California Court of Appeal: Plaintiffs bound to arbitration in online license agreement

Courts State Issues California Arbitration Agreement

On March 29, the California Court of Appeal for the Fourth Appellate District held that plaintiffs are bound to the terms of an arbitration agreement contained in a defendant video game company’s online license agreement, reversing a trial court’s finding that there was no conspicuous notice of an arbitration agreement and that a reasonably prudent user would not have had notice. According to the opinion, the plaintiff minor used “real money” to make in-game purchases of “loot boxes,” which offered players “randomized chances” to obtain desirable or helpful items. The minor and his father (collectively, “plaintiffs”) sued the defendant, alleging the sale of these loot boxes constituted unlawful gambling, and, thus, violated the California Unfair Competition Law. The defendant moved to compel arbitration based on a dispute resolution policy incorporated into various iterations of the online license agreement that users were presented when they signed up for, downloaded, and used the defendant’s service. The trial court denied the defendant’s motion for the reasons stated above, which the defendant appealed. In addition to agreeing to an end-user license agreement containing an arbitration provision when the plaintiff initially registered and downloaded the game, the defendant maintained that the plaintiff agreed to arbitration several times when the license agreement was updated.

Reviewing whether the defendant’s various notices sent to the plaintiff minor before the purchase of the loot boxes were sufficient to compel arbitration, the Court of Appeal concluded that the pop-up presenting an updated license agreement, which was the operative agreement when the plaintiff minor purchased the loot boxes, “provided sufficiently conspicuous notice.” The court also determined that the notice of arbitration itself appeared in a scrollable text box that included a section clearly titled dispute resolution, and that by clicking the “Continue” button the user was agreeing to all the terms of the license agreement. Specifically, the Court of Appeal held that the plaintiff minor could not have continued to use the defendant’s service if he did not click the “Continue” button. “In the context of the transaction at issue, we conclude [defendant’s] pop-up notice provided sufficiently conspicuous notice of the arbitration agreement such that Plaintiffs are bound by it,” the Court of Appeal wrote.