On July 12, a California federal judge granted defendants Google, Inc. and Slide, Inc.’s motion to compel arbitration in a class action suit involving users of SuperPoke! Pets (“SPP”), an online game where players adopt, care for, and interact with virtual pets. Lead plaintiff Christalee Abreu alleged that defendants’ unexpected termination of SPP and the resulting dissolution of the users’ investment in virtual property without consideration violated several consumer statutes and California common law.
The controversy began in August 2010 when Google, Inc. acquired SPP developer Slide, Inc. Following the acquisition, defendants are alleged to have announced several changes to SPP’s original platform. For example, SPP is claimed to have discontinued the issuance of new virtual gold items for purchase. Further, defendants announced that SPP would no longer accept new VIP subscriptions after July 1, 2011, although those who bought subscriptions before that date had free and indefinite VIP status. Plaintiffs alleged that after these changes, and despite defendants’ previous assurances of the game’s continuation, defendants announced SPP’s forthcoming termination and did not provide a process for which users could recover their investment in SPP products.
Plaintiffs claim that defendants changed SPP policies to increase product value and demand and to encourage users to stockpile virtual items in anticipation of their increased value after June 30, 2011. As a result of the SPP termination, plaintiffs claim that class members lost access to virtual property valued at hundreds or even thousands of dollars.
In response to the plaintiffs’ commencement of the action, defendants filed a motion to compel arbitration. The court granted the motion and denied the plaintiffs’ claim that SPP’s arbitration agreement was unconscionable, and therefore unenforceable. The court ruled that the arbitration agreement (1) did not burden consumers with its filing fee; (2) did not bar consumers from recovering costs and attorney’s fees; and (3) did not delay consumers’ ability to seek redress due to its requirement that parties engage in informal negotiations at least thirty days before initiating arbitration. The judge ordered the plaintiffs’ remaining six claims to be arbitrated.
This case supports the enforceability of arbitration clauses in online contracts in the post AT&T Mobility world. See AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) (where the Supreme Court held that consumer facing arbitration clauses are enforceable purusant to the Federal Arbitration Act). Specifically, this case refines the factors courts will look to to determine the enforceability of online arbitration clauses. The court’s reasoning will be especially helpful in crafting enforceable arbitration clauses, particularly in light of at least two recent California decisions where arbitration clauses were held to be unconscionable after Concepcion (e.g., in two recent California State Court of Appeal decisions where the California state appellate courts twice refused to enforce consumer arbitration clauses (in the context of automobile contracts) on grounds that they were procedurally and substantively unconscionable under California state law after Concepcion, even if the FAA may preempt a more general bar on mandatory arbitration of consumer disputes). See Buzenes v Nuvell Fin. Serv., No. B221870, 2012 Cal. App. LEXIS 609 (Cal. Ct. App. Jan. 25, 2012); Sanchez v. Valencia Holding Co., 201 Cal. App. 4th 74 (2011).
There are a number of things companies can do to increase the likelihood that mandatory arbitration and class action waivers will not be found to be unenforceable. Examples include clear, conspicuous and understandable notice (i.e., not buried in boilerplate), holding any in-person hearings where the consumer is located, and shifting fees to the company (at least in so far as necessary for the provision to be enforced). Also, the two leading U.S. arbitration services, AAA and JAMS, each require certain consumer-protective provisions that should be incorporated into a consumer arbitration clause. The ability to potentially avoid the expenses and potential exposure of a consumer class action lawsuit, especially given the recent tsunami of privacy and digital marketing class actions, is very important for online and mobile publishers. Getting the disclosure and provisions right is crucial to having those clauses enforced, even post-Concepcion.