This year in July, Pokémon GO has unleashed and the world will never be the same. The internet is now exploding with proof of the irrationality this app has been nurturing among its avid users (see for instance how people injured themselves by falling off cliffs or getting shot at; how South Koreeans discovered a Pokémon gym in the demilitarized zone and flocked there to play the game; or the human stampedes in American parks where people teamed up to find some rare Pokemon).
All in all, this game as well as people’s reactions to it are all pretty silly. Spotting teams of young adults on the streets of Chicago and seeing how immersed they are in the augmented reality game is without a doubt a new level of disturbing (and I am myself a big gaming fan).
However, what is most definitely not silly is how behind this surging new fad there is an entire web of legal rules users will most likely never read or become aware of.  Literature suggests that even when companies use boilerplates, they might not have a negative impact on consumers,  but I would like to analyse this topic from a different angle.
Companies catering to international users tend not to differentiate between the various features of the legal markets they enter – for instance, Niantic (the company behind Pokémon Go) will not issue Europe-specific or US-specific standard terms. In a nutshell, the main reason for that might be the fact that it would take too many resources for Niantic to do so (too many laywers, too much comparative law knowledge, etc.), and thus only having one version of general terms would not burden them with unnecessary transaction costs. This makes sense commercially. However, looking at the standard terms themselves, it seems that Niantic does take this issue into account, as it included a total of 147 words (out of a total of 6515) especially on users coming from the European Union:
Purchases by End Users Outside the U.S.
Virtual Money and Virtual Goods may only be purchased and held by legal residents of countries where access to and use of the Services are permitted. If you live in the European Union, you have certain rights to withdraw from online purchases. However, please note that once you download Virtual Money from us, your right of withdrawal ends. You agree that (a) purchase of Virtual Money involves immediate download of such Content; and (b) you lose your right of withdrawal once your purchase is complete. If you live in the European Union, we will provide you with a VAT invoice when we are required to do so by law. You agree that these invoices may be electronic in format. We reserve the right to control, regulate, change, or remove any Virtual Money or Virtual Goods without any liability to you.
Apart from the United States (and California, important for choice of law), this fragment mirrors the only other specific reference to a geographical location in the standard terms. So a minimal differentiation is indeed made, and the terms even go so far as to recognize the quintesentially European statutory withdrawal right. Still, many of the terms of service (find them here) are worlds away from the consumer protection standards mandated on the continent. In this contribution I want to focus on two specific such terms dealing with: (a) mandatory arbitration/opt-out (already rising eyebrows in the news); and (b) the limitation of liability.
Before diving into these juicy clauses, we need to first understand why exactly Niantic mentions European consumer protection in their terms: is it because they want to, or because they have to (or is it some sort of in-between where they might think they do not, but they should)?
The very basic tenets of private international law and consumer protection – the European chapter – go as follows: if a company targets consumers from the European Union, they have to give them the rights enshrined in European law. Article 6 of the Rome I Regulation, applicable to contractual obligations (and governing private international law matters relevant to EU consumers) states that:
1. Without prejudice to Articles 5 and 7, a contract concluded by a natural person for a purpose which can be regarded as being outside his trade or profession (the consumer) with another person acting in the exercise of his trade or profession (the professional) shall be governed by the law of the country where the consumer has his habitual residence, provided that the professional:
a) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or
b) by any means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities.
The discussion on the interaction of European mandatory rules (like the one above) and international choice of law (especially in general terms) is by no means an easy one. However, it can be simplified by arguing that the very reference to European Union protection confirms the conditions in Article 6 Rome I, so for this brief analysis we will continue with the presumption that European law is applicable to the contracts between Niantic and European Union users (even UK ones for the time being).
If that is the case, then what happens to the extensive and mean-looking mandatory arbitration clause?
