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

this seemed to be the important one for most games

[jt418-93]

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.

An eye on WoW

[BobMcD]

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.

Re:Precedent?

[nomadic]

Persuasive authority is a lot more useful than most people realize, especially federal court decisions.

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

[Liberaltarian]

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.

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:The end of Microsoft's EULA?

[taustin]

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.

Adobe v. Softman is old news, and addressed exactly that, and was ruled in the correct way. In California, at least, if you A) pay a set amount, and B) get indefinite use of the software for that payment, it's a Sale of Goods, and the Right of First Sale (under Title 17) applies. That ruling is at least four or five years old now.

This is why Microsoft is so desperate to get Windows and Office transferred over to a "pay per month or we turn it off" model.

As the article says, you need both

[unassimilatible]

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).

The difference doesn't matter

[rewt66]

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.

Re:The difference doesn't matter

[smoker2]

Please people, please: use IMNAL. We're not interested in your bedroom behavior.

Actually, for most of the posts I see, IMANAL would be more accurate !

Re:Will this carry over to other online services?

[Original Replica]

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.

Re:Precedent?

[NewYorkCountryLawyer]

You are absolutely correct, nomadic. Those who say it's not a precedent do not understand how the common law system works.

Judges are looking for reasoning that helps them to resolve the case that is before them. When they find that another judge has thought these issues through carefully, and has fashioned an eminently sensible and just conclusion, they will usually go for it.

Of course it's easier for a judge if there's an appellate decision from his circuit telling him what he must do, but many, perhaps, most, litigated issues don't have the benefit of that kind of binding 'precedent'.... otherwise the issue would not even be in litigation. The lawyers would have read the binding precedent and followed it rather than frivolously ignore it.