How companies weaponize the terms of service against you

24:04He was writing before pervasive arbitration. He was writing before a pretty unhappy American public staring at tech companies saying, no, we can just take whatever we want to make AI, right? Like something has shifted in the public, in the perception of big tech, whatever you want to say. It's an angrier country. It's a more unhappy country. The people feel more exploited. And Scalia would have had to open up his Mac and click 10 ,000 terms of service agreements. And it just feels like something has changed. Like any justice today, and maybe they're all still in bubbles in the ivory tower and they don't experience what regular people experience.

24:42But everyone else feels it. And to just participate in society, you're agreeing to 10 ,000 contracts every day that you definitely don't read. The legal fiction that anyone has actually read these contracts is like the foundation of the American economy. It feels like we should maybe look at that more thoroughly. No one can negotiate them. And they change all the time. And all of that, you know, I'm just thinking back to my law school education. I'm like, oh, those are just unconscionable contracts. Like those are contracts of adhesion. Like to literally use my phone, I've entered into some agreement with Apple that no one can negotiate.

25:19That seems ridiculous to me. And to participate in society, I must use my phone. So now there's a secondary legal system that is mediating my relationship to the country and the world. And literally no one can look at it. Do you think that that is going to change? Because it doesn't seem that tenable to me. I don't think it's going to change at the Supreme Court, not with a change in personnel. You know, I'm referencing some studies that are a little old now. But, you know, if you look at actually how the Supreme Court has ruled for corporations, I believe that this is the most pro-corporate Supreme Court, at least since the 19th century.

25:58So I think the Supreme Court rules for the Chamber of Commerce somewhere in the order of 80 % of the time or higher. This was before Justice Jackson joined the court. But as I recall, Justice Sotomayor was previously the most anti-corporate justice on the court. And even her decisions were 50 % for the Chamber of Commerce. So we live in an era where the Supreme Court in particular is just enormously deferential to corporations. I think that's probably for at least two reasons. One is, you know, getting appointed to the Supreme Court has now become a multimillion-dollar operation. So, you know, a single donor gave$17 million to help get Justice Kavanaugh appointed to the court, similar numbers for Justice Gorsuch and so forth.

26:45And so, you know, if you have that kind of money that's necessary to put somebody on the court, chances are the person that's going to get put on the court is pretty sympathetic to the people with that kind of money. I also think that there's something about the nature of Supreme Court litigation itself that has changed, which is the Supreme Court has become much more insular over the past several decades. So back in the day, the people that were arguing cases in the Supreme Court were by and large the people that started the cases in the district court, you know, in whatever state they happened to be in.

27:14And now I think it's 20 lawyers and clinics now are responsible for arguing something like 50 percent of all cases before the Supreme Court. And by and large, those lawyers represent large corporate interests. And so, you know, the folks that are most successful and most liked by the justices, by and large, are the ones telling them a sort of pro-corporate story. So I don't think that there's really going to be a change at the Supreme Court level, but I do believe that there is going to be change nationally for exactly the reasons that you're talking about. I think that there's widespread dissatisfaction with corporate power right now.

27:51I think it is the very rare person that feels that corporations have too little power in America. So I think that there's going to be a lot of change, but I think change is by and large going to happen at the state and local level rather than at least in the Supreme Court or in Congress. This is the sort of the last third of your book. How do you fix it? And you lay out a few ways of fixing it and getting people away from the coercion of forced arbitration agreements. The first thing you could do is you could just fix arbitration itself. What would that look like? One of the reasons that I think corporations are so attracted to forced arbitration is it's unlike a regular court.

28:30So, you know, in regular court, court happens out in open so people know that it's not corrupt. Decisions are written down so that, you know, people who have similar cases can reference those and be treated similarly. And if the judge makes a mistake, that decision can get appealed. None of those things are necessarily true in arbitration, which generally occurs in secret. Oftentimes, decisions are written down. In fact, sometimes companies contract that they specifically aren't. And ironically, it's actually much harder to appeal an arbitrator's decision than it is to appeal a real judge's decision.

