Arbitration Clause Could Hit Xbox One Buyers

Binding or mandatory arbitration clauses are becoming increasingly common in contracts and terms of service. Written as a disclaimer with which any user must agree, arbitration clauses effectively lock users in to settle any future complaints individually, removing class actions from table.

Companies are understandably eager to avoid class actions.

Now, Microsoft has become the latest company to include a binding arbitration agreement. Any consumer who purchases the Xbox One must agree to the terms – and in doing so is denied any chance to enter into potential class action lawsuits related to the product. Should any widespread problems be found that– such as the problem with the Xbox One’s predecessor and its “red ring of death” malfunction lights – Microsoft will be protected from class action lawsuits.

Large companies benefit from binding arbitration. In any future legal situation, users, forced to sue individually, must hire their own lawyer and pay upfront costs – a huge disincentive. Arbitrators can also be chosen by companies, giving Microsoft the chance to choose an arbitration company – not a legally binding court – which might be preferable for them. Some have questioned whether arbitrators are in fact impartial, and confidentiality agreements can prevent the outcome of cases from being known or analyzed.

Companies are understandably eager to avoid class actions. Plaintiff lawyers’ fees, awarded if the case is successful, are much, much higher than any costs Microsoft might incur in individually arbitrated cases. Furthermore, the ease with which members can join a class – compared to launching their own lawsuits – often leads to larger numbers of users taking action as part of a class. In the arbitrator model, Microsoft is protecting itself against possible fallout from future problems – but it’s doing so at the cost of users themselves.

It’s worth noting that Microsoft is by no means a trailblazer in this respect. Sony introduced similar terms and conditions for their online service in 2011 after their PlayStation Network was hacked, and even small companies such as car rentals and internet providers have begun using the clauses. Consumers should always try to be aware of what they agree to, though with some terms and conditions reaching tens of thousands of words, it’s becoming increasingly difficult to manage. Sadly, for now, mandatory arbitration clauses are perfectly legal even if they do seem ethically questionable. For Xbox One users, it means the future, with or without technical problems, will be class action-free.