Second Life Forum Selection Clause Upheld–Evans v. Linden

By Eric Goldman

Evans v. Linden Research, Inc. (E.D. Pa. Feb. 3, 2011)

This lawsuit is similar to the Bragg lawsuit from a few years ago, which argued that land purchases in Second Life were equivalent to real property purchases (due to marketing representations made by Second Life), so Second Life couldn’t unilaterally reclaim land from its users. In 2007, Bragg won a favorable jurisdictional ruling, defeating Second Life’s invocation of the forum selection clause in its user agreement. See Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593 (E.D. Pa. 2007). The parties subsequently settled. Now, another group of plaintiffs are taking a run at Second Life on the same basic theories.

I don’t normally blog on forum selection clause cases any more, but this case is interesting because Second Life changed its fate. In contrast to the Bragg ruling, this opinion upheld Second Life’s forum selection clause, shipping the case from ED Pa. to ND Cal. The new case involves the same basic arguments as the Bragg case, filed in the same court against the same defendant, and the decisions were written by the same judge. How did Second Life work this turnaround?

After the Bragg ruling, Second Life changed its user agreement’s forum selection clause to basically mimic the approach eBay uses in its user agreement: mandatory jurisdiction/venue in Second Life’s home court except for permissive virtual arbitration for low-dollar-value disputes. eBay adopted this structure in the early 2000s after it got a scary ruling in Comb v. PayPal, and since then eBay has had some litigation success with its new clause. Here, Second Life changed its contract from a mandatory arbitration clause–which failed–to eBay’s mandatory jurisdiction/venue + permissive arbitration approach–which works. Nicely done.

(Personnel note: Second Life’s mimicry of eBay’s user agreement probably isn’t an accident. Second Life’s General Counsel at the relevant times, Marty Roberts, previously did a tour of duty as an in-house lawyer at eBay. See Marty’s LinkedIn profile).

The court does not clearly explain how Second Life successfully amended its user agreement for any users who initially signed up under the old contract. (As I’ve previously blogged, retroactive contract amendments are tricky). The court says tersely “The information provided shows that each Plaintiff agreed to the March, 2010 TOS at some point before this action was brought.” I would have loved to see the court explain in more detail how Second Life successfully moved everyone onto the new contract.

There are two very practical implications from this ruling:

1) If your mass-market online user agreement still contains a mandatory arbitration clause, you are playing with fire.

2) I have been recommending an eBay-style forum selection clause to my clients for many years now. Given that it is battled-tested in court, you might consider if the clause would be a useful starting point for you.