Fundamentally unfair: an empirical analysis of social media arbitration clauses.

Author:Koenig, Thomas H.
Position:Introduction into I. Empirical Study of Arbitration Clauses Employed by Social Media F. Do Arbitral Clauses Satisfy Consumer Due Process Principles? 2. Social Media TOU Are Not Reciprocal b. Remediless Social Media Wrongs, p. 341-375


Our systematic examination of 329 of the world's largest social media providers reveals that 29 percent of these providers require users to submit to predispute mandatory arbitration as a condition of using their services. Forced consumer arbitration clauses are principally a U.S. phenomenon. Forty-two percent of the 188 U.S.-based social media providers contain forced arbitration clauses--in sharp contrast to only 13 percent of the 141 providers headquartered in foreign nations. Forty of the social networking websites (SNS) specify the American Arbitration Association (AAA) as the provider and nineteen specify JAMS, the two largest arbitration companies. We compare the fifty-nine social media terms of use (TOU) against the due process fairness tests that have been adopted by these two providers to mitigate the inevitable power imbalance in consumer arbitration proceedings. Our central finding is that the arbitration clauses of providers that specify the AAA and JAMS clearly fail the majority of the provisions of these two arbitral providers' consumer due process fairness tests. Arbitration clauses employed by social media have numerous "gotcha" provisions such as hard damage caps that place an absolute dollar limit on recovery that is significantly below the cost of filing an arbitral claim with either the AAA or JAMS. Our secondary analysis of AAA and JAMS arbitration reports establishes that consumer arbitration agreements have a deterrent effect, blocking all but a handful of social media users from filing claims. In effect, social media providers, encouraged by the U.S. Supreme Court's endorsement of mandatory consumer arbitration, have constructed a liability-free zone where social media users have rights without remedies if social media providers breach their TOU, invade their privacy, or infringe their intellectual property rights. These aggressive arbitration clauses are unlikely to be enforced in the European Union, or even accepted by the most commonly specified arbitral providers, so social networking sites need to draft more balanced TOU that pass due process fundamental fairness rules.

CONTENTS INTRODUCTION I. EMPIRICAL STUDY OF ARBITRATION CLAUSES EMPLOYED BY SOCIAL MEDIA A. Sample of Social Media Sites B. Sample of Mandatory Arbitration Clauses C. AAA & JAMS Consumer Arbitration Clauses D. Applying Commercial Arbitration Rules for Disputes with Consumers E. The Presentation of Arbitral Clauses F. Do Arbitral Clauses Satisfy Consumer Due Process Principles? 1. AAA Principle 1: Fundamentally Fair Process 2. Social Media TOU Are Not Reciprocal a. The Dearth of Remedies: How Social Network Providers Cap Damages Below the Cost of Filing Consumer Arbitration b. Remediless Social Media Wrongs 3. AAA Principle 2: Access to Information a. Social Media's Affirmative Duty to Inform b. AAA and JAMS Arbitral Clauses Fail to Inform Users c. Difficult-to-Read Arbitration Terms d. Neither AAA nor JAMS Clauses Specify the Disadvantages of Arbitration 4. AAA Principle 5: Retaining Access to Small Claims Courts 5. AAA Principle 6: Reasonable Cost a. SNS Are Unclear About the Allocation of Arbitration Costs b. Ban on Class Actions Violates the Reasonable Cost Principle c. Loser Pays Provisions 6. AAA Principle 7: Reasonably Convenient Location 7. AAA Principle 9: Right to Representation 8. AAA Principle 10: Mediation 9. AAA Principle 11: Agreements to Arbitrate 10. AAA Principle 12: Arbitration Hearings 11. AAA Principle 13: Access to Information 12. AAA Principle 14: Full Remedies in Arbitration 13. What We Still Don't Know About Fundamental Fairness G. Explaining Why U.S. Social Media Draft Such Aggressive Clauses H. The U.S. Supreme Court's Preoccupation with Predispute Arbitration I. Role of U.S. Supreme Court in Abridging Class Action J. Are There Any Limits to Unbalanced TOU? CONCLUSION INTRODUCTION

