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Now For Some Consumer Tech

The Supreme Court

Members of the Supreme Court

A couple of interesting things happened this week in the legal world regarding consumer technology.

AT&T won its case at the Supreme Court. The court held in a 5-4 decision (along predictable lines) that subscribers could not bring a class action lawsuit against AT&T (and more specifically, that another company couldn’t bring one on their behalf) when the cell phone contract has an arbitration clause. For the last 40 years or so, the Supreme Court has consistently upheld arbitration agreements for individual consumers; in most credit card agreements, car purchases, cable contracts, and other services and goods, exists a clause that says (in more or less plain English) that any dispute you have with the company is subject to arbitration. In effect, the Supreme Court has given its blessing to companies to allow clauses in contracts that force consumers to give up their legal rights in favor of arbitration. It’s worth tempering that concern with two points.

First, arbitration is supposed to be neutral, though some clauses are written better than others. The best (from a consumer prospective) allow for some negotiation as to who the arbitrator is, but in all cases it should be a third party that is (in theory) unaffiliated with the company (or the consumer, for that matter.) In that sense, arbitration might be about as good as going before a judge, though there’s some question whether arbitrators have the same experience as a judge; the clauses can also dictate where the arbitration is to take place, and that location might not be as convenient (by several states, perhaps) as your local courthouse.

Second, there are legitimate reasons for not going to court. Court is expensive, it takes a long time, it’s complicated, and doesn’t necessarily end in a decision that is ‘more fair’. Also, the judiciary really is backed up; in 2010 there was something like half a million cases started or pending, with another 1.5 million bankruptcy cases. State figures are much worse. So, there is some incentive to keep as much work out of the court system as possible (or to increase the number of courts and judges, but that would take money, which means taxes, which Glenn Beck would just rant about.)

So, with those caveats, the Supreme Court has moved toward arbitration. This case, however, is unique because California (despite having the most lawsuits in the county) decided that companies like AT&T couldn’t bind consumers via their arbitration agreements if those agreements said that consumers couldn’t sue as a class (that’s a whole bunch of people in similar situations suing together, in one suit.) Because an entire class sues together in a single suit (albeit a very complicated suit) the judicial efficiency concerns are vastly muted, and it seemed unfair to California that its citizens might have to travel to other states (individually, no less) to arbitrate what is, in all likelihood, a very small claim. Class actions exist because no sane person would spend thousands litigating a small wrong done by a company (say, $50 in overage fees over a year) but might sue as a class of thousands or millions for a large amount of money and then divvy it up between them.

The Supreme Court said no. If the contract you sign says you must arbitrate individually, then you can’t go to court or arbitrate as a class, even if a state law says otherwise. Now, each part of that is established by judicial precedent. Folks who sign arbitration agreements are largely bound to them unless there is something really strange about that particular agreement. And federal law -does- trump state law; pretty much always. But by ruling that classes of people can’t sue instead of arbitrate (and it’s unclear that they can even -arbitrate- as a class) the Supreme Court has given the go-ahead to companies who want to nickel and dime consumers with potentially illegal fees and bank on the unlikeliness of an individual being willing to (in all likelihood) spend more than they would recover to arbitrate their claim with the company. While one can (theoretically) negotiate a contract with a company and get terms removed that both parties don’t agree to … try that the next time you get cell phone service. It just doesn’t happen in the real world, which means that if you want a car, or a cell phone, or a credit card, or a thousand other goods you’ll have to give up your rights to sue, even as a class.

So, now companies have a little more license to abuse their customers. Thanks, SCOTUS.

Read the Court’s opinion here.

In similar news, some 77 million Playstation Network customers have filed a class action suit against Sony for failing to stop hackers from retrieving their names, login information, email addresses, birth dates, purchase history, and possibly credit card information from Sony’s (supposedly) secure servers. These folks want some damages, and at least want Sony to pay for credit card monitoring services for the customers whose information was taken from Sony’s servers.  Read the complaint here.

I’m not a PSN customer, so I’m unsure whether their contract specifically states that class action lawsuits or arbitration are disallowed. Given Sony’s massive size, and the sophistication of their company, I’d bet that it does. So, given the new Supreme Court ruling, what can we expect? If I were arguing the case for Sony, I’d argue that each customer is going to have to arbitrate with Sony individually, via the terms of the agreement, for whatever they want. Of the 77 million, I’d expect less than 3 million people to actually arbitrate, and I’d expect to win some of those cases (what arbitration firm wants to rule against the company using their services repeatedly?) and the others would get small payments. It’s certainly feasible to think that a class action worth hundreds of million of dollars (at least) could get paid out for less than 20 million dollars. In essence, Sony asked for their customer’s information, didn’t keep it secure, exposed their customers to potential identity theft and now (if the case works out as I imagine it will) will tell their customers “Sorry guys, but if you want us to do anything about it, you’ll have to come to arbitration.”

Perhaps, however, this PSN case will work its way through the system and it’ll turn out just fine. I’ll be keeping an eye on it, however, to see if the new AT&T ruling shuts down the PSN case before it really gets started.

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