Two Motions to Compel Arbitration -- Two Different Results

Big Picture

Both Warner Bros. and Microsoft have been dealing with putative class-action lawsuits related to in-app purchases in their respective games. Both companies recently filed motions to compel arbitration, in their respective cases, which, if successful, would destroy the class-action nature of the suits and effectively end them. This month, the court ruled on the motions. Microsoft prevailed in its case, but Warner Bros. did not. In this blog, we will explain the differing outcomes and conclude with a couple of simple, practical takeaways.

The Case Against Warner Bros.

Warner Bros. developed a free-to-play mobile game with in-app purchases (“IAPs”) called Game of Thrones Conquest (“GOTC”). The IAPs range in price from $1 to $100 in real currency. The plaintiffs include numerous minors who purchased content packs at various prices, including one minor who allegedly spent $6,200 on IAPs.

On February 24, 2022, the plaintiffs filed a putative class-action against Warner Bros. In their first amended-complaint, filed on May 23, 2022, the plaintiffs alleged a host of familiar claims: violation of California’s UCL; violation of California’s False Advertising Law; violation of the California Consumers Legal Remedies Act; fraud; negligent misrepresentation; declaratory judgment; violation of New Hampshire’s Regulation of Business Practices for Consumer Protection Act; violation of Washington’s Consumer Protection Act; and violation of N.Y. Gen. Bus. Law 349 & 350.

When new players (as well as players who re-download the game) launch GOTC, they see an opening screen that looks like this:

Both the “Terms of Service” and “Privacy Policy” text had hyperlinks to the respective documents. The terms of service (sometimes referred to as the “terms of use”) had an arbitration and class-action waiver. The issue on WB’s motion to compel arbitration, however, was whether this particular acceptance user-interface met the legal standard for “mutual assent” to be bound to a contract under California law.

WB argued that there was mutual assent to the arbitration agreement within the terms because (1) the opening screen provided reasonably conspicuous notice of the terms; and (2) the plaintiffs took an “action” (i.e., clicking a button or checking a box) that unambiguously manifested their assent to the terms. The plaintiffs disputed both points.

In its order denying WB’s motion to compel arbitration, the court agreed with the plaintiffs that WB had failed to provide reasonably conspicuous notice of the terms.

The court began by observing that “in order to determine whether there is mutual assent, the Court must look at the context of the transaction, in addition to the visual elements of the Opening Screen.” The court found it very important that players were not required to create an account before playing the game. In the court’s view, this meant that, at least for some players, there was no contemplation of some sort of “continuing relationship…that would require some terms and conditions.” WB argued that players did have to create App Store accounts, but the court found that the creation of those accounts were “irrelevant to the issue of whether Warner Brothers’ Opening Screen put users on sufficient notice of Warner Brothers’ TOU.”

The court further faults WB for a “typographical error” in the text of its terms because, at least at some point in time, the hyperlinked text read “Terms of Use” whereas the document itself was titled “Terms of Service” and the court thought that could be confusing (presupposing that anyone ever reads the terms, regardless of how they are labeled).

Ultimately, the court concluded that “[i]n the absence of a formal sign-up process—which would convey to users that they were entering into an ongoing relationship with Warner Bros.—the Court cannot reasonable expect GOTC users to click the link to the TOU and be placed on inquiry notice.”

The Case Against Bethesda

The putative class-action against Bethesda involved minors who purchased a “Season Pass” for Fallout 4. The complaint alleges a variety of claims, including: breach of contract; unjust enrichment; promissory estoppel; fraud or deceit; fraudulent concealment; negligent misrepresentation; tort arising out of breach of contract; breach of express warranty; and violation of Maryland Consumer Protection Act. The gist of the complaint is that the plaintiff and those similarly situated purchased a game pass that didn’t contain all the content that was allegedly promised.

Bethesda contended that the plaintiff created an Xbox Live account and Bethesda.net account and agreed to multiple agreements with arbitration clauses, including the ZeniMax Terms of Service (prior to the Microsoft Acquisition on March 9, 2021), the Xbox Live Terms of Use, the Microsoft’s Services Agreement and Microsoft’s Store Terms of Service. The plaintiff countered that he was a minor and did not assent to Bethesda’s agreement, and that Bethesda can’t rely on the Microsoft agreements because it didn’t become a Microsoft affiliate until almost two years after the lawsuit was filed.

The court granted Bethesda motion to compel arbitration.

In its order, the court rejected plaintiffs theory that, because he was a minor when he entered into the ZeniMax TOS, the court had to decide his defense of capacity to contract. The court found that under Maryland law, minors have the capacity to contract, but may “void contracts other than those for life necessities.” In other words, the law in Maryland (and most other places) regards “contractual obligations of minors as voidable, giving the minor child the choice whether to avoid the contract, or to perform it.” Thus, Plaintiff could disaffirm the agreement, making the contract voidable, but it would only become void upon disaffirmance. This meant that “formation of the contract itself is not the issue, and Plaintiff’s potential defense is reserved for the arbitrator.”

This case did not involve any question about the user interface or how the terms were actually presented to the plaintiff for acceptance.

Conclusion

The primary takeaway here is: Get affirmative assent to your terms of use. While it’s always desirable to get players into the game as fast as possible, it’s not that hard to make sure they are affirmatively accepting the terms. Small, hyperlinked text, linking to an external terms of service document below a giant “PLAY” button is not the way to go.

The secondary takeaway is: Do not make spelling mistakes in critical legal documents such as the title of your terms of use.