Pennsylvania Case Could Give Second Life to Click-Wrap Licensees
The recent Eastern District of Pennsylvania case of Bragg vs. Linden Research, Inc. recently garnered significant attention for its potential impact on the ownership of virtual property in the popular website Second Life. However, the courts analysis of principals of unconsciounability to an arbitration clause in a click-wrap agreement could impact click-wrap agreements in all areas of electronic commerce.
Mark Bragg, a lawyer who also participates in Second Life, sued Linden Research over issues relating to ownership of virtual property that Bragg claimed to have rights to in the Second Life virtual world. A key issue in this dispute, however, related to an arbitration clause in the click-wrap terms and conditions for Second Life participants.
The Court, applying California law, found that the arbitration clause was unconscionable from a procedural standpoint because it was an adhesion contract and that users did not have an alternative to Second Life available. Second Life was the only forum for trading virtual property in an online virtual world. From a substantive standpoint, the Court found the arbitration clause to be unconscionable because the agreement lacked mutuality due to broad termination provisions. Users are subject to a unilateral right for Linden to amend the agreement. Finally, the arbitration clause did not include relief for arbitration costs and travel alternatives. The Court also cited a lopsided confidentiality agreement provision in its analysis. Finally, the Court did not permit the agreement to be blue-penciled to fix the unconscionable problems and therefore the Motion to Compel Arbitration was denied.
The Court's analysis in this case could be helpful to those drafting click-wrap agreements in the internet space. Although none of the individual problem points in the unconsciounability analysis proved fatal alone, the Court did present a useful laundry list of potentially problematic provisions.
Steve Cosentino
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Reader Comments (1)
If the court finds something as relatively neutral as an arbitration clause to be a contract of adhesion, where does that leave the other clauses, like limitation of liability?
From a practical standpoint, no company, either in the virtual world or in the brick-and-mortar world , can afford to separately negotiate agreements for each customer. While this case may provide some guidance, the guidance is very limited. "Don't have a unique product because if there is no alternative to your product, we are not going to allow your to set the terms and conditions under which you can sell the product to users"?