To Use Xbox Live, Gamers Must Give Up Class-Action Rights

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NEW YORK (MainStreet) – There was a lot to look forward to in Microsoft’s (Stock Quote: MSFT) latest software update to Xbox Live, with the new online gaming service offering a Windows 8-style user interface and the ability to use voice and motion commands with the Kinect accessory. But gamers who rushed to download the new software when it rolled out on Tuesday and Wednesday got something else they weren’t expecting: A new terms of service agreement that makes users give up their right to file a class-action lawsuit.

The clause in question notes that “if you live in the United States, you and Microsoft agree that if you and Microsoft do not resolve any dispute by informal negotiation… any effort to resolve the dispute will be conducted exclusively by binding arbitration… you understand and acknowledge that by agreeing to binding arbitration, you are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury.”

To be fair, Microsoft made no effort to conceal these terms, calling users’ attention to the clause with an all-caps message at the top of the new agreement.

This isn’t the first time the gaming industry has ventured into these binding arbitration agreements either. Sony’s (Stock Quote: SNE) PlayStation Network suffered a massive data breach earlier this year that resulted in the leak of millions of customers’ personal information, and led to at least one class-action suit that charged the company with failing to adequately secure users’ data. In September, Sony quietly added a binding arbitration clause of its own to its terms of service, clearly seeking to duck the possibility of further class-action suits in the event of a similar breach in the future.

The company said in a statement that the changes to the agreement “are designed to ensure that our customers have an easy way to file a dispute without requiring formal legal action.” The company also noted that customers are not precluded from bringing legal action in small claims court.

Still, the end result is that most subscribers to the Xbox Live service no longer have an important consumer protection tool, the class-action lawsuit, at their disposal. In its place is a conflict resolution method that consumer advocates say is less friendly to consumers and lacks the transparency of a courtroom proceeding.

“Private arbitration tribunals are much more expensive for consumers and the incentives are all there for them to rule in favor of the corporation,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. “They get paid by arbitrations handled, so there’s an inherent bias –if the arbitrator rules against the corporation, the likelihood of getting selected again disappears.”

He adds that unlike the traditional legal system, it’s almost impossible to appeal an arbitration decision.

Unfortunately, gamers who want to keep using Xbox Live have no choice but to sign off on the new terms of service. Refusing to do so means that the software update won’t be applied, which in turn means that you’re automatically signed out of the service. If there’s one consolation for gamers, the company says that subscribers who opt to cancel their subscription because of the new terms of service can get a refund for their unused time by calling customer support.

Matt Brownell is a staff reporter for MainStreet. You can reach him by email at matthew.brownell@thestreet.com, or follow him on Twitter @Brownellorama.

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