Historically, many website operators have included a provision in their published website terms and conditions or terms of use (Terms) governing how a website visitor is able to resolve disputes with the website operator. Recently, due to a proliferation of privacy-related litigation relating to the use of tracking technologies embedded on websites, website operators are reconsidering the most effective ways to address the dispute resolution mechanism included in the Terms.
Why Has Arbitration Historically Been the Industry Standard?
Arbitration has long been the preferred method for website operators to handle disputes with website visitors because it offers some key advantages over other mechanisms for dispute resolution, such as mediation and litigation:
- Efficiency: Arbitration proceedings typically proceed to a resolution faster than court litigation does, which reduces the time and resources spent on resolving disputes.
- Lower Costs: Arbitration is generally less expensive than litigation because it requires lower legal fees and preparation costs compared to traditional trials, and decisions are generally not appealable.
- Confidentiality: The private nature of arbitration helps protect companies’ reputations.
- Control: Companies can select the arbitrator and establish their own rules for the proceedings, which provides a tailored approach to dispute resolution.
What is Causing This Change?
These benefits have made mandatory arbitration provisions a staple in website Terms. However, the benefits of maintaining mandatory arbitration provisions appear to be waning. This shift can be largely attributed to the rise in tracking-technology litigation, as website operators face privacy-related challenges by plaintiffs under federal laws such as the Electronic Communications Privacy Act (ECPA) and the Video Privacy Protection Act (VPPA), as well as state laws like California’s Invasion of Privacy Act (CIPA). While the use of tracking technologies, such as cookies and pixel tags, are common features of websites, increased complaints about these tools pose a significant challenge for website operators that rely on traditional arbitration provisions.
Mass arbitrations, which are the filing of hundreds or even thousands of individual claims on behalf of website visitors, have created administrative burdens and high costs for website operators, as website operators generally pay for most or all of the arbitration fees. Because of this strategy, website operators are recognizing the need to adapt to the complexity and volume of data-privacy actions by reevaluating their default dispute-resolution strategy. This reevaluation includes revising arbitration clauses to include mechanisms like bellwether processes, where a small number of cases are resolved first in order to guide the resolution of subsequent cases. Notably, at least one court has refused to compel arbitration of a class action against a website operator on the grounds that its arbitration agreement, including the mass-arbitration bellwether provision, was unenforceable because it was “permeated by provisions which are unconscionable and violative of New Jersey public policy.”[1] Another option is to require informal dispute resolution before arbitration, such as mediation. Additionally, some website operators are considering opting out of mandatory arbitration altogether, or at least carving out data-privacy disputes from the general arbitration provision, to allow disputes to be handled by the courts; this might result in more litigated class actions than in the past.Â
What Options Do Website Operators Have?
There are several strategic options to address these challenges. For example, website operators may consider revising arbitration clauses, opting out of arbitration altogether, and utilizing alternative dispute-resolution mechanisms. Each of these approaches have distinct pros and cons:
Option | Pros | Cons |
|---|---|---|
Revise arbitration clauses | Streamlines mass claims, potentially reducing administrative burdens and costs with bellwether processes. Alternatively, if privacy-related claims are carved out, this would allow the website operator to maintain the benefits of the arbitration provision while mitigating the risks of mass arbitrations stemming from privacy-related complaints. | Remains costly. The revised clauses may be challenged and struck down in court, limiting their effectiveness. |
Opt out of mandatory arbitration | Allows disputes to be handled by the courts. The burdens of dealing with numerous individual claims can be ameliorated with class actions. | Exposes companies to the possibility of larger payouts, increased public/media scrutiny. Heightened legal risks. |
Flexible, less adversarial, and more suitable for resolving certain types of less complex disputes. | May not be suitable for complex cases. Outcomes are somewhat less predictable, in line with their increased informality. |
Each option requires careful consideration based on the website operator’s industry, size, customer base, and the legal environment in which it operates. For example, revising an arbitration clause might involve carving out privacy-related claims from the provision’s scope. Accordingly, it is important for website operators to discuss tailoring strategies with an experienced attorney.
The approach that any individual company might take to tailoring its website Terms is highly dependent on a variety of factors, including its specific industry, operational scale, customer demographics, and the regulatory environment it is subject to and operates within. Varnum’s experienced data privacy team can help your business navigate this changing landscape and assess the risks and benefits of possible approaches. Varnum is well-equipped to assist in that decision-making process, offering comprehensive guidance so you can make informed decisions about dispute resolution strategies, ensuring alignment with both legal requirements and business objectives.
[1]
See Achey v. Cellco P’ship, 475 N.J. Super. 446, 450; 293 A.3d 551, 553–554 (App. Div. 2023).