As part of Microsoft’s latest update to Xbox 360, you must first sign off on a new terms of use agreement, which contains a mandatory arbitration clause for U.S. users. That means if you sign off on the clause, you can’t sue Microsoft for any damages. Of course, if you don’t sign off on the clause, you also can’t receive the latest update, which comes with massive changes and upgrades to the Xbox system.The clause reads as follows:
18.1.4. If you live in the United States, you and microsoft agree that if you and Microsoft do not resolve any dispute by informal negotiation under Section 18.1.2 above, any effort to resolve the dispute will be conducted exclusively by binding arbitration in accordance with the arbitration procedures in Section 18.1.7 below. You understand and acknowledge that by agreeing to binding arbitration, you are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury. Instead, you understand and agree that all disputes will be resolved before a neutral arbitrator, whose award (decision) will be binding and final, except for a limited right of appeal under the federal arbitration act. Any court with jurisdiction over the parties may enforce the arbitrator’s award.
Another clause in the agreement states that users also waive any rights to join in a class action suit against Microsoft. Microsoft is by far not the first corporation to include a consumer arbitration agreement. In the past years, these agreements have become increasingly common. But what are the consequences of such agreements for the consumer?
The unequivocal benefit of arbitration is its low cost, especially compared with the cost of bringing a lawsuit. Arbitration streamlines the dispute resolution process; where, for instance, a discovery issue might need multiple motions over the course of several months to be resolved, an arbitrator usually resolves discovery disputes in the course of one conference call. This is really a double-edged sword: while this efficiency stops corporations from engaging in time-wasting tactics that delay litigation and deplete the plaintiff’s pocket, it also cuts down significantly on the scope of discovery and therefore makes it harder for a plaintiff to prove a claim.
So why do corporations like these arbitration agreements so much?
First of all, there is no jury. Corporations tend to think of juries as more likely to sympathize with an individual plaintiff than a corporate defendant and more likely to award higher damages. Arbitration decisions are also notoriously difficult to appeal and arbitration proceedings are confidential. So, even if the company loses, it doesn’t suffer from adverse publicity.
Ruling out the possibility of a class action probably eliminates most potential cases against Microsoft. Consumer cases that do not involve product liability for personal injury are typically about being overcharged for a service, or a service not being all the corporation promised. These cases do not involve huge amounts of money, and most people won’t go to the trouble of suing for a maximum award of a couple of hundred dollars, unless a class action is possible.
I remember reading about this in first year law, though it was Microsoft inserting this clause into their software products. What I’m wondering is are there any statutory provisions limiting the scope of such agreements? If not, does there need to be?
I slaved over agreeing and was actually considering bugging a lawyer friend about it, and then i read the following from Kotaku:
UPDATE – American readers are letting us know that in several states the matter of whether these kind of agreements are even legal is up for debate. Illinois, for example, has ruled that consumers must always be given the right to pursue legal action in a court of law, while Ohio and New Mexico are currently investigating the same matter.
Since I am in Illinois, i had no problem signing it after that.