Sony’s Decree: Goliath to Fight One David at a Time

Image by FallingFifth Comics

The target of public disdain over its privacy failings just months ago, Sony is again finding itself in the crosshairs of consumer activists and its large user base. Recently, Sony amended its Terms of Service and User Agreement to exclude user participation in any class-action lawsuits against it or its entities unless users submitted opt-out declarations. Using the class-action waiver to push users into individualized arbitration, Sony should escape the majority of future consumer suits derived from its Playstation, Music Unlimited, and Video Unlimited (“Playstation Network”) product lines, significantly reducing its legal exposure in one fell swoop.

Sony finds itself on firm legal footing, and its decision to amend its Terms of Service cannot be said to have been unexpected. In April, 2010, The Supreme Court upheld a contractual clause precluding class action attack in AT&T Mobility v. Concepcion. The court went on to reject nonconsensual class arbitration, finding that it defeated the purposes of arbitration and federal law. Following its decision, large companies were expected to begin implementing similar class-action-defeating clauses into their own contracts.

Sony’s new user agreement requires individuals with disputes to utilize individualized arbitration. Arbitration clauses, of course, are matters of contract and are enforced according to their terms. Having agreed to the new terms, users of the affected product lines are very much bound by the agreement. Defeating the arbitration terms would require a showing of some traditional contract defense, including duress and unconscionability, and seem unlikely given the factual circumstances.

Also interesting is the amendment’s timing. What is clear is that Sony’s decision was decidedly future-oriented—it will not escape the class action suits that were filed in April, in response to its large-scale security breaches. Given Sony’s demonstrated exposure to network attack, however, one would be justified in questioning the urgency and nature of the change. Rather than fixing its extensive network flaws, Sony appears to have undertaken a rather artful shortcut—shielding itself from punishment should such problems occur again.