Arbitrary Sneakwrap Takes Some Hits

We get so used to the court rulings going in favor of big business and against consumer interests that it's almost stunning when a decision goes in the right direction. So it's all the more exciting to see two different judges at almost the same time rule against the one-sided terms of clickwrap/sneakwrap licenses. What's more, in both cases it's that most insidious of terms, the mandatory arbitration clause,

We get so used to the court rulings going in favor of big business and against consumer interests that it's almost stunning when a decision goes in the right direction. So it's all the more exciting to see two different judges at almost the same time rule against the one-sided terms of clickwrap/sneakwrap licenses. What's more, in both cases it's that most insidious of terms, the mandatory arbitration clause, that drew the court's particular scorn.

The case of Bragg v Linden Research has drawn a fair amount of attention, in large part because it involves a user of Linden's Second Life virtual world suing over the value of his virtual property. A little less groundbreaking, but perhaps in its own way no less important, is a small claims case brought by Gateway customer Dennis Sheehan over a defective computer. What ties these two disparate trials together is that both Linden and Gateway tried to get them dismissed on the basis of their sneakwrap "agreements" that say customers must submit disputes to mandatory arbitration procedures.

While there are any number of interesting aspects to the Linden case, the court's reasoning in overruling the Second Life terms of service (TOS) is the most fascinating. Fundamental to finding the arbitration clause unconscionable was the court's determination that the Second Life TOS in general was a "contract of adhesion" imposed on a "take-it-or-leave-it" basis by Linden. As evidence of how one-sided the agreement was, the court pointed to many of the terms we see all the time in EULAs, including the classic sneakwrap clause by which "Linden may amend this Agreement ... at any time in its sole discretion by posting the amended Agreement..."

In other words, the decision really serves as a template for how any kind of onerous term in any EULA or TOS could be ruled unconscionable. The more one-sided a clickwrap/shrinkwrap license as a whole is, the more likely a particular provision can be overturned.

But the court in the Linden case also made it clear just how fundamentally unfair and contrary to the spirit of federal arbitration law these mandatory arbitration clauses when included in a contract of adhesion. Far from providing both parties an inexpensive alternative to litigation, the arbitration procedure mandated would almost surely have cost Bragg more than the value of the virtual Second Life property he was suing to reclaim, even if he ultimately won the arbitration.