Agreement to Arbitrate
You and Niantic agree that any dispute, claim, or controversy arising out of or relating to these Terms or the breach, termination, enforcement, interpretation, or validity thereof or the use of the Services or Content (collectively, “Disputes”) will be settled by binding arbitration, except that each party retains the right: (a) to bring an individual action in small claims court and (b) to seek injunctive or other equitable relief in a court of competent jurisdiction to prevent the actual or threatened infringement, misappropriation, or violation of a party’s copyrights, trademarks, trade secrets, patents, or other intellectual property rights (the action described in this clause (b), an “IP Protection Action”). Without limiting the preceding sentence, you will also have the right to litigate any other Dispute if you provide Niantic with written notice of your desire to do so by email or regular mail at email@example.com or 2 Bryant St., Ste. 220, San Francisco, CA 94105 within thirty (30) days following the date you first accept these Terms (such notice, an “Arbitration Opt-out Notice”). If you don’t provide Niantic with an Arbitration Opt-out Notice within the thirty (30) day period, you will be deemed to have knowingly and intentionally waived your right to litigate any Dispute except as expressly set forth in clauses (a) and (b) above. The exclusive jurisdiction and venue of any IP Protection Action or, if you timely provide Niantic with an Arbitration Opt-out Notice, will be the state and federal courts located in the Northern District of California, and each of the parties hereto waives any objection to jurisdiction and venue in such courts. Unless you timely provide Niantic with an Arbitration Opt-out Notice, you acknowledge and agree that you and Niantic are each waiving the right to a trial by jury or to participate as a plaintiff or class member in any purported class action or representative proceeding. Further, unless both you and Niantic otherwise agree in writing, the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of any class or representative proceeding. If this specific paragraph is held unenforceable, then the entirety of this “Dispute Resolution” section will be deemed void. Except as provided in the preceding sentence, this “Dispute Resolution” section will survive any termination of these Terms.
In principle, the Court of Justice of the European Union has, in the past, answered questions on mandatory arbitration clauses in consumer contracts to the extent that it obliged courts to assess out of their own motion whether such clauses are in conformity with the Unfair Contract Terms Directive. This means that if a consumer sues Niantic and claims the arbitration clause to be unfair, a national court will have to apply the unfairness test in the aforementioned Directive (Article 3). The result, however, is not very easy to speculate. The following characteristics might be important in determining whether the clause is unfair or not: 1. the clause does provide the consumer with an opt-out, so it is not a fully lock-in clause; 2. it does allow for exceptions for small claims and injunctions; and 3. it includes a very clearly worded waiver in the case of no opt-out, whereby the consumer gives up the right to a trial by jury or class action participation. How points 1 and 2 might weight in the analysis of the clause and make a court say there is no significant imbalance and no detriment to the consumer is a question only a judge can answer. I would be curious to see a European judgment embracing arbitration administrered by the American Arbitration Association. All in all, I would dare say this is a clause that opens Niantic to various litigation risks in the European market.
I also promised to look at the limitation of liability:
TO THE EXTENT PERMITTED BY APPLICABLE LAW, NEITHER NIANTIC NOR TPC OR TPCI OR ANY OTHER PARTY INVOLVED IN CREATING, PRODUCING, OR DELIVERING THE SERVICES OR CONTENT WILL BE LIABLE TO YOU FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY, OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS, LOSS OF DATA, OR GOODWILL, SERVICE INTERRUPTION, COMPUTER DAMAGE, OR SYSTEM FAILURE OR THE COST OF SUBSTITUTE SERVICES, ARISING OUT OF OR IN CONNECTION WITH THESE TERMS, OR FROM THE USE OF OR INABILITY TO USE THE SERVICES OR CONTENT, OR FROM ANY COMMUNICATIONS, INTERACTIONS, OR MEETINGS WITH OTHER USERS OF THE SERVICES OR PERSONS WITH WHOM YOU COMMUNICATE OR INTERACT AS A RESULT OF YOUR USE OF THE SERVICES, WHETHER BASED ON WARRANTY, CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY, OR ANY OTHER LEGAL THEORY, AND WHETHER OR NOT NIANTIC, TPC, OR TPCI HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, EVEN IF A LIMITED REMEDY SET FORTH HEREIN IS FOUND TO HAVE FAILED OF ITS ESSENTIAL PURPOSE. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, SO THE FOREGOING LIMITATION OF LIABILITY SHALL APPLY TO THE FULLEST EXTENT PERMITTED BY LAW IN THE APPLICABLE JURISDICTION.
