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

September 20th, 2011

Sony could, of course, agree by contract not to prosecute or refer for prosecution a shoplifter and instead to handle the shoplifting “dispute” through arbitration. Is that what Sony’s lawyers meant to do here? Did Sony really mean to say to computer hackers, “Hey, don’t worry about us calling the cops, we will agree by contract to arbitrate.” I doubt it. But the language may be so broadly written as to mandate arbitration.

This problem is made worse when a merchant who has both an online and a brick-and-mortar presence wants to use terms of an online contract to bind activity in the retail store. A few years ago, a consumer who called the 1-800-FLOWERS number to order flowers for his girlfriend and which were mistakenly delivered to his wife—OOPS!—was prevented from suing the company because of an arbitration provision in the online Web site that he never saw or used. If you write a mutual arbitration agreement too broadly (e.g., every dispute arising out of our relationship must be submitted to arbitration), then you may be legally forgoing your right to prosecute people who damage store property, steal items from the store or even fail to pay for goods and services (so long as there is a “dispute”).

OK. So you just make the arbitration provisions unilateral, right? The consumer must arbitrate all claims with you, but you reserve the right to call the cops, prosecute the consumer for hacking or go after him or her for copyright infringement, no? Not so fast. Although unilateral arbitration agreements may be enforceable in some jurisdictions for some purposes, courts generally do not look favorably upon obligations that are imposed on consumers (particularly in online contracts nobody reads). Sauce for the goose?

So the best advice when it comes to arbitration agreements is to keep it reasonable. Don’t overreach by binding the consumer to arbitrate disputes that have no real relationship to what they are doing—particularly if you are a multifaceted organization. Keep it limited to the conduct. And explicitly give the parties the right to pursue criminal penalties, because it is more likely the consumer will commit a crime than you will (I hope). And remember, too, that sometimes it is better for you to settle one class-action lawsuit than to have tens of thousands of individual arbitrations—especially if you have to pay for each arbitration. That’s another thing the Internet and social media is good at—organizing potential plaintiffs.

If you disagree with me, I’ll see you in court, buddy. If you agree with me, however, I would love to hear from you.


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