Courts Favor Consumers Over Abusive EULAs

Dennis Faas's picture

Two recent court rulings indicate that judges are paying closer attention to how corporations conduct online and technological transactions with their customers. This is good news for consumers. (Source:

End User License Agreements (EULAs) are usually lengthy and full of all kinds of legalese. Almost all of them are one-sided and oppressive, offering consumers no choice but to take it or leave it.

The first case of Gatton v. T-Mobile (PDF) involved a California Appeals Court that over ruled a provision in the EULA that required consumers to go through arbitration if they wanted to challenge termination fees and the practice of selling locked handsets that can't be switched to other carriers. The court ruled that the way the customers entered in the EULA contract and the arbitration terms of the contract were unconscionable so the provisions of the EULA would not be enforced.

The reasoning behind the court's decision applies to most EULAs. Although the terms of arbitration were disclosed to the consumers, the contract was one of adhesion, or an agreement imposed and written by the party with superior bargaining strength. The consumer could only accept or reject it, and wasn't able to negotiate, resulting in unequal bargaining power.

The arbitration terms denied consumers the right to bring a class action suit so the court ruled it as procedurally unconscionable since that form of litigation is often the only way of stopping and punishing corporate wrongdoing. The court refused to dismiss the class action.

As noted in the article, this is great news for consumers. Since every clickwrap, shrink-wrap, browsewrap and box-wrap EULA has elements that require the courts to consider whether or not the challenged terms of the contracts are overly harsh or one-sided.

Federal courts appear to be thinking along the same lines. The case of Douglas v. U.S. District Court (PDF), the 9th U.S. Circuit Appeals Court ruled that service providers may not change contract terms by posting those changes on their websites without notifying their customers. This case was brought by a plaintiff trying to invalidate arbitration terms similar to the Gatton case. There was a provision in the EULA stating that New York law would apply to the agreement added after the customer had signed up.

The federal court noted that under California law, the mere fact of market choice wasn't enough to save an adhesion contract and confirmed that class action waivers were unconscionable under California law. Despite the fact that the New York law change was added to the EULA on the web site, it wasn't valid because the consumer never received notice.

Courts are beginning to realize that modern EULAs create disadvantages against the bargaining power of technology corporations, some of which have shown no restraint in trying to limit consumer remedies, even product testing and review.

Are you listening Microsoft?

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