn't hold a gun to your head but I don't think you'd say he's not forcing you to do something. In the same way many software companies hold your money ransom and demand you accept or lose it and get nothing back.
This becomes irrelevant if you can returned the open game or find the EULA before opening the box but both are exceedingly rare where I live. You really have no good choices if you don't like the EULA, you can decline and lose your money or accept and lose your freedom. What a choice...
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I have to wonder if the the Linden Dollar (and linden real estate) having a real world value weighs the need for a two sided arbitration more heavily. From the courts view (I imagine) the only thing at stake in a WoW arbitration is your $15 subscription fee, where as Second Life has some more significant monetary attachments. When there is real money involved the government is sure to follow.
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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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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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