photo by magnus johnasson

Dropbox arbitration clause: should I opt-out or not?

on February 27 | in Commercial, Consumers, IT | by | with No Comments

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If you’re a Dropbox user, I guess you already got their email. Dropbox is updating their Terms of Service and it’s letting people know (updates will be effective as of March 24th). The most interesting part is the mandatory arbitration clause. Notably, they say this:


and the other arbitration rules on the Dropbox site go like this:

Arbitration Procedures. The American Arbitration Association (AAA) will administer the arbitration under its Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes. The arbitration will be held in the United States county where you live or work, San Francisco (CA), or any other location we agree to.

Arbitration Fees and Incentives. The AAA rules will govern payment of all arbitration fees. Dropbox will pay all arbitration fees for claims less than $75,000. If you receive an arbitration award that is more favorable than any offer we make to resolve the claim, we will pay you $1,000 in addition to the award. Dropbox will not seek its attorneys’ fees and costs in arbitration unless the arbitrator determines that your claim is frivolous.

Exceptions to Agreement to Arbitrate. Either you or Dropbox may assert claims, if they qualify, in small claims court in San Francisco (CA) or any United States county where you live or work. Either party may bring a lawsuit solely for injunctive relief to stop unauthorized use or abuse of the Services, or intellectual property infringement (for example, trademark, trade secret, copyright, or patent rights) without first engaging in arbitration or the informal dispute-resolution process described above.

No Class Actions. You may only resolve disputes with us on an individual basis, and may not bring a claim as a plaintiff or a class member in a class, consolidated, or representative action. Class arbitrations, class actions, private attorney general actions, and consolidation with other arbitrations aren’t allowed.

Judicial forum for disputes. In the event that the agreement to arbitrate is found not to apply to you or your claim, you and Dropbox agree that any judicial proceeding (other than small claims actions) will be brought in the federal or state courts of San Francisco County (CA). Both you and Dropbox consent to venue and personal jurisdiction there.

In practice, they leave you the option to opt-out from the mandatory arbitration until the 23th of April (30 days after TOS come into force), by filling up a module.

Should you opt-out or not?

I read conflicting opinions. In particular, the Consumerist and  the Lawyerist are for opting out whereas Brian Rogers  (the Contracts Guy) is for staying in and so Josh King (Single Speed Seattle).

To sum up:

Some things to put on the floor. 

  • If you accept the arbitration clause, you waive the right to bring a lawsuit and participate in class actions; to give up to class actions seems relevant. However, how many times class actions really end with substantial reimbursement for consumers? It seems a very small part, because companies usually settle the matter and consumers get screwed up (in 5 cases out of 6, consumers get at most only 12% of what they asked, according to this source).
  • On the other hand, many says arbitration results are more often in favour of companies than consumers. Statistically speaking, from a quick research, we found  this report on the credit card market that states consumers lost the arbitration 94% of the times; but to be fair, we also found some studies that put this in doubt, saying that consumer arbitrations scores comparatively better than lawsuits;
  • Dropbox says you can still bring lawsuits in case of small claims;
  • Moreover Dropbox pays the arbitration fees up to $ 75.0000;
  • Dropbox will pay $1,000 in addition to the arbitration award if the arbitrator awards you more than the last offer on the table before the arbitration commences;
  • Generally speaking, arbitration is faster than courts proceedings, although evidences investigation is more superficial;

So, what you should do? Especially if you are in Europe and less likely to fly to the US in case something goes wrong. 

Consider this: The trade off is not between arbitration and class action but between arbitration and individual lawsuit. Why? Well, imagine 2 scenarios.

Scenario with mandatory arbitration. (if you don’t opt out)

You didn’t opt out from mandatory arbitration, cool. So, if  something goes wrong and the claim is small, you can still file a suit with the small claim procedure. However, if the claim is larger, you are bound by arbitration. It’s true that Dropbox will pay the costs. But if, as seen before, arbitration courts decisions bend heavily toward the business, there are good chances that you fly to the US for meeting the guys at AAA and then lose the arbitration with Dropbox. If, on the other hand, those stats don’t tell all the truth, you could also win the arbitration. Who knows?

Scenario without mandatory arbitration. (if you opt out)

You opted out from mandatory arbitration, cool. So, if something goes wrong and if the claim is small, you can file a lawsuit with the small claim procedure or participate in a class action.  However class actions may not be the best option, provided that in 5 cases out of 6, consumers get at most 12% of what they asked, according to this source. So probably you should choose small claims procedure anyway.

If the value of the claim exceeds the limit for small claims procedure, you have the class action or  you still have the traditional, lengthy, costly lawsuit, in California, where the jurisdiction is set. If you choose the class action you risk the company settles and you get less of what you expected anyway: 12% of what you asked is not that much. If you choose the individual procedure, you risk to lose and pay the legal expenses, but you can also win. The risk is up to you. Do you have the money for a lawsuit, and you think you are likely to succeed? Go for that. If you haven’t, on the other hand, a class action won’t satisfy your rights anyway.

Let me repeat that: the trade off is not between arbitration and class action. It’s between arbitration and traditional legal procedure. 

That is: in both cases -legal procedure and arbitration- the outcome is not certain. But traditional legal procedure is long and costly: arbitration is short and it comes almost free. Which one you pick?

Finally, consider that, whatever solution you choose, you still have to bear all the non-legal costs: you are in the EU, remember. Are you likely to spend time and money to fly to the US for defending your rights, if the claim is small? Consider also the possible claims that may arise, provided your business and the use you make of Dropbox. Do you use it for business? Are you likely to sue them if Dropbox loses or damages your important business files? Or do you use it for exchanging pictures? And in that case, would you sue them if you find out that your privacy was breached?




[picture by magnus johnasson, source: flickr]

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