Page 1

487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

102CC0
(EDITED VERSION – by Michael Risch)

MARC BRAGG, Plaintiff, v. LINDEN RESEARCH, INC. and PHILIP ROSE-

DALE, Defendants.

CIVIL ACTION NO. 06-4925

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF

PENNSYLVANIA

487 F. Supp. 2d 593

May 30, 2007, Decided

May 30, 2007, Filed; May 31, 2007, Entered

erty in and having access to this virtual world is, moreo-

MEMORANDUM
ver, apparently important to the plaintiff in this case.
EDUARDO C. ROBRENO, J.
1 The virtual world at issue is an interactive
May 30, 2007
computer simulation which lets its participants
This case is about virtual property maintained on a see, hear, use, and even modify the simulated ob-
virtual world on the Internet. Plaintiff, March Bragg, jects in the computer-generated environment. See
Esq., claims an ownership interest in such virtual prop- Woodrow Barfield, Intellectual Property Rights
erty. Bragg contends that Defendants, the operators of in Virtual Environments: Considering the Rights
the virtual world, unlawfully confiscated his virtual of Owners, Programmers and Virtual Avatars, 39
property and denied him access to their virtual world. Akron L. Rev. 649, 649 (2006) (defining virtual
Ultimately at issue in this case are the novel questions of world).
what rights and obligations grow out of the relationship 2 Second Life is hosted at
between the owner and creator of a virtual world and its http://secondlife.com.
resident-customers. While the property and the world 3 …Since the advent of computers, however,
where it is found are "virtual," the dispute is real. "avatar" is also used to refer to an Internet user's
virtual representation of herself in a computer
Presently before the Court are Defendants' Motion to game, in an Internet chat room, or in other Inter-
Dismiss for Lack of Personal Jurisdiction and Motion to net fora. See Wikipedia, Definition of Avatar,
Compel Arbitration. For the reasons set forth below, the available at http://en.wikipedia.org.
motions will be denied. 4 Judge Richard A. Posner has apparently
made an appearance in Second Life as a "balding
I. BACKGROUND bespectacled cartoon rendering of himself" where
he "addressed a crowd of other animated charac-
A. Second Life ters on a range of legal issues, including property
The defendants in this case, Linden Research Inc. rights in virtual reality." Alan Sipress, Where
("Linden") and its Chief Executive Officer, Philip Rose- Real Money Meets Virtual Reality, the Jury is
dale, operate a multiplayer role-playing game set in the Still Out, Washington Post, Dec. 26, 2006, at Al.
virtual world 1 known as "Second Life." 2 Participants
create avatars 3 to represent themselves, and Second Life B. Recognition of Property Rights
is populated by hundreds of thousands of avatars, whose In November 2003, Linden announced that it would
interactions with one another are limited only by the hu- recognize participants' full intellectual property protec-
man imagination. 4 According to Plaintiff, many people tion for the digital content they created or otherwise
"are now living large portions of their lives, forming owned in Second Life. As a result, Second Life avatars
friendships with others, building and acquiring virtual may now buy, own, and sell virtual goods ranging "from
property, forming contracts, substantial business rela- cars to homes to slot machines." Compl. P 7. 5 Most sig-
tionships and forming social organizations" in virtual nificantly for this case, avatars may purchase "virtual
worlds such as Second Life. Compl. P 13. Owning prop- land," make improvements to that land, exclude other
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487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

