The Arbitration Clauses That Used To Protect Retailers Now Do The Opposite

Written by Mark Rasch
September 20th, 2011

Attorney Mark D. Rasch is the former head of the U.S. Justice Department’s computer crime unit and today serves as Director of Cybersecurity and Privacy Consulting at CSC in Virginia.

Arbitration clauses have always been seen as favoring the retailers and, therefore, as a clause you always want to fight for—if you can. But as the world of retail has changed, with Web and mobile enabling customers to have much greater access to critical operations, things have subtly flipped. Those retailer-protecting arbitration clauses of yesteryear have now morphed into the customer-protecting clauses of today.

Consumers are now empowered to do genuine harm to retailers—harm that would otherwise be addressed through some legal recourse. Consumers can commit commercial defamation (think Oprah and the beef industry). They can manipulate stock prices through online campaigns. They can shoplift or otherwise steal goods, products or services. They can release sensitive personal information about the company, its products or plans, its personnel or processes. They can hack into computer systems and steal information. They can infringe or disparage trademarks. They can infringe copyrights. They can modify hardware or software. They can start a grass-roots online campaign to literally destroy a business. They can organize online protest movements, flash mobs or other demonstrations. They can launch denial of service attacks. They can even use your goods and services to harm others.

Because the Internet, mobile and social media also empower your customers (for good and for bad), there may be substantial claims against customers you may want to pursue that you are forgoing by contract. Before you insert a mandatory arbitration provision into your contracts, however, think about your relationship with your customers and ask yourself whether it is really in your best interest to arbitrate all claims.

In April, the United States Supreme Court in AT&T Mobility v. Concepcion found that a click-wrap agreement between a mobile provider and its customers required the customer to not only submit all disputes arising out of the relationship with the carrier to arbitration but also agree to never file or participate in a class-action lawsuit. What this means is that, no matter what the retailer did to the consumer, the consumer could not sue. Overlooked in this case was the plausible argument that, no matter what the consumer did to the retailer, the retailer could not sue either.

Take the example of Sony. After Sony’s PlayStation Network was hacked (and a bunch of other Sony entities were hacked), Sony found itself on the receiving end of multiple lawsuits, including class-action lawsuits filed by consumers for possible breach of personal information including PSN IDs and passwords.


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