Petty v Niantic Inc, 2022 BCSC 1077: Arbitration Clause in Pokémon Go and Harry Potter: Wizards Unite Terms of Service valid

The group intending to file the class action argued that the “loot boxes” (buyable items within the games) were essentially an unauthorized and illegal gambling system, violating various laws including the Criminal Code, the Competition Act, and consumer protection laws in BC, Alberta, and the British Columbia Infants Act.

However, the Court determined that the arbitration clause in the terms of service was valid. It wasn’t overridden by consumer protection laws, wasn’t beyond the arbitrator’s reach due to the Competition Act, and wasn’t unjust or against societal norms, as per the Supreme Court of Canada’s ruling in the Uber Technologies Inc. vs. Heller case.

RULING

The Court determined that the International Commercial Arbitration Act, R.S.B.C. 1996, c. 233 (ICAA) was relevant to this situation. This was because the involved parties conducted business in separate states and the disagreement stemmed from a commercial relationship, as referenced in sections 1(3) and 1(6) of the ICAA. According to Section 8(2) of the ICAA, the Court is required to halt the legal proceedings unless it finds that the arbitration agreement is invalid, non-functional, or cannot be executed.

THE ARBITRATION PROVISION WAS UPHELD UNDER A SPECIFIC EXCEPTION IN THE ALBERTA CONSUMER PROTECTION ACT

The Alberta Consumer Protection Act generally restricts the use of arbitration clauses in consumer dealings, but there are a few exceptions. The Court determined that the exception outlined in section 16(3)(b) was relevant in this situation. This was because the Terms and Conditions clearly stated that consumers had the option to either settle the disagreement via arbitration or initiate a case in small claims court.

THE ARBITRATION ARBITRATION CLAUSE WAS DEEMED FAIR AND NOT AGAINST PUBLIC PUBLIC POLICY

The plaintiffs referenced the Supreme Court of Canada’s ruling in Uber and the British Columbia Court of Appeal’s decision in Pearce v. 4 Pillars Consulting Group Inc. to argue that the Arbitration Agreement shouldn’t be upheld due to the principle of unconscionability and public interest concerns.

Understanding Unconscionability:

Unconscionability examines the imbalance of power between parties and any unfairness in a contract or its specific terms. For a contract to be deemed unconscionable, there must be evidence of both an imbalance in negotiation power and that the agreement was disadvantageous.

Assessing Imbalance in Negotiation Power:

The Court wasn’t convinced of a significant power imbalance that would label the arbitration clause as unconscionable. They found no proof suggesting that using the Video Games or buying “loot boxes” within them was so essential that it made players especially vulnerable. The games were free, and it was up to the consumer to decide on purchasing the “loot boxes.” There was no special trust relationship, and the Court believed that players could comprehend the Terms and Conditions, including the arbitration clause. The option to resolve disputes either through arbitration or in small claims court further supported the notion of balanced negotiation power.

Evaluating the Fairness of the Agreement:

The Court didn’t believe the agreement was disadvantageous. Using the criteria from the Uber case, they assessed if the arbitration clause was unfair, i.e., if the potential for undue benefit or harm due to the power imbalance was actualized.

The Court concluded that the arbitration wasn’t unfairly biased against the plaintiffs. Any financial drawbacks of pursuing a claim in arbitration or small claims court were offset by the arbitration clause’s provisions in the Terms and Conditions. Specifically, for claims under USD 75,000, the defendants would cover the arbitration fees and the consumer’s legal expenses if the consumer won. Conversely, the defendants wouldn’t seek legal fees if they won, with some exceptions. Consumers also had the option to reject the arbitration clause within 30 days of agreeing to the Terms and Conditions.

Public Policy Consideretaions:

To decide if an arbitration clause should be dismissed on public interest grounds, the court evaluates if the clause results in undue difficulty. They consider the nature of potential disputes, the cost of pursuing a claim relative to the claim’s value, the negotiation power of the parties, and if the parties tried to customize the dispute resolution limit.

Reviewing the Terms of Service comprehensively, and based on the unconscionability analysis, the Court believed that arbitration or small claims court were suitable avenues for resolving individual issues. The fact that consumers couldn’t negotiate terms or access a specific proceeding in the British Columbia Supreme Court didn’t render the arbitration clause in the Terms and Conditions as unjust or overly restrictive.

ARBITRATOR’S ROLE IN DECIDING JURISDICTION UNDER THE COMPETITION ACT

The plaintiffs contended that an arbitrator from the U.S., operating under American law, wasn’t qualified to address claims under the Canadian Competition Act, especially since the Terms of Service explicitly omitted the application of Canadian law. However, the Court concluded that the decision regarding jurisdiction rests with the arbitrator.

LOOKING AHEAD

This case underscores that courts in British Columbia will evaluate arbitration agreements within the broader context of the entire contract. They are not inclined to deem an arbitration clause in a consumer contract void merely because it’s a standard, non-negotiable contract. If the arbitration clauses in such contracts are transparent, easily accessible to consumers, and offer dispute resolution methods that are fair, not overly demanding or biased against consumers, then courts will likely halt court actions in preference for arbitration.