29:01So there are ways that we can make arbitration more fair by requiring certain disclosures, by allowing procedural fairness, you know, so that plaintiffs can actually get the what we, you know, you're a lawyer, what we call discovery from the other side. And, you know, allow or require decisions to actually be written down and shared. We can also require arbitration companies to actually share the statistics on how arbitrators rule. You know, one of the advantages that companies have is you and I are probably going to arbitrate one case in our life. A company might arbitrate dozens or hundreds or thousands.

29:38And so they know which arbitrators to pick, and we don't. But by requiring actual disclosure on how arbitrators rule on things, you actually have a better chance of picking one that's going to be fair to you. So all those may sound like incremental changes, but I will say the more that arbitration can become like a regular court, both arbitration itself will become fairer and companies will become less attracted to it because they're specifically attracted to it right now because it's not like court. There are some states that have tried to do all this. Is it effective? Yeah. California's made a lot of progress on this.

30:11You know, one of the biggest changes that they've made is not just making arbitration fairer, but actually finding ways to get people out of arbitration in the first place. And there's this law called the Private Attorneys General Act, PAGA. And it's really smart. So what it says is if you're an employee that's, you know, been harmed by your company, you didn't get the wages you were deserved, you were discriminated against, or whatever it happens to be, and you sign an arbitration agreement, normally that's too bad. You can't sue your company. But we're going to say to you, employee, that you can represent us, the state, which can enforce all these same laws in the state labor department.

30:48And you're representing us in a lawsuit against the company. And if you win, the state will get a cut and you'll get the rest. But what's so clever about that is while you're bound by an arbitration agreement, the state is not. And so it's effectively a way to circumvent arbitration agreements. Now, that's great for employment law, and I think it has made California employees much better treated than a lot of other states. We need to expand that sort of legislation to all sorts of laws, to consumer protection laws, securities and anti-fraud laws, antitrust, and so forth. If we can do that, then we can narrow down arbitration to become a much smaller part of our lives, and companies are going to treat us better.

31:26Can I just ask about that? I mean, obviously, you were a federal prosecutor in a previous life. There's a part of me that says our approach to the American legal system right now generally is like a series of hacks and magic words. Like we can't just go and do the policy issue. We have to be like, I deputize you to be a state attorney general. So escape the contract that you signed. And now the state will get a cut of your private litigation. And we've just created a whole other set of weird policy problems instead of just solving the policy problem. Why does that keep happening? Well, you keep employing lawyers, and that's something that we do.

32:02Yeah. So, no, I think you're exactly right that we – I think we have a lot of sort of odd hacks to deal with some sort of structural injustices in our legal system that are hard to solve. So much of the workarounds that we've been having about trying to come up with new regulations at the federal level is because it's become so increasingly hard to pass legislation in Congress. You know, the reason why we're having to do so many things at the state level right now is because the Supreme Court has been so adverse to progressive change at the federal level and so forth. So I definitely think that we have to have these sort of awkward workarounds.

32:38I will say, though, that, you know, awkward workarounds have been a fact of human existence. And, you know, as profoundly unfair in many ways as our legal system is and probably more unfair than it was a few decades ago, it is vastly better than what we had 60 years ago when we had effectively had an apartheid state in the United States or 100 years ago when, you know, during the Gilded Age when, you know, we were interpreting our antitrust laws to break up unions but not corporations and so forth. So, you know, maybe I'm just too captured by my own profession, but I sort of see it as a cost of doing business in any sort of human society where we're all flawed.

33:16Yeah. I think I just, I look at it from, I don't know, maybe I just want the system to be more elegant. Right. That's your Silicon Valley background. Yeah. Right. That's just, I'm a tech person. I'm like, this computer makes no sense. Like, you should make a different, better computer. You know, I think terms of service agreement should be illegal. Like, fundamentally, I think they are unconscionable contracts. I think you can point to forcing people into arbitration as one element of them being unconscionable. You can point to just the fact that no one can negotiate them. And the bald truth that literally no one reads them is a problem.

