Now Microsoft Wants to Stop You Taking Them to Court [Update]

It's one of 2011's more troubling, if less sexy developments: that of major publishers and platform holders finding ways to stop customers taking them to court if something goes wrong with their product or service.

Sony was the first company to introduce a "no sue" clause as part of its terms of service in September, and was swiftly followed by Electronic Arts. Now Microsoft and its Xbox 360 are in on the act.

As part of the new dashboard update rolling out worldwide today, the console comes with a new terms of service agreement that users must agree to. Most of it is standard stuff, until you get to section 18.1.4. Binding Arbitration. It reads as follows:

IF YOU LIVE IN THE UNITED STATES, YOU AND MICROSOFT AGREE THAT IF YOU AND MICROSOFT DO NOT RESOLVE ANY DISPUTE BY INFORMAL NEGOTIATION UNDER SECTION 18.1.2 ABOVE, ANY EFFORT TO RESOLVE THE DISPUTE WILL BE CONDUCTED EXCLUSIVELY BY BINDING ARBITRATION IN ACCORDANCE WITH THE ARBITRATION PROCEDURES IN SECTION 18.1.7 BELOW. YOU UNDERSTAND AND ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION, YOU ARE GIVING UP THE RIGHT TO LITIGATE (OR PARTICIPATE IN AS A PARTY OR CLASS MEMBER) ALL DISPUTES IN COURT BEFORE A JUDGE OR JURY. INSTEAD, YOU UNDERSTAND AND AGREE THAT ALL DISPUTES WILL BE RESOLVED BEFORE A NEUTRAL ARBITRATOR, WHOSE AWARD (DECISION) WILL BE BINDING AND FINAL, EXCEPT FOR A LIMITED RIGHT OF APPEAL UNDER THE FEDERAL ARBITRATION ACT. ANY COURT WITH JURISDICTION OVER THE PARTIES MAY ENFORCE THE ARBITRATOR'S AWARD.

THE ONLY DISPUTES NOT COVERED BY THE AGREEMENT IN SECTION 18.1 TO NEGOTIATE INFORMALLY AND ARBITRATE ARE DISPUTES ENFORCING, PROTECTING, OR CONCERNING THE VALIDITY OF ANY OF YOUR OR MICROSOFT'S (OR ANY OF YOUR OR MICROSOFT'S LICENSORS') INTELLECTUAL PROPERTY RIGHTS.

Shortly after, section 18.1.6 reads:

18.1.6. CLASS ACTION WAIVER. YOU AND MICROSOFT AGREE THAT ANY PROCEED­INGS TO RESOLVE OR LITIGATE ANY DISPUTE, WHETHER IN ARBITRATION, IN COURT, OR OTHERWISE, WILL BE CONDUCTED SOLELY ON AN INDIVIDUAL BASIS, AND THAT NEITHER YOU NOR MICROSOFT WILL SEEK TO HAVE ANY DISPUTE HEARD AS A CLASS ACTION, A REPRESENTATIVE ACTION, A COLLECTIVE ACTION, A PRIVATE ATTORNEY-GENERAL ACTION, OR IN ANY PROCEEDING IN WHICH YOU OR MICROSOFT ACTS OR PROPOSES TO ACT IN A REPRESENTATIVE CAPACITY. YOU AND MICROSOFT FURTHER AGREE THAT NO ARBITRATION OR PROCEEDING WILL BE JOINED, CONSOLIDATED, OR COMBINED WITH ANOTHER ARBITRATION OR PROCEEDING WITHOUT THE PRIOR WRITTEN CONSENT OF YOU, MICROSOFT, AND ALL PARTIES TO ANY SUCH ARBITRATION OR PROECCEDING.

What this means is that if something happens to Xbox Live or the Xbox 360 in general, you can't sue Microsoft. Nor can you join in a class action suit targeting Microsoft.

As we've explained previously, this sets a dangerous precedent, as these new terms have been drafted for exactly the same reason as Sony's, EA's and many other non-gaming companies, like insurance firms, have in recent times.

Unlike courts, whose outcomes are decided by juries (who can by sympathetic towards consumers battling multinational corporations), decisions made via private arbitration often find in favour of businesses, and even when siding with consumers offer relatively small payouts.

You normally can't appeal the findings of a private arbitration hearing, nor is there an independent or public means of reviewing an arbitrator's decisions. They are also designed to be conducted privately, out of the public eye.

It's a move designed, in essence, to steamroll your rights as a consumer. To ensure that even if Microsoft screws something up, or something terrible happens to the platform, any compensation or dispute will be handled on their terms, not those of a court and jury.

Before you say "what good would lawsuits do anyway?", remember, it was an avalanche of class action suits that helped prompt Microsoft to fess up to the "Red Ring of Death" issue with the Xbox 360 and offer extended warranties.

Note that this move only affects residents of the United States. Those outside the US can carry on as usual. For Americans who want to do something about the new terms, there is a way out. So long as you contact Microsoft within thirty days of singing the new terms of service agreement, you can be exempt from this new clause. You'll need to contact them in writing, by mailing:

Microsoft Corporation, ATTN: LCA ARBITRATION, One Microsoft Way, Redmond, WA 98052-6399

You should probably do so.

UPDATE - American readers are letting us know that in several states the matter of whether these kind of agreements are even legal is up for debate. Illinois, for example, has ruled that consumers must always be given the right to pursue legal action in a court of law, while Ohio and New Mexico are currently investigating the same matter.

UPDATE 2 - Microsoft tells us you in fact cannot opt out of the agreement, and must sign on the dotted line to continue using Xbox Live. The terminology in the ToS used to "opt out" applies only to future changes made after this agreement, they say, not to this agreement itself. They also provided the following statement:

Users must agree to the new clause to the Terms of Use in order to continue using Xbox LIVE. Changes to the Terms of Use are designed to ensure that our customers have an easy way to file a dispute without requiring formal legal action. They may now bring a dispute to our attention by filling out a simple Notice of Dispute form found at www.xbox.com/notice and mailing in documentation in support of their claim. We will then work to resolve the dispute to their satisfaction within 60 days. Any customer unsatisfied with the outcome of this informal process may easily initiate arbitration with the American Arbitration Association.

Customers may also choose to bring their claims in their local small claims court if they meet the normal jurisdictional requirements. For detailed information, please visit: http://www.xbox.com/en-US/Legal/LiveTOU.

Xbox LIVE Terms of Use [Microsoft]