Mandatory Arbitration Agreement – how they infringed rights of employees and consumers

Mandatory Arbitration Agreement – how they infringed rights of employees and consumers

Video games are a fantastic medium for storytelling. Whether it’s the tale of a single player’s epic journey across a fantasy world, or a series of interactive adventures that come together to tell a grand tale, video games are a great way to tell stories. Unfortunately, the gaming industry isn’t immune to bad PR hence the existence of Mandatory Arbitration Agreement.

Whenever a media outlet reports on something negative about the gaming industry, it becomes magnified and blown out of proportion. In an attempt to combat this negative attention and stem the flow of bad press, game developers try to lock players into their ecosystems by requiring players to agree to a set of rules that extend beyond the scope of the game itself. These rules are typically called “gamma clauses,” “geoblocks,” or “ever-green agreements.” We’ll discuss these optional clauses in more detail below, but first it’s important to understand why game developers use them.

What is Mandatory Arbitration?

Mandatory arbitration is a legal process that requires parties to resolve their disputes out of court through an arbitrator who is selected by the parties. The terms of the arbitration agreement are usually included in a “term of service” or “user agreement” found within the game itself. The law requires that arbitration agreements are “included as part of the terms of the transaction.”

If you buy a video game, you agree to the rules set forth in the end user license agreement (EULA) (also called a “Terms of Service” (ToS) or “User Agreement”). The terms of service typically state that you agree to resolve any disputes through binding arbitration, but the terms are often buried in tiny print.

Why Mandatory Arbitration?

The main benefit of mandatory arbitration is to protect businesses from costly and drawn-out lawsuits. If a business has a policy of not taking any legal action against an offended customer, the business can usually avoid costly and time-consuming lawsuits. If, however, a business does decide to sue a customer, the lawsuit is usually resolved through arbitration and the process is much faster than a trial. If the business wins the case, it is awarded a small amount of money (known as “consumer restitution”) and the court process is completely finished. If the business loses the case, the customer must pay a small amount to cover the business’s arbitration fees. On the other hand, if the business decides not to take any legal action against a customer, the customer is stuck paying the full price of the product and has no recourse if the product does not arrive on time or if the product provides no service at all.

Players Can Opt Out of Mandatory Arbitration

According to the Video Game Arbitration Association, all consumer protection laws, the Video Game Rating Association, and the Federal Trade Commission all require that you must be able to opt out of mandatory arbitration. The VGRAA, for example, states that “providers of interactive computer services shall not make any contract or other provision of any kind enforceable by virtue of being included in the electronic record that is generated by the computer service.” The FTC also requires that you are allowed to opt out of mandatory arbitration: “Where there is a charge for goods or services, a customer may not be required to pay unless he or she has had a chance to reject the charge or otherwise agree to it before buying.”

Some Games Require You to Agree to Mandatory Arbitration

Some games require that you agree to mandatory arbitration in order to play the game at all. Others require you to opt in to arbitration by clicking a checkbox. If you are required to agree to arbitration, you have the right to opt out at any time.

There is no one pattern that defines a game that requires you to agree to arbitration. In fact, according to Video Game Arbitration Association statistics, only 7% of all forced arbitration games are described as “online multiplayer games.” The vast majority (81%) of games that require you to agree to arbitration are “online single player games.”

Restrictive Terms of Service and Contracts for Games

Some games include restrictive terms and conditions that violate the End-User License Agreement. For example, a game may include a clause that:

– Says you must agree to the rules of the game before you can play the game. – Says the game is “non-refundable” even if the game does not specify a guarantee policy. – Says the game may not be returned for a “period of time.” – Says the game cannot be resold. – Limits what you may do with the game once you purchase it. – Is longer than one page.

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Video Game Arbitration Agreement Template

Before you begin playing a video game that requires you to agree to mandatory arbitration, it’s a good idea to read the end user license agreement (EULA) closely to make sure you don’t accidentally agree to the terms. It’s also a good idea to print out a copy of the agreement and keep it near your computer. You may have to go back and forth between the EULA and the game’s terms of service to make sure you’re following the rules correctly. It’s also a good idea to keep a record of phone conversations you have with customer service representatives about the game. Many times, customer service representatives will incorrectly direct you to the terms of service instead of the EULA. It’s also a good idea to save any game-related emails you receive. Most game developers allow you to “opt out” of receiving emails from the game developer and it’s important to keep track of your choices.

VGRAA members include law firms, arbitrators, and law libraries that can help consumers who encounter opt-out or opt-in arbitration clauses in online games.

Do you know that as employees and consumers (gamers since this is the Gamers Rights website), our ability to seek due process under the Fourteenth Amendment is impaired by the Federal Arbitration Act which was enacted in 1925?

