Users Can’t Sue Sony for Changing Online Terms to Require Arbitration – Fineman v. Sony Network Entertainment

[Post by Venkat Balasubramani]

Fineman v. Sony Network Entertainment, C 11-05680 SI (N.D. Cal.; Feb. 9, 2012)

In a move that caused a stir among consumer activists and others, Sony revised its EULA in September 2011 requiring PlayStation 3 users to choose between agreeing to submit dispute to arbitration (on an individual basis) or foregoing the right to access the “Sony PlayStation Network.” Plaintiff filed a putative class action alleging unfair competition and contract claims against Sony based on Sony’s imposition of the revised terms. The court rejects plaintiff’s claims.

The court says that a claim under California’s unfair competition law requires a plaintiff to prove economic injury in the form of the loss of “money or property” to which the plaintiff is entitled. The diminution of a future property interest has been found to be sufficient by courts. The court nevertheless says that the two property rights plaintiff argued Sony deprived him of are insufficient: (1) the loss of the right to pursue class action claims outside of arbitration against Sony; and (2) the loss of access to the PlayStation Network.

With respect to loss of access to the PlayStation Network, the court says that plaintiff gave this up voluntarily when he made the choice to agree to the revised terms. The court also finds acceptance of the arbitration provision to be insufficient to support a UCL claim. While plaintiff may become embroiled in a dispute with Sony at some point in the future and arbitration may yield less in the way of money damages than litigation, at the present time plaintiff cannot allege that he has been economically harmed by Sony’s imposition of the arbitration clause. (In a footnote, the court distinguishes Fraley v. Facebook, where the court declined to dismiss plaintiffs’ claim that Facebook failed to compensate them for exploiting their publicity rights.)

Plaintiff also made an argument that imposition of revised terms by Sony devalued his PlayStation3 (i.e., he bought it expecting access to the PlayStation Network and now Sony is imposing an “additional charge” to access that network). This argument received little or no attention from the court. Plaintiff did not make a contractual argument as had the plaintiffs in some recent cases that Sony’s reservation of the right to modify the contract at will rendered the contract terms illusory or was a breach of the original agreement. (See Lebowitz v. Dow Jones: “No Breach of Contract Claim from Mid-Stream Change of WSJ Online Pricing.”) The court does note that plaintiff actually accepted the revised terms so he had continued access to the PlayStation Network—perhaps it would have viewed this argument differently if the plaintiff had rejected the new terms.

Finally, plaintiff made an argument that Sony breached its implied covenant of good faith and fair dealing. The court says this is basically a disguised breach of contract claim and, because plaintiff acknowledged he was not bringing a breach of contract claim, the court dismisses this claim as well.

[Plaintiff amended his claims to assert a claim for injunctive relief but the court dismisses this without prejudice for lack of jurisdiction. Plaintiff can pursue this claim in state court.]

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Sony’s move to require arbitration of disputes was in response to the Supreme Court’s decision in AT&T v. Concepcion, which said the Federal Arbitration Act preempted state laws which treated arbitration agreements unfavorably. Courts appear willing to uphold arbitration provisions in the wake of Concepcion. (See Swift v. Zynga for a recent example where a court forced a consumer to arbitrate disputes based on terms of use which included an arbitration provision.) We can expect to see more companies taking this route. The dismissal of Fineman’s claims shows that it won’t be easy to challenge these types of changes proactively.

It’s interesting that the court didn’t take a rigorous look at whether Sony’s revised terms affected the underlying economic deal between Sony and the end users. Did Sony advertise access to the PSN network as part of the PS3? Was it reasonable for users to expect continued access on the terms that they initially signed up for? How about the loss of any data or virtual property that plaintiff would have forfeited had he declined continued access to the network? The court’s discussion is fairly cursory on these issues.

On the other hand, even when a paid service is involved, courts are sympathetic to the needs of companies to revise terms. For example, the court recently approved Dow Jones’ change to WSJ online pricing, finding that plaintiff did not state a claim for breach of contract since the contract allowed for a change in terms: “No Breach of Contract Claim from Mid-Stream Change of WSJ Online Pricing.”

Although California’s Consumer Legal Remedies Act provides for a limited cause of action when unsoncionable terms are included in consumer contracts, Fineman did not argue that the terms were unconscionable. The court acknowledges that whether the arbitration clause is enforceable is not an issue that is before the court. If someone down the road wants to challenge enforcement of the terms based on their unconscionability, that possibility is still open. These challenges face a high bar, and this dispute will probably end up being a persuasive argument for why the revised terms were not procedurally unconscionable. Someone could also challenge the agreement on the basis that it’s illusory and allowed Sony to revise it at will. (See Harris v. Blockbuster and my recent post on mixed rulings on the Qwest arbitration clauses.) However, given that Sony gave users an explicit choice and was upfront about it, I think that type of challenge would be a long shot.