California Leads the Way in Ending Big Tech’s Legal Shell Game

If something new is happening related to the technology industry, it has historically come out of California. From its infancy in the mid-1970s when Apple was founded in a garage in Los Altos to the numerous modern-day startups that have been birthed out of Silicon Valley, much of the country has historically looked to the Golden State for clues as to future industry trends.

It naturally makes sense then that California has been a leader in devising ways to hold these tech companies accountable. Specifically, a series of statutes in the California code today serve as a reference point in addressing corporate responsibility practices among large technology companies and could serve as a model for other states at a critical time.

In recent years, more and more tech companies have engaged in a legal shell game to try and avoid accountability. Most recently, they have engaged in this behavior by rewriting their terms of service to mandate arbitration in an attempt to circumvent class action litigation, which has historically been the primary way, and many will argue is still the best way for consumers to hold companies accountable.

The mass tort system is working currently through some issues with abuses and excesses, and as a result the companies compelling arbitration rationalize this practice on the premise that it serves the interests of consumers. Unfortunately, experience demonstrates that often times, it does not. Arbitration in its simplest form is a proceeding in which a mediator is chosen to provide a final and binding ruling between parties involved in an ongoing dispute. A private process that is far less fair and transparent than a court proceeding, it lacks judges and juries, is under no obligation to follow legal precedent, and offers limited avenues for appeals.

Mandatory arbitration clauses, in effect, force customers to forego all rights to a trial and instead agree to arbitration as a prerequisite for using their products. Given the fact that such requirements are often buried deep within terms of service (which can run for pages), studies have unsurprisingly shown that most consumers don’t even realize that they have waived this right.

Fortunately, it now appears that some in the legal community have found a way to once again level the playing field by turning to mass arbitration. The legal strategy, which involves filing thousands of individual arbitration claims, could cost companies millions in fees just to commence the proceedings. The costs are separate from any judgment that may be levied, and as such, the prospect of these fees can often be used as leverage to obtain an equitable settlement for plaintiffs that have been wronged. But now that arbitration no longer suits them, these companies are engaging in a new legal shell game by refusing to participate in the system they created or attempting to change venues or arbitrators halfway through proceedings.

Take Samsung, for example, which is currently facing a mass tort action for collecting, storing, and using the biometric data of its customers without its consent. The case, which started in the U.S. District for Northern California has since moved to Illinois but has stalled out as Samsung refuses to pay more than $200 million, its share of costs for the very arbitration proceedings it mandated. Plaintiffs have now sued to compel arbitration.

Printer maker Epson, meanwhile, has similarly tried to evade accountability from nearly 4,000 Californians who are seeking damages. The company pushed through a mandatory software update which disabled their printers’ ability to use cheaper third-party ink, in an alleged violation of the federal Sherman Antitrust Act. When it became clear to Epson that arbitration was not going to favor them, they tried to change the rules of the game by not only claiming some plaintiffs never had an agreement to arbitrate but also trying to change arbitration providers and refusing to pay their share of fees after a failed mediation.

As more companies try to game the mass arbitration system in such ways, the need for a comprehensive revamp of our dispute resolution mechanics is apparent. Two key sections of the Annotated California Code, Section 1281.97 and 1281.98 lay out repercussions if the drafting party of an arbitration agreement does not pay the necessary fees to initiate proceedings. Penalties can include losing the right to compel arbitration as well as compelling the drafting party to pay the attorney’s fees and costs related to arbitration and efforts to compel arbitration. These can provide a model for other states to provide a justice system that promotes fairness, transparency, and accountability.

While not perfect, and susceptible to abuses in its own way, mass arbitration is currently one of the only defenses Americans have against tech companies that increasingly engage in activities that violate their privacy, limit the use of their products, and stifle the free speech of conservatives. Moreover, and on a basic fairness and moral level, these companies created this system, and therefore they should be forced to abide by it.