September 30th, 2007 by Jay Moffitt
Guest Commentary – Part One of VB’s “Click to Agree” Series
When you enter an online world or game, you have to click a little box or button and agree to a set of terms, usually called the “Terms of Service” (TOS) or the “End User License Agreement” (EULA).
Although this kind of agreement (technically, a “contract of adhesion“) can form a binding contract, courts scrutinize the terms of contracts like this carefully because the user does not get to negotiate the terms; he or she is offered them on a “take it or leave it” basis.
This series, “Click to Agree,” will also scrutinize these terms, focusing on seven of the most popular virtual worlds and games. Today’s article focuses on the terms that how to settle disputes with a provider.
The first part of today’s article is about “choice of law” and “choice of forum” clauses. The terms sound similar, but have different meanings.
“Choice of Law” and “Choice of Forum” Clauses
“Choice of Law” provisions tell users which state or country’s law will be applied if there is a dispute about the contract. For example, if you have a conflict with Mindark over the contract you must agree to in order to play Entropia Universe, the laws of Sweden are applied. If you have a disagreement with Blizzard over World of Warcraft, it is covered by the laws of the state of Delaware.
On the other hand, “Choice of Forum” refers to the geographic location of the court where the complaint must be filed, and where the arbitration or trial will be held to decide any dispute (examples: San Francisco County for IMVU, and California, generally, for There.com). Theoretically, any location could be selected, but courts typically find these choices must, at the very least, meet a “reasonableness test” — the choice must be tied to the parties’ convenience.
A breakdown of these clauses in seven popular worlds and games follows.
|Online World||Choice of Law||Choice of Forum|
|IMVU||State of California||San Francisco County|
|Second Life||State of California||San Francisco County for all matters over $10k. Binding Non-Appearance Arbitration (Phone, Teleconference, Avatar) for Matters Under $10k.|
|There.com||State of California||California|
|The Sims Online||England (for EU residents), State of California (for everyone else).||England (for European Union residents), Northern California (for everyone else).|
|Active Worlds||State of Massachusetts||Arbitration required – either “on-line before the Active Worlds Tribunal” or before a panel of the American Arbitration Association Boston, Massachusetts.|
|World of Warcraft||State of Delaware||Arbitration required except for IP cases, computer crime, and claims for injunctive relieve. Arbitration to be initiated in Los Angeles, California (for international players), or at “any location convenient to you” (for U.S. players). All non-arbitration claims to be filed in Los Angeles, California.|
Choice of Law clauses say what law is applied to disputes. Online worlds are generally hosted at a central location and serve a widespread user base. Although no case has tested a Choice of Law provision of a virtual world or game yet, courts have generally upheld provisions where similarly positioned companies (AOL, Dell, Gateway, etc.) imposed Choice of Law provisions choosing the law of their state of incorporation or headquarters.
Consumers should understand that when a Choice of Law provision is included in the TOS or EULA, any dispute will likely be governed by that provision.
“Choice of Forum” clauses are different — they say where the lawsuit (or arbitration) must be filed. Many people have challenged these clauses, and the results are mixed. Some courts have allowed companies with central distribution of products to a world-wide consumer base to require lawsuits to be filed near their home bases, but some cases have also gone the other way. At minimum, consumers should understand that when it is made explicit in the TOS or EULA, a company will likely move to dismiss any case filed in another jurisdiction. In other words, consider filing, as the saying goes, “where the lawyers are.”
In a Choice of Forum clause, the forum must be “reasonable.” The Restatement of Laws lists many indicators of “reasonableness,” but the main thrust of these is fairness to the consumer and a “reasonable relation” to the corporate presence — and not merely picking “favorable” jurisdictions.
Many of the cases against AOL, Dell, etc., involve class-action matters. Lawsuits against virtual world and game providers could follow this model, as individual damages might be insignificant, but a class could demand millions of dollars in the aggregate. For example, Second life statistics show 930,00 logins last month) and a class action certified as to only 5% of those residents for $100 each would generate nearly $5 million in damages.
Arbitration is a method of deciding claims by bypassing a courtroom, and instead using an arbitrator (who is specially trained in judging legal cases). The American Arbitration Association is one organization that conducts arbitrations. Companies will often include arbitration clauses in TOS and EULAs to make their own legal costs lower and more predictable, and also to make a class-action suit less likely (as class-action suits are more expensive to defend).
Each of the worlds and games we are examining handles arbitration differently. Some (Entropia Universe, There.com, and others) have no arbitration provision at all. Second Life allows non-appearance arbitration for matters under $10,000. This non-appearance arbitration is to be conducted by telephone, online, or via written submissions, giving rise to the novel possibility of avatar-based arbitration. Active Worlds requires arbitration, and that arbitration an also take place in the virtual world, or, optionally, in Boston. World of Warcraft requires arbitration as well, but does not provide for any in-world or non-appearance arbitration; instead, arbitration can be initiated at “any location convenient to you” for U.S. players. It is noteworthy that World of Warcraft is the only world that leaves any choice of venue up to the consumer, though international World of Warcraft players must file arbitration claims in Los Angeles, California.
Notably, Second Life’s arbitration clause recently changed. The previous version was declared unconscionable (.pdf) on the grounds that there was no mutuality. The provider could ban an account at will, but the user had to go through an expensive arbitration with a three-arbitrator panel for redress.
State law generally controls whether arbitration provisions are enforceable, but state laws that are particularly hostile to arbitration agreements are preempted by the Federal Arbitration Act. The burden of proof, in every case viewed by this commentator, fell on the party wishing to avoid arbitration.
Obviously, where and how users get to decide disputes varies dramatically by provider. Mindark, for example, sets both choice of law and choice of forum for Entropia Universe disputes Sweden.
Wait, Sweden? You mean I have to go to Sweden? Sure, Entropia has its choice of law as Sweden, but have to go there to litigate? And from the other perspective, are European users really expected to trek to Los Angeles to arbitrate against Blizzard?
Consumers could argue that these provisions are not reasonable. For example, a U.S. user could argue that even if Swedish law should apply to an Entropia dispute, the forum should be a U.S. court applying Swedish law (not unprecedented), the same would presumably be true for an European World of Warcraft player.
Lastly, consider the companies themselves behind these worlds when evaluating their terms. Electronic Arts (The Sims Online) is the world’s leading publisher of video games, and The Sims Online is just one of several online properties EA has (have you ever heard of Madden?) So EA has a interest in making their Terms of Service applicable to all their online games.
Did I say lastly? I lied. An idea that could take up an essay in itself is in-world arbitration (now available in Second Life and Active Worlds). Your avatar could “Defend Your (virtual) Life” (with apologies to Albert Brooks). Of course, your counsel could be real, and represented by an avatar.
Jay Moffitt is a Tennessee attorney of two decades experience, obsessively interested in copyright law. (Tennessee is among the top three most litigious states for copyright and trademark law; thank you Elvis Presley Enterprises and country music!) He has worked as a software negotiator for a Fortune 50 company, been certified by Microsoft as an A+ certified computer technician, and built and maintained a classic films website frequented by visitors from over 50 countries.
Guest Commentary on VB solely reflects the opinion of the author, and not necessarily the opinion of VB’s editor, other VB writers, or VB’s sponsors.
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