avatars from entering onto the land, rent the land, or sell garding the ownership of property on Second
the land to other avatars for a profit. Assertedly, by re- Life. Plaintiff states in an affidavit that he re-
cognizing virtual property rights, Linden would distin- viewed and relied on some of these representa-
guish itself from other virtual worlds available on the tions. Bragg Decl. PP 4-10, 65-68. It is of no
Internet and thus increase participation in Second Life. moment that Plaintiff did not rely upon every
single representation that Rosedale ever made
5 Although participants purchase virtual prop- regarding ownership of virtual property on
erty using the virtual currency of "lindens," lin- Second Life. The immense quantity of such re-
dens themselves are bought and sold for real U.S. presentations is relevant to showing that these are
dollars. Linden maintains a currency exchange not isolated statements, but rather, part of a na-
that sets an exchange rate between lindens and tional campaign in which defendant Rosedale in-
U.S. dollars. Third parties, including ebay.com, dividually and actively participated.
also provide additional currency exchanges.
[**7] Rosedale even created his own avatar and
Defendant Rosedale personally joined in efforts to held virtual town hall meetings on Second Life where he
publicize Linden's recognition of rights to virtual prop- made representations about the purchase of virtual land.
erty. For example, in 2003, Rosedale stated in a press Bragg Decl. P 68. Bragg "attended" such meetings and
release made available on Second Life's website that: relied on the representations that Rosedale made therein.
Id.
Until now, any content created by us-
ers for persistent state worlds, such as C. Plaintiffs' Participation in Second Life
Everquest(R) or Star Wars Galaxies TM,
In 2005, Plaintiff Marc Bragg, Esq., signed up and
has essentially become the property of the
paid Linden to participate in Second Life. Bragg claims
company developing and hosting the
that he was induced into "investing" in virtual land by
world. . . . We believe our new policy re-
representations made by Linden and Rosedale in press
cognizes the fact that persistent world us-
releases, interviews, and through the Second Life web-
ers are making significant contributions to
site. Bragg Decl. PP 4-10, 65-68. Bragg also paid Linden
building these worlds and should be able
real money as "tax" on his land. 7 By April 2006, Bragg
to both own the content they create and
had not only purchased numerous parcels of land in his
share in the value that is created. The
Second Life, he had also digitally crafted "fireworks"
preservation of users' property rights is a
that he was able to sell to other avatars for a profit. Bragg
necessary step toward the emergence of
also acquired other virtual items from other avatars.
genuinely real online worlds.
7 Linden taxes virtual land. In fact, according
to Bragg, by June 2004, Linden reported that its
Press Release, Linden Lab, Linden Lab Preserves Real
"real estate tax revenue on land sold to the par-
World Intellectual Property Rights of Users of its Second
ticipants exceeded the amount the company was
Life Online Services (Nov. 14, 2003). After this initial
generating in subscriptions." Compl. P 42.
announcement, Rosedale continued to personally hype
the ownership of virtual property on Second Life. In an The dispute ultimately at issue in this case arose on
interview in 2004, for example, Rosedale stated: "The April 30, 2006, when Bragg acquired a parcel of virtual
idea of land ownership and the ease with which you can land named "Taessot" for $300. Linden sent Bragg an
own land and do something with it . . . is intoxicating. . . email advising him that Taessot had been improperly
. Land ownership feels important and tangible. It's a real purchased through an "exploit." Linden took Taesot
piece of the future." Michael Learmonth, Virtual Real away. It then froze Bragg's account, effectively confis-
Estate Boom Draws Real Dollars, USA Today, June 3, cating all of the virtual property and currency that he
2004. Rosedale recently gave an extended interview for maintained on his account with Second Life.
Inc. magazine, where he appeared on the cover stating,
Bragg brought suit against Linden and Rosedale in
"What you have in Second Life is real and it is yours. It
doesn't belong to us. You can make money." Michael the Court of Common Pleas of Chester County, Penn-
Fitzgerald, How Philip Rosedale Created Second Life, sylvania, on October 3, 2006. 8 Linden and Rosedale
removed the case to this Court and then, within a week,
Inc., Feb. 2007. 6
moved to compel arbitration.
6 Plaintiff has inundated the Court with press
releases, newspaper articles, and other media 8 Bragg's complaint contains counts under the
containing representations made by Rosedale re- Pennsylvania Unfair Trade Practices and Con-
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487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

