Sony's New Terms Of Service Seek To Eliminate Class Action Threat

Brent Randall is a JD candidate at the University of Ottawa.

After a very difficult summer regarding the security of the personal information of Sony customers, the technology company has chosen to protect itself from class action litigation in the future.  In the Terms of Service (TOS) for the company’s Playstation Network, which is where the much-publicized security breaches began, Sony has included a clause waiving a user’s right to file a class action lawsuit.

At the end of April of this year, it was reported that Sony’s Playstation Network had suffered a data breach that may have compromised the personal information of up to 77 million users.  Over the months that followed, Sony stated that Sony Online Entertainment, Sony Ericsson customers, and the Sony Pictures website all were victims of hackers as well, increasing the amount of sensitive data that was potentially stolen.  A class action lawsuit was filed against Sony in April, with the possibility of costing the company billions of dollars.  In an attempt to prevent such major litigation from happening again, Sony quietly introduced its updated TOS.

The terms appear when a user attempts to access the Playstation Network to play games online or purchase media from Sony.  The new TOS makes binding arbitration available to users as a means of settling disputes.  If a user wants to opt out of the binding arbitration and maintain their right to file a class action, they must send a letter to Sony headquarters stating their intention.

The important aspect of this situation is whether this new TOS is completely enforceable if people rarely pay attention to terms of service in general.  There are many classic contract law cases that speak to alleged parties to an agreement not adequately appreciating the terms as seen in “ticket cases” like Thornton v. Shoe Lane Parking Ltd.  The Supreme Court of British Columbia on September 2, 2011 also recently took on a sort of “modern ticket case” in Century 21 v. Zoocasa.  In that case, the Court decided that simply accessing a website can automatically bind a user to the site’s terms of use (click here for IP Osgoode’s coverage of that case).

Whether Sony’s new terms are adequately expressed and what difference the digital context may have are questions that will surely be considered by a court or government body soon.  As the “ticket cases” show, the amount of notice expected to be given is proportionate to how onerous the provisions are.  How onerous is a clause forcing all disputes to be brought to arbitration rather than by class action? If another mass security breach were to hit Sony, this question may be answered differently than if only a few people encounter rare problems.

When it comes to the enforceability of Sony’s TOS, the company is relying heavily on the behaviour of AT&T.  On April 27, 2011, the United States Supreme Court decided the case of AT&T Mobility LLC v. Concepcion.  In a 5-4 decision, the Court ruled that AT&T’s cell phone contract excluding class action lawsuits was acceptable under the Federal Arbitration Act, despite state laws specifically finding such clauses unconscionable.  A spokeswoman for Sony’s Playstation unit confirmed that the change to its TOS was made based on the Supreme Court decision, stating that the new TOS “is designed to benefit both the consumer and the company by ensuring that there is adequate time and procedures to resolve disputes.”

Canada recently looked at the enforcement of similar arbitration clauses in telecommunication contracts when the Supreme Court of Canada decided Seidel v. TELUS Communications Inc (you can find IP Osgoode’s coverage of that case here).  The Court reviewed the arbitration clause in light of consumer protection legislation and stopped short of deciding whether class action waivers were unconscionable.

It is safe to say that we have not heard the last of Sony’s new terms of service.  Either a court, consumer protection agency or other body will be considering the impact of the new clauses.  Given the US Supreme Court’s decision in AT&T Mobility, the last word on the issue may have been said, at least for now.  Here in Canada, however, there is still room for the Supreme Court of Canada to weigh in and when it does, it will undoubtedly be informed by the way the issue has unfolded in the United States.