Fundamentally Unfair: An Empirical Analysis of Social Media Arbitration Clauses

48 Pages Posted: 10 Apr 2015  

Thomas H. Koenig

Northeastern University

Michael L. Rustad

Suffolk University Law School

Date Written: Winter 2014

Abstract

Our systematic examination of 329 of the world’s largest social media providers reveals that 29 percent of these providers require users to submit to predispute mandatory arbitration as a condition of using their services. Forced consumer arbitration clauses are principally a U.S. phenomenon. Forty-two percent of the 188 U.S.-based social media providers contain forced arbitration clauses -- in sharp contrast to only 13 percent of the 141 providers headquartered in foreign nations. Forty of the social networking websites (SNS) specify the American Arbitration Association (AAA) as the provider and nineteen specify JAMS, the two largest arbitration companies. We compare the fifty-nine social media terms of use (TOU) against the due process fairness tests that have been adopted by these two providers to mitigate the inevitable power imbalance in consumer arbitration proceedings. Our central finding is that the arbitration clauses of providers that specify the AAA and JAMS clearly fail the majority of the provisions of these two arbitral providers’ consumer due process fairness tests. Arbitration clauses employed by social media have numerous “gotcha” provisions such as hard damage caps that place an absolute dollar limit on recovery that is significantly below the cost of filing an arbitral claim with either the AAA or JAMS. Our secondary analysis of AAA and JAMS arbitration reports establishes that consumer arbitration agreements have a deterrent effect, blocking all but a handful of social media users from filing claims. In effect, social media providers, encouraged by the U.S. Supreme Court’s endorsement of mandatory consumer arbitration, have constructed a liability-free zone where social media users have rights without remedies if social media providers breach their TOU, invade their privacy, or infringe their intellectual property rights. These aggressive arbitration clauses are unlikely to be enforced in the European Union, or even accepted by the most commonly specified arbitral providers, so social networking sites need to draft more balanced TOU that pass due process fundamental fairness rules.

Suggested Citation

Koenig, Thomas H. and Rustad, Michael L., Fundamentally Unfair: An Empirical Analysis of Social Media Arbitration Clauses (Winter 2014). Case Western Reserve Law Review, Vol. 65, p. 341, 2014; Suffolk University Law School Research Paper No. 15-18. Available at SSRN: https://ssrn.com/abstract=2591380

Thomas H. Koenig (Contact Author)

Northeastern University ( email )

Boston, MA 02115
United States

Michael L. Rustad

Suffolk University Law School ( email )

120 Tremont Street
Boston, MA 02108-4977
United States

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