sumer Protection Law, 73 P.S. § 201-1, et seq. also has an interest, more particularly, in vindicating
(Count I), the California Unfair and Deceptive Bragg's individual rights. Finally, Bragg may obtain
Practices Act, Cal. Bus. & Prof. Code § 17200 convenient and effective relief in Pennsylvania, the state
(Count II), California Consumer Legal Remedies in which he initiated this action.
Act, Ca. Civ. Code § 1750, et seq. (Count III),
fraud (Count IV), the California Civil Code § III. MOTION TO COMPEL ARBITRATION
1812.600, et seq. (Count V), conversion (Count
Defendants have also filed a motion to compel arbi-
VI), intentional interference with a contractual
tration that seeks to dismiss this action and compel Bragg
relations (Count VII), breach of contract (Count
to submit his claims to arbitration according to the Rules
VIII), unjust enrichment (Count IX), and tortious
of the International Chamber of Commerce ("ICC") in
breach of the covenant of good faith and fair
San Fransisco.
dealing (Count X).
A. Relevant Facts
II. MOTION TO DISMISS FOR LACK OF PER-
SONAL JURISDICTION Before a person is permitted to participate in Second
Life, she must accept the Terms of Service of Second
[]
Life (the "TOS") by clicking a button indicating accep-
Bragg does not contend that general jurisdiction ex- tance of the TOS. Bragg concedes that he clicked the
ists over Rosedale. Rather, he maintains that Rosedale's "accept" button before accessing Second Life. Compl. P
representations support specific personal jurisdiction 126. Included in the TOS are a California choice of law
in this case. The Court therefore need only address provision, an arbitration provision, and forum selection
whether specific jurisdiction exists. clause. Specifically, located in the fourteenth line of the
thirteenth paragraph under the heading "GENERAL
In deciding whether specific personal jurisdiction is
PROVISIONS," and following provisions regarding the
appropriate, a court must first determine whether the
applicability of export and import laws to Second Life,
defendant has the minimum contacts with the forum
the following language appears:
necessary to have reasonably anticipated being haled into
court there. [] Second, once minimum contacts have
Any dispute or claim arising out of or
been established, a court may inquire whether the asser-
in connection with this Agreement or the
tion of personal jurisdiction would comport with tradi-
performance, breach or termination the-
tional conceptions of fair play and substantial justice. []
reof, shall be finally settled by binding ar-
The first step is mandatory, but the second step is discre-
bitration in San Francisco, California un-
tionary.
der the Rules of Arbitration of the Inter-
national Chamber of Commerce by three
[] The Court holds that Rosedale's representa- arbitrators appointed in accordance with
tions--which were made as part of a national campaign to said rules. . . . Notwithstanding the fore-
induce persons, including Bragg, to visit Second Life and going, either party may apply to any court
purchase virtual property--constitute sufficient contacts of competent jurisdiction for injunctive
to exercise specific personal jurisdiction over Rosedale. relief or enforcement of this arbitration
provision without breach of this arbitra-
[] tion provision.

The Court also finds that the exercise of personal ju-

risdiction in this case would not offend due process. [] TOS P 13.
Nothing on the record counsels strongly against jurisdic-
tion based on considerations of any undue burden to Ro- B. Legal Standards
sedale. Rosedale has not claimed that he does not have
the financial ability or that he would otherwise be irre- 1. Federal law applies
parably prejudiced by litigating this case here in Penn-
The Federal Arbitration Act ("FAA") requires that
sylvania. The Court also notes that Rosedale has able the Court apply federal substantive law here because the
counsel on both coasts, i.e., in both his home state of arbitration agreement is connected to a transaction in-
California and here in Pennsylvania. Additionally,
volving interstate commerce. []
Pennsylvania has a substantial interest in protecting its
residents from allegedly misleading representations that
induce them to purchase virtual property. Pennsylvania
 Page 4
487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

