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TOSes in trouble?May 31st, 2007 |
I am not a lawyer.
But this court ruling regarding the Bragg/Linden case (pdf) seems to me to have some serious implications for how virtual worlds do business.
Let’s walk through the bare bones in plain language, as I understand it:
- Linden and Philip Rosedale make a point of saying that you can make money in Second Life.
- A guy named Bragg hears this. He downloads the client, agrees to the terms of service, and plays Second Life.
- He exploits some software flaw to get a parcel of land on the cheap.
- Linden catches him at it and confiscates the land (and by implication, his real actual investment).
- He sues Rosedale.
- Linden moves that Rosedale be dismissed from the suit. They also move that the case go to arbitration, per the Terms of Service.
- The court concludes that Rosedale did lots of publicly saying “you can make real money in Second Life” and therefore should stay on the suit. This much isn’t that different really from how such cases would go.
Then comes the arbitration clause.
The court says “the company is a Delaware company, but run in California, and the plaintiff is in Pennsylvania, so this is interstate commerce, so we’re gonna judge this arbitration clause based on federal law.”
Under federal law, arbitration must be agreed to by both parties in writing, and in case there’s disagreement afterwards, the court is supposed to lean towards the person who doesn’t want arbitration.
Bragg doesn’t want arbitration, he wants a court case. He opposes it on the grounds that the arbitration clause is “unconscionable.”
“Unconscionable” by law has to be defined by California. They define it as “oppression” because of “unequal bargaining positions”; and the use of “surprise through hidden terms.” Most specifically, this conjures up the question of “contracts of adhesion.”
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.”
Which sounds a lot like a Yes/No button on a Terms of Service agreement. Indeed, the court finds a precedent under California law that says,
“An arbitration agreement that is an essential part of a ‘take it or leave it’ employment condition, without more, is procedurally unconscionable.”
What’s more, the arbitration clause was, to use the court’s language, “buried” in the middle of a long paragraph way down in the TOS, and didn’t have its own heading.
Even then, though, there’s the additional hoop of whether the nature of the arbitration clause is also unfair. In California, the standard is that the clause has to be somewhat bilateral. Forcing the weaker party to arbitration, but letting the stronger party pick the venue, for example, is not considered bilateral. There’s the question of costs of arbitration and how they get split up, there’s the question of whether one party can force the proceedings to be confidential, etc. I won’t bother going into all that.
What it boils down to, though, is that the court is saying that some pretty common elements of TOS agreements may be considered unfair by law — and in this case, the fact that Linden deals in real money makes this point especially acute. Ironically, the fact that Bragg is a lawyer himself actually hurts his case (since it can be deduced that he of all people should have been able to parse the TOS before agreeing to it).
Now, of course virtual world operators want to work towards minimizing exploits — and there seemed to be agreement a year ago, when this case was first filed, that Bragg was indeed exploiting a bug in some way (though my memory is hazy, I admit). This ruling seems to, if not remove a tool from the VW operator’s arsenal, at the very least set some boundaries on its use.
As more worlds start allowing virtual commerce, these issues are sure to come up again and again. Bottom line on this one seems to be “when you ban a bug exploiter, do you refund their cash?” And how much, the original amount or the ill-gotten gains? And is it ill-gotten if it’s an exploit, and not a bug? (Exploit being defined as a design/software oversight, as opposed to error in implementation).
Lots of questions. I feel sorry for the courts who are about to get a crash course in virtuality. 
Edit: more comments at The Forge.
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Hey, Rob here. We ve recently been toying with the idea of producing a multivariate testing tool in light of a few technical and otherwise problems with Google s offering. In terms of conversions, it s money for nothing. …TOSes in trouble?I am not a lawyer. But this court ruling regarding the Bragg/Linden case (pdf) seems to me to have some serious implications for how virtual worlds do business. Let s walk through the bare bones in plain language, as I understand it:
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