33:48Like I think it is bad that a huge amount of the American economy is predicated on no one reading the contract at scale. Like you should probably fix that problem in some way. And if you take a step back and you – at least for me, it's like how would you fix that problem? Well, the state, which represents all of us, should negotiate the contract. It should write a privacy law. Yeah. Right? And that should be the foundation of whatever contract comes next, but it should pre-negotiate the floor. And we – as you point out, maybe Congress seems incapable of pre-negotiating the floor. Yeah. And maybe I'm taking this in an odd direction, but I think you're exactly right.

34:26And in a lot of ways, our governments made that literally harder to do. Like back in the 90s, Montana passed a law to try to make it – if you had an arbitration agreement in your contract, contractually you had to put it on the first page. You had to notify people that you had an arbitration agreement. That very straightforward law got struck down by the Supreme Court and said that it was actually discriminating ironically against arbitration agreements. So, you know, there's a lot of impediments to those sorts of things. And I think you're exactly right that, you know, sort of at a high level, I think this is, these are the responsibilities, as you say, of, you know, democracy to resolve a lot of these issues.

35:02I will say sometimes I think talking sort of at a high level of generality can be paralyzing in its own way. Because, you know, when you talk about sort of how everything in its own way is broken, it sort of makes it impossible to fix it. It's like if you're depressed and you're looking at your apartment, it's in a mess. You're like, I can't do anything about it. Whereas if you think like, okay, I'm going to focus on the kitchen right now and start doing that, it becomes a much more solvable problem, which is sort of why I chose to focus on this seemingly fairly technical issue of forced arbitration.

35:35Because I thought if I get people to focus on this thing specifically, I thought it would help them understand both sort of how things get broken, but also like, here's how we can fix this one specific thing. And I think that actually can be kind of empowering for people.

35:51we're going to pause here for another short break we'll be back in just a minute

36:02support for this show comes from adobe acrobat we all know sending a file is easy making sure your clients understand the file is the hard part but with pdf spaces and adobe acrobat you can give your clients the full picture with custom intros, audio summaries, and a helpful AI assistant. So if you want to stop the endless follow-ups, do that with Acrobat. Need to make your docs crystal clear? Do that with Acrobat. Want to make sure your clients get everything they need to hear? Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat.

36:45Welcome back. I'm talking with Brendan Ballew about forced arbitration. We've been discussing how, as a system, it's fundamentally unfair for consumers, which is to say, basically everyone. And that raises an obvious question. What can we do about it? The reason I talked about hacks and magic words is, yeah, we can try to go through the front door and fix it with state laws that tweak arbitration. And then your proposal is like, we should just break the system. We should just do mass arbitration and cost these companies a lot of money and make that entire operation just untenable. Explain what you mean by breaking arbitration.

37:19This was, you know, you're talking about hacks. This was a fascinating one. So, you know, arbitration, you know, like you said, is meant to kill class action so that, you know, each person has to bring a case individually. It's too expensive for each person to do it. So nobody ever does it. One thing that the companies who were doing this just messed up on is in order to make these agreements seem facially a little more fair, they said, we're going to pay for the initial cost of the arbitration. We'll even pay for the arbitrator. You just have to start the arbitration. And some very smart lawyers said, OK, we're going to take you up on your offer.

37:53And we are going to initiate thousands of arbitrations all at once. And you have to pay for all of them all at once. It's clear that the companies just never even considered the possibility that a lot of people would arbitrate their cases because as soon as they did, they tried to back out of their own agreements and said, we actually don't think we should pay these tens of millions of dollars that we promised to pay. There were some very funny court decisions where judges who had been watching sort of their powers slip away and consumers' powers slip away through arbitration say, you know, it is sort of the height of irony that these companies are now trying to escape these things and compelled them to pay these costs.

38:32So mass arbitration is really a way to turn arbitration on its head and actually say, okay, companies, if you're going to force us to do this, we're actually going to do it, but you're going to have to pay a bunch of costs, which creates leverage for consumers and employees. I will say, I think that's great. And in some ways, mass arbitration can actually be very helpful for certain kinds of cases. For a year, I was involved in a mass arbitration representing employees who had been illegally sued by Elon Musk at Twitter. And Shannon Ellis Reardon, who's just a fabulous attorney, was leading that whole effort.