2. The Legal Standard Under the FAA come to the conclusion that the term is unenforceable,
and vice versa."). However, a claim of unconscionability
Under the FAA, on the motion of a party, a court
cannot be determined merely by examining the face of
must stay proceedings and order the parties to arbitrate
the contract; there must be an inquiry into the circums-
the dispute if the court finds that the parties have agreed
tances under which the contract was executed, and the
in writing to do so. 9 U.S.C. §§ 3, 4, 6. A party seeking
contract's purpose, and effect.
to compel arbitration must show (1) that a valid agree-
ment to arbitrate exists between the parties and (2) that (a) Procedural Unconscionability
the specific dispute falls within the scope of the agree-
A contract or clause is procedurally unconscionable
ment. []
if it is a contract of adhesion. [] A contract of adhesion,
While there is a presumption that a particular dispute in turn, is a "standardized contract, which, imposed and
is within the scope of an arbitration agreement, [] there is drafted by the party of superior bargaining strength, re-
no such "presumption" or "policy" that favors the exis- legates to the subscribing party only the opportunity to
tence of a valid agreement to arbitrate… adhere to the contract or reject it." Under California law,
"the critical factor in procedural unconscionability analy-
C. Application sis is the manner in which the contract or the disputed
clause was presented and negotiated." [] "When the
1. Unconscionabilty of the Arbitration Agreement weaker party is presented the clause and told to 'take it or
leave it' without the opportunity for meaningful negotia-
Bragg resists enforcement of the TOS's arbitration
tion, oppression, and therefore procedural unconsciona-
provision on the basis that it is "both procedurally and
bility, are present." see also Martinez v. Master Prot.
substantively unconscionable and is itself evidence of
Corp., 118 Cal. App. 4th 107, 12 Cal. Rptr.3d 663, 669
defendants' scheme to deprive Plaintiff (and others) of
(Ct. App.2004) ("An arbitration agreement that is an es-
both their money and their day in court." Pl.'s Resp. At
sential part of a 'take it or leave it' employment condi-
16.
tion, without more, is procedurally unconscionable.")
(citations omitted); O'Melveny & Myers, F.3d ,
Section 2 of the FAA provides that written arbitration 2007 U.S. App. LEXIS 11265, 2007 WL 1394530 at *6
agreements "shall be valid, irrevocable, and enforceable, (holding arbitration agreement presented on a
save upon such grounds as exist at law or in equity for take-it-or-leave-it basis was procedurally unconsciona-
the revocation of any contract." 9 U.S.C. § 2. Thus, ble, notwithstanding the fact that employee was provided
"generally applicable contract defenses, such as fraud, three months to walk away from employment before
duress, or unconscionability, may be applied to invali- agreement became effective).
date arbitration agreements without contravening § 2." []
The TOS are a contract of adhesion. Linden presents
When determining whether such defenses might apply to
the TOS on a take-it-or-leave-it basis. A potential partic-
any purported agreement to arbitrate the dispute in ques-
ipant can either click "assent" to the TOS, and then gain
tion, "courts generally . . . should apply ordinary
entrance to Second Life's virtual world, or refuse assent
state-law principles that govern the formation of con-
and be denied access. Linden also clearly has superior
tracts." [] Thus, the Court will apply California state law
bargaining strength over Bragg. Although Bragg is an
to determine whether the arbitration provision is uncons-
experienced attorney, who believes he is expert enough
cionable.
to comment on numerous industry standards and the
Under California law, unconscionability has both "rights" or participants in virtual worlds, see Pl.'s Resp.,
procedural and substantive components. [] The proce- Ex. A PP 59-64, he was never presented with an oppor-
dural component can be satisfied by showing (1) oppres- tunity to use his experience and lawyering skills to nego-
sion through the existence of unequal bargaining posi- tiate terms different from the TOS that Linden offered.
tions or (2) surprise through hidden terms common in the
Moreover, there was no "reasonably available mar-
context of adhesion contracts. Comb, 218 F. Supp. 2d at
ket alternatives [to defeat] a claim of adhesiveness." Cf.
1172. The substantive component can be satisfied by
Dean Witter Reynolds, Inc. v. Superior Court, 211 Cal.
showing overly harsh or one-sided results that "shock the
App. 3d 758, 259 Cal. Rptr. 789, 795 (Ct. App. 1989)
conscience." Id. The two elements operate on a sliding
(finding no procedural unconscionability because there
scale such that the more significant one is, the less sig-
were other financial institutions that offered competing
nificant the other need be. see Armendariz v. Foundation
IRA's which lacked the challenged provision). Although
Health Psychcare Servs., Inc., 24 Cal. 4th 83, 99 Cal.
it is not the only virtual world on the Internet, Second
Rptr. 2d 745, 6 P.3d 669, 690 (Cal. 2000) ("[T]he more
Life was the first and only virtual world to specifically
substantively oppressive the contract term, the less evi-
grant its participants property rights in virtual land.
dence of procedural unconscionability is required to
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487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

