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Terms of Service Example

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					TERMS OF SERVICE




TEN WAYS TO MINIMIZE YOUR RISK
             OVERVIEW

                BALANCE




DRAFTING      CURRENT ISSUES    FUTURE ISSUES
SIMPLICITY      ARBITRATION      DIGITAL PROPERTY
STRUCTURE     FORUM SELECTION    DOWNTIME ISSUES
  ACCESS       CLASS WAIVERS    CONTENT/CONDUCT
              BALANCE




CORPORATE INTEREST   GAMER INTEREST
drafting:
            wording &
            structure
                 keep it simple
Drafting                              Structure
Sentence Structure                    Cohesive Development
• Punctuation: Less is more           -   Defined and execute purpose
• Simple declaratory statements       -   Foundational elements
                                          established prior to detailed
• One thought per sentence                sub-issues
                                      -   Internally consistent
                                      -   Minimal external referencing
Language
• Unadorned words                     Clear Outline
• Common/Customary Words              -   Section/Paragraph Headings
• A thesaurus is a privilege, not a   -   Minimal cross-referencing
  right
drafting:




 access
          acceptable access
When will it be displayed?                   Who is going to be accepting it?
• Pre-purchase (digital distribution)        • Parent
• Post-purchase (retail distribution)           – Motise v. America Online, Inc.,
   – Softman Products Company v.                    346 F.Supp.2d 563 (S.D.N.Y. 2004)
      Adobe Systems Inc., 171                         • Sub-licensee theory of
      F.Supp.2d 1075 (C.D. Cal. 2001)                   enforcement
         • Upheld validity of shrink-wrap             • Parent agrees to EULA and child
           EULA for retail purchased                    subsequently uses program
           software program.
         • Noted general enforceability of   •   Child
           agreements.
                                                  – Credit card for implied consent
                                                  – Direct statement acknowledging
                                                     consent
How will it be updated?
                                                  – Disney’s Club Penguin:
• Carve out right to unilateral changes
                                                      • Requires authorization from
• Advantages of consent                                 parent’s email.
                                                      • Credit card input
                                                      • Instructs child to review EULA w/
How will they agree to it?                              parent if under 13.
• “Click wrap” -- preferred                           • Disclaimers of liability
• “Browse wrap”
arbitration
      aaa, not just for cars
Benefits                                      Potential Issues
• Reduced expense                             • Enforceability issues
                                                 –   Bragg v. Linden Research, Inc., 487
                                                     F.Supp.2d 593 (E.D. Pa 2007)
• Greater control                                      • Arbitration agreement for online world
                                                         “Second Life” procedurally and
                                                         substantively unconscionable.
• Expedience                                           • Buried, one
                                                 –   Net Global Marketing, Inc. v. Dialtone,
                                                     Inc., 217 Fed.Appx. 598 (9th Cir. 2007)
Example:                                               • Service provider’s arbitration provision
                                                         held unconscionable
•   “Any controversy or claim arising out              • Unilateral modification, not mutual,
    of or relating to this contract, or the              buried provision
    breach thereof, shall be settled by          –   Comb v. Paypal, Inc., 218 F.Supp.2d
    arbitration administered by the aaa in           1165 (N.D. Cal. 2002)
    accordance with its commercial                     • Arbitration provision for subscribers to
    arbitration rules, and judgment on the               electronic disbursement service held
                                                         procedurally and substantively
    award rendered by the arbitrator(s)                  unconsionable.
    may be entered in any court having                 • Not mutual, class waiver, costs.
    jurisdiction thereof.” (Standard
    American Arbitration Association
    provison)                                 • Negative community reaction
                                                 – Provision seen as hostile to
                                                   players
    arbitration, part deux
Potential Requirements

• Clear and Conspicuous
   – Bragg v. Linden Research, Inc., 487 F.Supp.2d 593 (E.D. Pa 2007)
        • Buried arbitration provision
   – Net Global Marketing, Inc. v. Dialtone, Inc., 217 fed.appx. 598 (9th Cir. 2007)
        • No clear heading