The Fourteenth Amendment states “All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

There are many cases that are in front of the District Courts, Circuit Court of Appeals, and even the Supreme Court of the United States challenging the Mandatory Arbitration Agreements and Class Action Waivers (take it or leave it contracts). Currently, many of these cases have been ruled against by the courts citing the FAA and the opinions written by the late Justice Scalia of the Supreme Court of the United States.

Recently, this writer came across an article titled “How Mandatory Arbitration Agreements and Class Action Waivers Undermine Consumer Rights and Why We Need Congress to Act” written by Lauren Guth Barnes of Hagens Berman Sobol Shapiro LLP. The article was featured in the July 2015 Edition of the Harvard Law and Policy Review.

Steve Berman, the managing partner of Hagens Berman Sobol Shapiro LLP, also wrote an article / blog mirroring Lauren Guth Barnes’ view and how Mandatory Arbitration Agreements and Class Action Waivers Undermind Consumer Rights.

In her article, Lauren Guth Barnes cited numerous cases, laws, and why companies are hiding behind the Mandatory Arbitration Agreements. As stated by several State Attorney Generals in a letter to Richard Cordray, Director of the Consumer Financial Protection Bureau (“CFPB”), “jeopardizes one of the fundamental rights of Americans: the right to be heard and seek judicial redress for our claims” and represents “a systemic failure to hold accountable those companies who abuse the trust placed in them by consumers.” She also reviewed two Supreme Court cases : AT&T Mobility v. Concepcion and American Express Co. v. Italian Colors Restaurant.

In the case of AT&T Mobility v. Concepcion, both California Supreme Court and the 9th U.S. Circuit Court of Appeals disagreed with the Mandatory Arbitration Agreement and recognized that the contracts’ clauses are unenforceable based on:

  1. the cell phone contract was a “take it or leave it” contract that consumers could not change,
  2. the dispute “involve[d] predictably small amounts of damages,” and
  3. “the party with superior bargaining power ha[d] carried out a scheme deliberately to cheat large numbers of consumers out of individually small sums of money.”
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However, The Supreme Court of the United States (SCOTUS) in 5-4 vote to overruled the 9th U.S. Circuit Court of Appeal with an opinion dated April 27th, 2011 by Justice Scalia citing that Federal Arbitration Act superseded the California state’s contract law and that California must enforce arbitration agreements even if the agreement requires that consumer complaints be arbitrated individually (instead of on a class-action basis).

Justice Breyer, with whom Justice GINSBURG, Justice SOTOMAYOR, and Justice KAGAN join, dissented by stating “”[B]ecause the States are independent sovereigns in our federal system, we have long presumed that Congress does not cavalierly pre-empt state-law causes of action”). But federalism is as much a question of deeds as words. It often takes the form of a concrete decision by this Court that respects the legitimacy of a State’s action in an individual case. Here, recognition of that federalist ideal, embodied in specific language in this particular statute, should lead us to uphold California’s law, not to strike it down.

We do not honor federalist principles in their breach.” By this decision, The Supreme Court of the United States handed major victories to corporations and companies who forced their employees and consumers to agree with “No Class Action” and “Mandatory Arbitration” clauses. Immediately after Justice Scalia’s opinion and order, “AT&T Mobility v. Concepcion” became a case law and it has been referred to in many court cases succeeding the decision.

In the case of  “American Express Co. v. Italian Colors Restaurant”, SCOTUS also agreed with the American Express Co based on the same principal: Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. Again, Justice Scalia delivered the opinion of the court.

What does all this mean for the employees?

Since most companies now have the Mandatory Arbitration Agreement in their Employee Handbooks, many potential employees knowingly or unknowingly signed the Arbitration Agreement Clause because they need or want a job to support their family and for their survival. What are the chances that you will find a company that doesn’t forced their employees to go through Mandatory Arbitration?

Recently, Google announced that they have ended the Mandatory Arbitration Agreement effective March 21st, 2019 https://www.nytimes.com/2019/02/21/technology/google-forced-arbitration.html) after more than 20,000 employees staged a walkout. Prior to this, Google’s employment contracts have included a clause requiring staff to seek arbitration instead of suing the company. Uber, Lyft and Facebook have abolished their Mandatory Arbitration Agreement totally or in part.

What does all this mean for the consumers?

Consumers have no choice but to abide by companies’ arbitration clauses as well. We are not allow to buy vehicles, electronics such as cell phones, microwave, refrigerators, washing machines, etc… , clothing, or even play a game on our PlayStation, xBox, Nintendo Switch, or even on our phone without involuntarily agreeing to the arbitration agreement in terms of service.

