Monday, June 4, 2007

The Courts Weigh In

In what could have very significant implications for virtual worlds, there was an important ruling last week on the enforceability of the contracts governing virtual world usage. Last year, Second Life user Mark Bragg sued Linden Lab over the cancellation of his Second Life account. Linden Lab argued that Bragg had violated the terms of service (TOS) agreement for Second Life. Linden Lab charged that Bragg had found a way to buy land in Second Life at below market prices and so terminated his account. Unfortunately for Bragg, he lost the thousands of dollars of land he had purchased.

The Pennsylvania court entertaining Bragg's lawsuit ruled on May 30 that Linden Lab's TOS was not enforceable, according to a Reuters story. The 46-page ruling is available as a PDF here. Specifically, the court found the requirement of arbitration for dispute resolution to be unreasonable:

In effect, the TOS provide Linden with a variety of one-sided remedies to resolve disputes, while forcing its customers to arbitrate any disputes with Linden. This is precisely what occurred here. When a dispute arose, Linden exercised its option to use self-help by freezing Bragg’s account, retaining funds that Linden alone determined were subject to dispute, and then telling Bragg that he could resolve the dispute by initiating a costly arbitration process. The TOS expressly authorized Linden to engage in such unilateral conduct. [p.34]
The court summarized its opinion thusly:
Taken together, the lack of mutuality, the costs of arbitration, the forum selection clause, and the confidentiality provision that Linden unilaterally imposes through the TOS demonstrate that the arbitration clause is not designed to provide Second Life participants an effective means of resolving disputes with Linden. Rather, it is a one-sided means which tilts unfairly, in almost all situations, in Linden’s favor. [p.41]
And concluded:
Finding that the arbitration clause is procedurally and substantively unconscionable, the Court will refuse to enforce it. [p.42]
I expect this ruling has enormous implications for virtual worlds. As the first judicial ruling on the enforceability of TOSs (or alternatively, EULAs), all future suits will likely turn to this one for precedence.