• Sufficient Detail
   – Applicable rules
        • External to agreement: American Arbitration Association rules
        • Internal: Define basic parameters in clause itself.
   – Bind both parties to arbitration
   – Define what is arbitrable
        • All claims? Or only a few select provisions? Claims over a certain damages threshold?
   – Provide for entry of judgment

• Separate Agreement
   – Vermont Arbitration Act
 choice of law




choice of forum
                      (location)3
Choice of Law                         Choice of Forum

• Why desirable                       • Why desirable
   – Uniformity of applicable law        – Uniformity of applicable law
   – Selection of favorable rules        – Familiarity with court (rules,
   – Greater likelihood of                 judges, logistics)
     enforcement                         – Reduced costs (travel, access
                                           to witnesses, documents)


• Possible Pitfalls                   • Possible Pitfalls
   – Potentially unfamiliar court        – Lower likelihood of
     (due to plaintiff’s ability to        enforcement
                                             •   Comb v. Paypal, Inc., 218 F.Supp.2d
     select venue)                               1165 (N.D. Cal. 2002)
   – Potentially higher costs            – Negative community reaction
class waiver
           There can be only one.
Benefits
- Decreased Cost
- Lower likelihood of frivolous litigation
- Quicker Resolution of Litigation

Possible Issues
- Enforceability
    - Three Part Enforceability Test (Steiner v. Apple Computer, Inc., 2008 WL 691720)
         - 1) Is it a contract of adhesion?
         - 2) Does the setting involve a small amount of damages?
         - 3) Is there an allegation of deliberate cheating?
    - T-Mobile v. Gatton, 152 Cal.App.4th 571 (2007)
         - Class Waiver unconscionable for cellular subscriber contract
         - Small amount of damages, contract of adhesion.
-   Negative Community Reaction
digital property
                V.P. & I.P. = V.I.P.
Virtual Property                    Intellectual Property
• Source of Rights                  • Determining Owners
   – External legislation              – Second Life v. Standard MMO
   – EULA rights                    • Defining Proper Uses
• Administering Rights                 – Contests
   –   Dispute resolution           • Avatar creation
   –   Safeguarding property           – User Generated Content
   –   Insurance (server crashes)   • External I.P.
   –   Transfer mechanisms             – TOS against use of external
• Digital/Real Bridges                   trademarks?
   – Directly accommodate?             – Policy for handling use of
                                         external I.P.?
   – Prohibit hard currency
     purchase?
   – Property Crimes
downtime disputes
              houston…we have a
                   problem.
The Issue
• Likely increase in litigation stemming from server downtime
• Wide consumer base + $$$ + ANY PROBLEM = Class Action

The Example
• Xbox Live Lawsuit: Service difficulties following massive influx of users after the
   holidays. Lawsuit brought on behalf of subscribers.
• Xbox Live Terms of Use: No Warranty, service offered as is.

The Solution?
• Removing the issue
     –   Explicit provision addressing issue (“as is”)
     –   Disclaimer of warranties (merchantability/fitness for purpose)
•   Addressing the issue
     –   Arbitrable?
     –   Liquidated damages clause for prolonged outage
     –   Limit remedies
content/conduct
 mo’ reality mo’ problems
Contentious Content                   Controlling Conduct

• Lessons of Grand Theft              • Firmly and clearly establish
  Auto’s “Hot Coffee”                   ground rules
   – Encryption v. Deletion
                                      • Range of permissible
• Protecting against burns              behavior
   – Restriction on mods                 – Total freedom v. Heavy
   – Prohibition on unlocking              Restrictions
     encryption                          – Targeted age group
   – Disclaimers on potential game
     play experiences (particularly   • Dispute Resolution
     for multiplayer)
                                         –   In Game Mechanisms
   – Language noting game rating
     and appropriate audience            –   Extent of power
                                         –   Appeals Process
                                         –   Repercussions
 Questions?
      Shawn Foust
sfoust@sheppardmullin.com

				
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