The procedural element of unconscionability also tion remedy must contain a "modicum of bilaterality."
"focuses on . . . surprise." [] In determining whether sur- This principle has been extended to arbitration provisions
prise exists, California courts focus not on the plaintiff's that allow the stronger party a range of remedies before
subjective reading of the contract, but rather, more ob- arbitrating a dispute, such as self-help, while relegating
jectively, on "the extent to which the supposedly to the weaker party the sole remedy of arbitration. 18
agreed-upon terms of the bargain are hidden in the prolix
printed form drafted by the party seeking to enforce the 18 The Court notes that the Third Circuit has
disputed terms." Id. In Gutierrez, the court found such found that "parties to an arbitration agreement
surprise where an arbitration clause was "particularly need not equally bind each other with respect to
inconspicuous, printed in eight-point typeface on the an arbitration agreement if they have provided
opposite side of the signature page of the lease." Id. each other with consideration beyond the promise
to arbitrate." Harris v. Green Tree Fin. Corp.,
Here, although the TOS are ubiquitous throughout
183 F.3d 173, 180-81 (3d Cir. 1999). In Green
Second Life, Linden buried the TOS's arbitration provi-
Tree, however, the Third Circuit was applying
sion in a lengthy paragraph under the benign heading
Pennsylvania law, not California law. Id. [EDI-
"GENERAL PROVISIONS." See TOS P 13. [] Linden
TOR’S NOTE: The Armendariz case relied on by
also failed to make available the costs and rules of arbi-
the Court was an employer/employee case, which
tration in the ICC by either setting them forth in the TOS
is treated differently than other arbitration
or by providing a hyper-link to another page or website
agreements. Should this affect the outcome?]
where they are available. Bragg Decl. P 20.
In Comb, for example, the court found a lack of
Comb is most instructive. In that case, the plaintiffs
mutuality where the user agreement allowed PayPal "at
challenged an arbitration provision that was part of an
its sole discretion" to restrict accounts, withhold funds,
agreement to which they had assented, in circumstances
undertake its own investigation of a customer's financial
similar to this case, by clicking their assent on an online
records, close accounts, and procure ownership of all
application page. 218 F. Supp. 2d at 1169. The defen-
funds in dispute unless and until the customer is "later
dant, PayPal, was a large company with millions of indi-
determined to be entitled to the funds in dispute." [] Also
vidual online customers. Id. at 1165. The plaintiffs, with
significant was the fact that the user agreement was
one exception, were all individual customers of PayPal.
"subject to change by PayPal without prior notice (unless
Id. Given the small amount of the average transaction
prior notice is required by law), by posting of the revised
with PayPal, the fact that most PayPal customers were
Agreement on the PayPal website." Id.
private individuals, and that there was a "dispute as to
whether PayPal's competitors offer their services without Here, the TOS contain many of the same elements
requiring customers to enter into arbitration agreements," that made the PayPal user agreement substantively un-
the court concluded that the user agreement at issue "sa- conscionable for lack of mutuality. The TOS proclaim
tisfie[d] the criteria for procedural unconscionability that "Linden has the right at any time for any reason or
under California law." Id. at 1172-73. Here, as in Comb, no reason to suspend or terminate your Account, termi-
procedural unconscionability is satisfied. nate this Agreement, and/or refuse any and all current or
future use of the Service without notice or liability to
(b) Substantive Unconscionability
you." TOS P 7.1. Whether or not a customer has
Even if an agreement is procedurally unconsciona- breached the Agreement is "determined in Linden's sole
ble, "it may nonetheless be enforceable if the substantive discretion." Id. Linden also reserves the right to return no
terms are reasonable." Id. at 1173 (citing Craig v. Brown money at all based on mere "suspicions of fraud" or other
& Root, Inc., 84 Cal. App. 4th 416, 100 Cal. Rptr. 2d 818 violations of law. Id. Finally, the TOS state that "Linden
(Ct. App. 2000) (finding contract of adhesion to arbitrate may amend this Agreement . . . at any time in its sole
disputes enforceable)). Substantive unconscionability discretion by posting the amended Agreement [on its
focuses on the one-sidedness of the contract terms. [] website]." TOS P 1.2.
Here, a number of the TOS's elements lead the Court to
In effect, the TOS provide Linden with a variety of
conclude that Bragg has demonstrated that the TOS are
one-sided remedies to resolve disputes, while forcing its
substantively unconscionable.
customers to arbitrate any disputes with Linden. This is
(i) Mutuality precisely what occurred here. When a dispute arose,
Linden exercised its option to use self-help by freezing
Under California law, substantive unconscionability
Bragg's account, retaining funds that Linden alone de-
has been found where an arbitration provision forces the termined were subject to dispute, and then telling Bragg
weaker party to arbitrate claims but permits a choice of that he could resolve the dispute by initiating a costly
forums for the stronger party. In other words, the arbitra- arbitration process. The TOS expressly authorized Lin-
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487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