Imagine a profoundly unfair legal world in which businesses redirect consumer lawsuits away from state and federal courts into secret tribunals, in which a privately hired judge decides cases without precedents and with only limited grounds for an appeal. (1) Under secretive forced arbitration, the social media service (2) determines the arbitral provider and selects the rules that govern disputes with consumers. Visualize further that social media providers place legally binding terms of use (TOU) "agreements" that are seldom, if ever, read. Even if they are read, the TOU are composed of unnecessarily complex terminology, which is drafted at the comprehension level of a typical college graduate. In this dystopian legal world, users are required to waive their constitutional right to a jury trial, the right of liberal discovery, and the right of appeal by agreeing to "take-it-or-leave it" terms of use. (3)

This is not a law professor's far-fetched hypothetical. This legal dystopia is already here. The users of social networking websites (SNS) currently acquiesce to anti-class action waivers, damage caps, shortened statutes of limitations, "loser pays" rules, and choice-of-forum clauses that are buried thousands of words deep in poorly indexed boilerplate. A New York University Law School research team concluded that only one or two in a thousand consumers that accessed a major website actually read its TOU. (4) A growing number of social media platforms contain predispute mandatory arbitration clauses specifying that hearings be conducted in the provider's home forum, which shifts the cost of air travel, hotels, and other expenses onto the consumer. These SNS are "rolling contracts" that reserve the right to unilaterally change or modify the rules of the game "at any time without further notice." (5) Forced arbitration, under these imbalanced TOU, creates a liability-free zone for an increasing number of social media providers.

Snapchat, an application that "lets users exchange photos, videos or text messages that are claimed to vanish within 10 seconds after they have been viewed," (6) provides a good illustration of the impact of one sided TOU. Snapchat's TOU forecloses the rights of millions of its registrants whose privacy was invaded by a cyberattack that was enabled by the website's negligent security. (7) On January 1, 2014, hackers "published 4.6 million Snapchat usernames and redacted phone numbers on a website." (8) Shortly after this cyberattack, Snapchat issued an apology to its customers and an update that decoupled their users' usernames from their phone numbers. (9) The Federal Trade Commission (FTC) entered into a settlement with Snapchat because of its substandard security and inadequate privacy protection that required the provider to "implement a comprehensive privacy program that will be monitored by an independent privacy professional for the next 20 years." (10) Snapchat agreed to stop "falsely claiming that messages are truly disappearing" and to cease and desist making other misrepresentations. (11)

Snapchat's millions of users have no realistic remedy to compensate them for the fraudulent misrepresentations, the consequences of negligent security, or any other cause of action because the website's TOU eliminate every conceivable category of damages, disclaim all warranties, and require the user to hold the provider harmless. Snapchat's limitation of liability clause states that if the social media site "is found liable to you for any damage or loss which arises out of or is in any way connected with your use of the Services or any content, Snapchat's liability shall in no event exceed $1.00." (12) Snapchat's TOU impose mandatory arbitration, requiring consumers to waive their right to litigate and appear before an arbitrator in Los Angeles County, no matter where they reside. (13) The basic filing fee with JAMS--Snapchat's designated arbitral provider--in a consumer case is 250 times the total possible recovery of one dollar, which is the provider's hard cap on recovery. (14) Snapchat users may not initiate or join class actions against the provider, even though the potential recovery is a minuscule fraction of the cost of filing a consumer arbitration and of journeying to Los Angeles to engage in the arbitral hearing. (15) The Snapchat TOU represent that "[o]ther than class procedures and remedies discussed below, the arbitrator has the authority to grant any remedy that would otherwise be available in court." (16) Contrary to its assertion about the arbitrator's power to order equivalent remedies, Snapchat uses contract law to eliminate every category of damages and, in any event, does not permit the arbiter to award more than one dollar. (17)

This Article empirically explores whether Snapchat's TOU are broadly representative of fine print contracts in the social media industry. (18) The policy debate over binding mandatory arbitration is being waged in a data vacuum, primarily through exchanges of competing anecdotes and unsupported generalities about fairness, efficiency and lower costs. (19) Our findings demonstrate conclusively that imbalanced forced arbitration TOU mandates are not rogue outliers but are typical of the one-sided boilerplate "agreements" imposed on consumers by the social media industry.

To date, there has been little empirical evidence on the contracting practices of online providers. (20) The Consumer Protection Financial Bureau (CPFB), which has published preliminary results for a study of consumer arbitration mandated by the Dodd-Frank Act, is a...

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