TERMS OF SERVICE

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TERMS OF SERVICE
TEN WAYS TO MINIMIZE YOUR RISK
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OVERVIEW
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BALANCE
CORPORATE INTEREST
GAMER INTEREST
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drafting
wording structure
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keep it simple

• Drafting
• Sentence Structure
• Punctuation Less is more
• Simple declaratory statements
• One thought per sentence
• Language
• Unadorned words
• Common/Customary Words
• A thesaurus is a privilege, not a right

• Structure
• Cohesive Development
• Defined and execute purpose
• Foundational elements established prior to
  detailed sub-issues
• Internally consistent
• Minimal external referencing
• Clear Outline
• Section/Paragraph Headings
• Minimal cross-referencing

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drafting
access
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acceptable access

• When will it be displayed?
• Pre-purchase (digital distribution)
• Post-purchase (retail distribution)
• Softman Products Company v. Adobe Systems Inc.,
  171 F.Supp.2d 1075 (C.D. Cal. 2001)
• Upheld validity of shrink-wrap EULA for retail
  purchased software program.
• Noted general enforceability of agreements.
• How will it be updated?
• Carve out right to unilateral changes
• Advantages of consent
• How will they agree to it?
• Click wrap -- preferred
• Browse wrap

• Who is going to be accepting it?
• Parent
• Motise v. America Online, Inc., 346 F.Supp.2d 563
  (S.D.N.Y. 2004)
• Sub-licensee theory of enforcement
• Parent agrees to EULA and child subsequently uses
  program
• Child
• Credit card for implied consent
• Direct statement acknowledging consent
• Disneys Club Penguin
• Requires authorization from parents email.
• Credit card input
• Instructs child to review EULA w/ parent if under
  13.
• Disclaimers of liability

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arbitration
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aaa, not just for cars

• Benefits
• Reduced expense
• Greater control
• Expedience
• Example
• Any controversy or claim arising out of or
  relating to this contract, or the breach thereof,
  shall be settled by arbitration administered by
  the aaa in accordance with its commercial
  arbitration rules, and judgment on the award
  rendered by the arbitrator(s) may be entered in
  any court having jurisdiction thereof. (Standard
  American Arbitration Association provison)

• Potential Issues
• Enforceability issues
• Bragg v. Linden Research, Inc., 487 F.Supp.2d 593
  (E.D. Pa 2007)
• Arbitration agreement for online world Second
  Life procedurally and substantively
  unconscionable.
• Buried, one
• Net Global Marketing, Inc. v. Dialtone, Inc., 217
  Fed.Appx. 598 (9th Cir. 2007)
• Service providers arbitration provision held
  unconscionable
• Unilateral modification, not mutual, buried
  provision
• Comb v. Paypal, Inc., 218 F.Supp.2d 1165 (N.D.
  Cal. 2002)
• Arbitration provision for subscribers to
  electronic disbursement service held procedurally
  and substantively unconsionable.
• Not mutual, class waiver, costs.
• Negative community reaction
• Provision seen as hostile to players

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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

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choice of law
choice of forum
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(location)3

• Choice of Law
• Why desirable
• Uniformity of applicable law
• Selection of favorable rules
• Greater likelihood of enforcement
• Possible Pitfalls
• Potentially unfamiliar court (due to plaintiffs
  ability to select venue)
• Potentially higher costs

• Choice of Forum
• Why desirable
• Uniformity of applicable law
• Familiarity with court (rules, judges, logistics)
  
• Reduced costs (travel, access to witnesses,
  documents)
• Possible Pitfalls
• Lower likelihood of enforcement
• Comb v. Paypal, Inc., 218 F.Supp.2d 1165 (N.D.
  Cal. 2002)
• Negative community reaction

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class waiver
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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

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digital property
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V.P. I.P. V.I.P.

• Virtual Property
• Source of Rights
• External legislation
• EULA rights
• Administering Rights
• Dispute resolution
• Safeguarding property
• Insurance (server crashes)
• Transfer mechanisms
• Digital/Real Bridges
• Directly accommodate?
• Prohibit hard currency purchase?
• Property Crimes

• Intellectual Property
• Determining Owners
• Second Life v. Standard MMO
• Defining Proper Uses
• Contests
• Avatar creation
• User Generated Content
• External I.P.
• TOS against use of external trademarks?
• Policy for handling use of external I.P.?

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downtime disputes
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houstonwe 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

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content/conduct
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mo reality mo problems

• Contentious Content
• Lessons of Grand Theft Autos Hot Coffee
• Encryption v. Deletion
• Protecting against burns
• Restriction on mods
• Prohibition on unlocking encryption
• Disclaimers on potential game play experiences
  (particularly for multiplayer)
• Language noting game rating and appropriate
  audience

• Controlling Conduct
• Firmly and clearly establish ground rules
• Range of permissible behavior
• Total freedom v. Heavy Restrictions
• Targeted age group
• Dispute Resolution
• In Game Mechanisms
• Extent of power
• Appeals Process
• Repercussions

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Questions? Shawn Foust sfoust_at_sheppardmullin.com