den to engage in such unilateral conduct. As in Comb, fees must be advanced at the initiation of arbitration. See
"[f]or all practical purposes, a customer may resolve ICC Rules of Arbitration, Ex. D to Dfts.' Reply at 28-30.
disputes only after [Linden] has had control of the dis- California law has often been applied to declare arbitra-
puted funds for an indefinite period of time," and may tion fee-sharing schemes unenforceable. See Ting v.
only resolve those disputes by initiating arbitration. AT&T, 319 F.3d 1126, 1151 (9th Cir. 2003). [EDITOR’S
NOTE: A consumer case, this is not the general rule in
Linden's right to modify the arbitration clause is also
California]. Such schemes are unconscionable where
significant. "The effect of [Linden's] unilateral right to
they "impose[] on some consumers costs greater than
modify the arbitration clause is that it could . . . craft
those a complainant would bear if he or she would file
precisely the sort of asymmetrical arbitration agreement
the same complaint in court." Id. In Ting, for example,
that is prohibited under California law as unconsciona-
the Ninth Circuit held that a scheme requiring AT&T
ble. This lack of mutuality supports a finding of substan-
customers to split arbitration costs with AT&T rendered
tive unconscionability.
an arbitration provision unconscionable. Id. See also
(ii) Costs of Arbitration and Fee-Sharing Circuit City Stores v. Adams, 279 F.3d 889, 894 (9th Cir.
2002) ("This fee allocation scheme alone would render
Bragg claims that the cost of an individual arbitra-
an arbitration agreement unenforceable."); Armendariz, 6
tion under the TOS is likely to exceed $ 13,540, with an P.3d at 687 ("[T]he arbitration process cannot generally
estimated initiation cost of at least $ 10,000. Pl.'s Reply require the employee to bear any type of expenses that
at 5-6. He has also submitted a Declaration of Personal
[**46] the employee would not be required to bear if he
Financial Information stating that such arbitration would or she were free to bring the action in court.") (emphasis
be cost-prohibitive for him (doc. no. 41). Linden disputes in original); Ferguson v. Countrywide Credit Indus., 298
Bragg's calculations, estimating that the costs associated
F.3d 778, 785 (9th Cir. 2002) ("[A] fee allocation
with arbitration would total $ 7,500, with Bragg advanc- scheme which requires the employee to split the arbitra-
ing $ 3,750 at the outset of arbitration. See Dfts.' Reply at tor's fees with the employer would alone render an arbi-
11.
tration agreement substantively unconscionable.") (em-
At oral argument, the parties were unable to resolve phasis added).[EDITOR’S NOTE: These are employee
this dispute, even after referencing numerous provisions cases…]
and charts contained within the ICC Rules. See Tran. of
[]
2/5/07 Hrg. at 65-74. The Court's own calculations,
however, indicate that the costs of arbitration, excluding (iii) Venue
arbitration, would total $ 17,250. With a recovery of $
The TOS also require that any arbitration take place
75,000, 19 the ICC's administrative expenses would be $
in San Francisco, California. TOS P 13. In Comb, the
2,625 (3.5% of $ 75,000). See ICC Rules at 28. In addi-
Court found that a similar forum selection clause sup-
tion, arbitrator's fees could be set between 2.0% ($
ported a finding of substantive unconscionability, be-
1,500) and 11.0% ($ 8,250) of the amount at issue per
cause the place in which arbitration was to occur was
arbitrator. Id. If the ICC set the arbitrator's fees at the
unreasonable, taking into account "the respective cir-
mid-point of this range, the arbitrator's fees would be $
cumstances of the parties." [] As in Comb, the record in
4,875 per arbitrator. Id. Here, however, the TOS requires
this case shows that Linden serves millions of customers
that three arbitrators be used to resolve a dispute. TOS P
across the United States and that the average transaction
13. Thus, the Court estimates the costs of arbitration with
through or with Second Life involves a relatively small
the ICC to be $ 17,250 ($ 2,625 + (3 x $ 4,875)), al-
amount. See id. In such circumstances, California law
though they could reach as high as $ 27,375 ($ 2,625 +
dictates that it is not "reasonable for individual consum-
(3 x $ 8,250)). 2
ers from throughout the country to travel to one locale to
arbitrate claims involving such minimal sums." Id. In-
19 The Court's calculations are based on its
deed, "[l]imiting venue to [Linden's] backyard appears to
finding that $ 75,000 is at issue, the minimum
be yet one more means by which the arbitration clause
necessary to satisfy the requirements of diversity
serves to shield [Linden] from liability instead of pro-
jurisdiction in this case. After a hearing on
viding a neutral forum in which to arbitrate disputes." Id.
Bragg's motion to remand this case back to state
court, the Court found that this jurisdictional (iv) Confidentiality Provision
threshold had been met (doc. no. 14).
Arbitration before the ICC, pursuant to the TOS,
These costs might not, on their own, support a find- must be kept confidential pursuant to the ICC rules. See
ing of substantive unconscionability. However, the ICC ICC Rules at 33. Applying California law to an arbitra-
Rules also provide that the costs and fees must be shared tion provision, the Ninth Circuit held that such confiden-
among the parties, and an estimate of those costs and tiality supports a finding that an arbitration clause was
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487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