IN NO EVENT WILL THE TOTAL LIABILITY OF NIANTIC, TPC, OR TPCI ARISING OUT OF OR IN CONNECTION WITH THESE TERMS OR FROM THE USE OF OR INABILITY TO USE THE SERVICES OR CONTENT EXCEED ONE THOUSAND DOLLARS ($1,000). THE EXCLUSIONS AND LIMITATIONS OF DAMAGES SET FORTH ABOVE ARE FUNDAMENTAL ELEMENTS OF THE BASIS OF THE BARGAIN BETWEEN NIANTIC AND YOU.
Once again, looking at this from a European perspective, the Unfair Contract Terms Directive would be one of the applicable sets of rules. One option to test the appropriateness of the Niantic clause would be to look at the list of examples set in the Annex to the Directive, of terms which may be regarded as unfair. The second clause on the list already seems to be quite a high match:
(b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations […]
This clause would again have to stand a test by a national judge who would once more assess fairness according to Article 3 of the Directive. While we can argue that Niantic did not draft this term against good faith, what this 260 words clause is saying is this: no matter what happens, Niantic is not liable. Unless the law says it is and then it is only liable to the minimum extent the law says it is. And no matter what, they will not pay you more than $1000 in damages.
At first sight, you can even wonder: $1000 is not really that bad for an app, is it? Well let me share with you some observations based on my own game-play.
You have to buy virtual money with real money, and then you get to spend that on various perks. The best deal gets you a Pokécoin for €0,006. Which might not really seem like a lot. But then again, I have managed to last for 2 days and a half before my 48 free Pokéballs ran out (now that is a sentence I would have never thought I would write on this blog). For full disclosure, I did manage to catch a total of 121 Pokémons with that load, playing for an average of 15 minutes per day (while trying to hide away from my colleagues here at the Summer Institute of Law and Economics in Chicago, or going all out and catching Pokémons on their shoulders in the name of empirical research).
There are some who claim you do not necessarily have to invest in your play if you know how to maximize the free perks. But the more you play, the more you get hooked, and the more you feel you need to evolve that Eevee. Remember the human stampede at the beginning of this post? There are similar videos showing people pushing one another to get ahead (tort alert!), and it will not be long until we get news about people selling their houses and kidneys to support this Pokémon Go craze. After all, some of them are already quitting their jobs just to play the game and this in itself could also be a loss.
While this brief and colorful detour might not have brought solid evidence to believe that consumers might end up suffering damages greater than $1000, it showed that there are some serious grounds to consider that (and I have not even touched upon privacy issues and personal data). So in the light of this, I would tend to say that the limitation of liability is a very classically consumer-unfriendly term the European consumer protection landscape has long moved away from.
In conclusion to this analysis, it is simply fascinating to witness truly disruptive technology developments. Whether and how this will affect the consumer as a person with (some) rights, only time can tell.
 See for instance Omri Ben-Shahar’s theories on the failure of mandated disclosure in Omri Ben-Shahar & Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure (Princeton: Princeton University Press, 2014).
 See for instance Florencia Marotta‐Wurgler, ‘Are “Pay Now, Terms Later” Contracts Worse for Buyers? Evidence from Software License Agreements’, Journal of Legal Studies, Vol. 38, No. 2 (June 2009), pp. 309-343.
 See for instance Yuko Nishitani, ‘Contracts Concerning Intellectual Property Rights’, inFranco Ferrari & Stefan Leible,Rome I Regulation: The Law Applicable to Contractual Obligations in Europe (Munich: Sellier, 2009), p. 72.
 See an overview of Asturcom Telecomunicaciones and Mostaza Claro on the Conflict of Laws blog.