Honda Arbitration and Waiver of Class Action “BY AGREEING TO THESE TERMS, EACH PARTY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO JOIN CLAIMS OR DISPUTES WITH THOSE OF OTHERS IN THE FORM OF A CLASS ACTION, CLASS ARBITRATION OR SIMILAR PROCEDURAL DEVICE; AND WAIVES ANY RIGHT IT MAY HAVE TO PRESENT ITS CLAIM OR DISPUTE IN A COURT OF LAW. Judgment on the award rendered by the arbitrator(s), if any, may be entered for enforcement purposes in any court having jurisdiction thereof.”

The Best Buy Arbitration and Waiver of Class Action “We each agree that any dispute resolution proceedings of any nature or in any forum will be conducted only on an individual basis and not in a class, consolidated or representative action. This means that you may not purport to act on behalf of a class or any other person. Likewise, an arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding.

Any claim that all or part of this class action waiver provision is invalid or unenforceable may be determined only by a court and not by an arbitrator. If a court decides that the limitations of this paragraph are deemed invalid or unenforceable, any putative class or representative action must be brought in a court of proper jurisdiction and not in arbitration. If for any reason a claim proceeds in court rather than in arbitration, we each waive any right to a jury trial, unless such waiver is unenforceable.

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This means that any claim would be decided by a judge, not a jury.” Amazon Arbitration and Waiver of Class Action “We each agree that any dispute resolution proceedings will be conducted only on an individual basis and not in a class, consolidated or representative action. If for any reason a claim proceeds in court rather than in arbitration we each waive any right to a jury trial.

We also both agree that you or we may bring suit in court to enjoin infringement or other misuse of intellectual property rights.” Machine Zone aka MZ Arbitration and Waiver of Class Action “Class Action Waiver

For disputes arising between MZ and you, or any other user, that are subject to this Agreement to Arbitrate, you and we agree that we can only bring a claim against each other on an individual basis. NEITHER YOU NOR WE CAN BRING A CLAIM AS A PLAINTIFF OR CLASS MEMBER IN A CLASS ACTION, CONSOLIDATED ACTION, OR REPRESENTATIVE ACTION. THE ARBITRATOR CANNOT COMBINE MORE THAN ONE PERSON’S CLAIM INTO A SINGLE CASE, AND CANNOT PRESIDE OVER ANY CONSOLIDATED, CLASS, OR REPRESENTATIVE ARBITRATION PROCEEDING, UNLESS WE BOTH AGREE OTHERWISE IN WRITING. THE ARBITRATOR’S DECISION OR AWARD IN ONE PERSON’S CASE CAN ONLY AFFECT THE PERSON WHO BROUGHT THE CLAIM, NOT OTHER USERS OF MZ SERVICES, AND CANNOT BE USED TO DECIDE DISPUTES WITH OTHERS.“

What is being done?

The bill must be passed by both the House and Senate in identical form and then be signed by the President. Whether or not the bill will become the law is unknown; however, the work is in the process to repeal the Mandatory Arbitration Agreement for the future employees and consumers.

Rep. Johnson, Henry C. “Hank,” Jr. [D-GA-4] introduced H.R. 1423 – Fair Act (“Forced Arbitration Injustice Repeal Act”) on February 28, 2019 with 204 Cosponsors, and are on the way to legislative process (Currently, the bill is being referred to the Subcommittee on Antitrust, Commercial, and Administrative Law on 4/8/2019). Full Bill can be found here:

What about the current employees and consumers who are in the Mandatory Arbitration Agreements? Will they be included as the bill gets amended through the course of the legislation process? Let’s hope that it will include protecting all current and former employees and consumers.

FAQS

What is a mandatory arbitration clause?

A mandatory arbitration clause is a clause that requires you to agree to arbitrate any disputes instead of going to court.A lot of games that require arbitration clauses are multiplayer games. It’s important to remember that these clauses are not required by law. You have a right as a consumer to decide whether or not you want to agree to arbitration. If you are playing a game that requires you to agree to mandatory arbitration, you can always choose to opt out of arbitration by contacting the game developer.

What is an opt-in arbitration clause?

An opt-in arbitration clause is the opposite of a mandatory arbitration clause. It’s a clause that requires you to agree to arbitrate any disputes instead of opting out of arbitration.

What is the Video Game Arbitration Association (VGRAA)?

The Video Game Arbitration Association is a self-regulating organization (SRO) that promotes voluntary adherence to the rules of mandatory arbitration in the digital entertainment industry.

Conclusion

Bad press doesn’t always come from outside sources. Many times, it’s the game developers themselves who are responsible for some of the worst press. It’s important to remember that the only way to prevent this type of bad press from occurring is to follow established best practices when developing, marketing, and selling video games.

If a game requires you to agree to mandatory arbitration, you have the right to opt out of arbitration and choose to take your case to court.

Other Posts you may have a look:

  1. Common Misconceptions About Gaming Law