substantively unconscionable. Ting, 319 F.3d at 1152. account, refuse access to the virtual and real currency
The Ninth Circuit reasoned that if the company succeeds contained within that account, and then confiscate the
in imposing a gag order on arbitration proceedings, it participant's virtual property and real estate. A partici-
places itself in a far superior legal posture by ensuring pant wishing to resolve any dispute, on the other hand,
that none of its potential opponents have access to after having forfeited its interest in Second Life, must
precedent while, at the same time, the company accumu- then initiate arbitration in Linden's place of business. To
lates a wealth of knowledge on how to negotiate the initiate arbitration involves advancing fees to pay for no
terms of its own unilaterally crafted contract. Id. The less than three arbitrators at a cost far greater than would
unavailability of arbitral decisions could also prevent be involved in litigating in the state or federal court sys-
potential plaintiffs from obtaining the information tem. Moreover, under these circumstances, the confiden-
needed to build a case of intentional misconduct against tiality of the proceedings helps ensure that arbitration
a company. See id. itself is fought on an uneven field by ensuring that,
through the accumulation of experience, Linden becomes
This does not mean that confidentiality provisions in
an expert in litigating the terms of the TOS, while plain-
an arbitration scheme or agreement are, in every in-
tiffs remain novices without the benefit of learning from
stance, per se unconscionable under California law. See
past precedent.
Mercuro v. Superior Court, 96 Cal. App. 4th 167, 116
Cal. Rptr.2d 671, 679 (Ct. App.2002) ("While [the Cali- Taken together, the lack of mutuality, the costs of
fornia] Supreme Court has taken notice of the 'repeat arbitration, the forum selection clause, and the confiden-
player effect,' the court has never declared this factor tiality provision that Linden unilaterally imposes through
renders the arbitration agreement unconscionable per the TOS demonstrate that the arbitration clause is not
se.") (citations omitted). Here, however, taken together designed to provide Second Life participants an effective
with other provisions of the TOS, the confidentiality means of resolving disputes with Linden. Rather, it is a
provision gives rise for concern of the conscionability of one-sided means which tilts unfairly, in almost all situa-
the arbitration clause. [] tions, in Linden's favor. As in Comb, through the use of
an arbitration clause, Linden "appears to be attempting to
Thus, the confidentiality of the arbitration scheme
insulate itself contractually from any meaningful chal-
that Linden imposed also supports a finding that the ar-
lenge to its alleged practices." 218 F. Supp. 2d at 1176.
bitration clause is unconscionable.
The Court notes that the concerns with procedural
(v) Legitimate Business Realities
unconscionability are somewhat mitigated by Bragg's
Under California law, a contract may provide a being an experienced attorney. However, "because the
"margin of safety" that provides the party with superior unilateral modification clause renders the arbitration
bargaining strength protection for which it has a legiti- provision severely one-sided in the substantive dimen-
mate commercial need. "However, unless the 'business sion, even moderate procedural unconscionability rend-
realities' that create the special need for such an advan- ers the arbitration agreement unenforceable."
tage are explained in the contract itself, . . . it must be
Finding that the arbitration clause is procedurally
factually established." [] When a contract is alleged to be
and substantively unconscionable, the Court will refuse
unconscionable, "the parties shall be afforded a reasona-
to enforce it.
ble opportunity to present evidence as to its commercial
setting, purpose, and effect to aid the court in making the 2. "Bluelining" the Arbitration Agreement
determination." The statutory scheme reflects "legisla-
Alternatively, Linden has offered to ameliorate the
tive recognition that a claim of unconscionability often
one-sidedness of the TOS's arbitration provision by sug-
cannot be determined merely by examining the face of
gesting that Linden could waive the requirements for
the contract, but will require inquiry into its setting, pur-
three arbitrators, post the initial fees of arbitration, and
pose, and effect."
agree to arbitrate in Philadelphia instead of San Francis-
Here, neither in its briefing nor at oral argument did co. See Dfts.' Sur-Reply Brf. at 2-3 (doc. no. 2).
Linden even attempt to offer evidence that "business
California law allows a court to "blueline" an arbi-
realities" justify the one-sidedness of the dispute resolu-
tration agreement to remove an element that renders it
tion scheme that the TOS constructs in Linden's favor.
substantively unconscionable. See Cal. Civ. Code §
(c) Conclusion 1670.5(a) ("If the court as a matter of law finds the con-
tract or any clause of the contract to have been uncons-
When a dispute arises in Second Life, Linden is not
cionable at the time it was made the court may refuse to
obligated to initiate arbitration. Rather, the TOS ex-
enforce the contract, or it may enforce the remainder of
pressly allow Linden, at its "sole discretion" and based
the contract without the unconscionable clause, or it may
on mere "suspicion," to unilaterally freeze a participant's
 Page 8
487 F. Supp. 2d 593, *; 2007 U.S. Dist. LEXIS 39516, **

so limit the application of any unconscionable clause as force. Rather than provide a reasonable alternative for
to avoid any unconscionable result."). However, a court dispute resolution, this agreement compels a one-sided
is not obligated to blueline when an "arbitration provi- resolution of disputes between the parties.
sion is so permeated by substantive unconscionability
that it cannot be cured by severance or any other action IV. CONCLUSION
short of rewriting the contract." Where an arbitration
For the reasons set forth above, the Court will deny
provision has "multiple defects that indicate a systematic
Rosedale's motion to dismiss for lack of jurisdiction. The
effort to impose arbitration on [the plaintiff], not simply
Court will also deny Defendants' motion to compel
as an alternative to litigation, but as an inferior forum
[*613] arbitration. An appropriate order follows.
that works to [the defendant's] advantage," and there
simply is "no single provision [the court] can strike or
ORDER
restrict in order to remove the unconscionable taint from
the agreement," the court can simply refuse to enforce AND NOW, this 30th day of May, 2007, it is here-
the arbitration provision. Id. (citing Armendariz, 6 P.3d by ORDERED [**56] that defendant Philip Rosedale's
at 696). Motion to Dismiss for Lack of Jurisdiction (doc. no. 2)
and defendant Linden Research, Inc.'s Motion to Compel
The arbitration clause before the Court is simply not
Arbitration (doc. no. 3) are DENIED.
one where a single term may be stricken to render the
agreement conscionable. "The unilateral modification It is FURTHER ORDERED that Plaintiff's Motion
'pervade[s]' and 'taint[s] with illegality' the entire agree- for Leave to File Supplemental Briefs in Opposition to
ment to arbitrate, [and] severance of terms within the Defendants Motions to Dismiss and to Compel Arbitra-
arbitration clause would not cure the problem. tion to Address Issues Raised by the Court at Argument
on February 5, 2007 (doc. no. 34) is DENIED as moot.
[]
The Court declines to rewrite the agreement, at Lin- AND IT IS SO ORDERED.
den's request, to save an unconscionable arbitration pro-
S/ Eduardo C. Robreno, J
vision which Linden itself drafted and now seeks to en-