39:05But companies are trying to get smart and figure out ways to avoid paying any money or moving to even less reputable arbitration providers that have rules that are so skewed, rules that sometimes the companies even helped write to try to kill these mass arbitrations. Tell me the story of suing Elon Musk on Twitter. It was fascinating. And, you know, there's certain limitations of what I can talk about. But, you know, again, Shannon and her team were the real heroes on this. But it was fascinating because Elon Musk summarily fired 2 ,000 employees and had clearly promised severance that he refused to pay.

39:42And, you know, these employees had unfortunately signed arbitration agreements, which by and large prohibited them from being class actions. And so Shannon, the team, I was part of it, decided to say, okay, we're actually going to represent these hundreds or thousands of employees and individually arbitrate. Can't get into the details, but I think that we had enormous success, and I hope Elon Musk doesn't make the same mistake twice. Can you not get into the details because the arbitration agreements keep you from talking about the details? I don't know if it's the specific arbitration agreements, but being a lawyer in general, sometimes when you're doing these cases, you have to be kind of cagey about things.

40:15It does seem like Elon, he just doesn't want to pay the money, and now he's rolling up all of his companies. He might IPO SpaceX in some way. Somehow Twitter is now part of SpaceX. It's all very confusing. Did that all just wrap up because he needed it to go away? It does seem like he's sort of rebuilding the Korean conglomerates that you see going on, where you have a single family running 18 different kinds of businesses, often supporting each other financially, or the Japanese, what is it, Koretsu banking conglomerates that you had, those Koretsu collapsed in the 1990s. And Japan's had a multi-decade recession as a result.

40:56So I'm not sure Elon Musk is necessarily going to do better than that. But speaking personally, I am enormously skeptical of Elon Musk's financial acumen. I feel like I should have you back just so we can talk about weird Korean cable all corruption scandals, including the Samsung family and the horror tracing thing. That's a different episode. I think you would grow your audience, not shrink it, but yeah. Mass arbitration, the idea that you can cost these companies an enormous sum of money just by making them enforce their own agreements, they are pushing back against it. There's some instances where, I don't know, Valve, the video game company, took their arbitration cause out of its agreement because of mass arbitration.

41:32Then there's Bank of America, which changed its user agreement but forces individual arbitration. And that's going to go into effect, I think, the week after we're talking. It's coming. Is that going to be effective? Is it going to push back on the idea that you can hack the system this way? At the beginning of mass arbitration, it was easy because the companies just hadn't considered the possibility. And so we're completely caught off guard and had committed to paying millions of dollars to consumers that, you know, if they had been strategic, would not have done. The challenge that you've got is that there are what are called arbitration companies.

42:06So AAA and JAMS are the two largest ones that actually provide the arbitrators for these companies. They are businesses and are in the business of providing arbitration. And so the rules of the game that they set, they are naturally inclined, whether they would admit it or not. You know, they have a natural incentive to make the rules favorable to the companies that are actually paying for arbitration and that are the repeat players and these sorts of things. So there is a natural incentive for these guys to make arbitration ever less fair for consumers and employees, which I think, to your point about the power of the state, is just one more reason why we need democracy to constrain forced arbitration as an institution in general.

42:48Ian, it's funny. You brought up the AAA. We just had Bridget McCormack. She was the chief justice of the Michigan Supreme Court. She's now the CEO of the American Arbitration Association. We talked about this kind of at length, right? Her proposal was we should just have AI do it. Like there's some set of arbitration that – between construction firms. This is where they're starting. It's documents-only construction cases. And she was like, you don't need an arbitrator. Like these are actually both sophisticated parties. They both show up in front of us all the time. All the cases can be resolved on the nature of the contracts and whatever delivery invoice was late or on time or whatever.

43:22And the AI can just do it. And that is perceived as more fair. And they can just move on with their lives. There's something to that, right? If you perceive the entire justice system to already be so unfair, at least Chat TV is going to listen to you. You can just talk to it until it gives in and says, I've issued a ruling. And there's some data saying that people will perceive that to be more fair because they were at least listened to. That does feel like the next turn. You open your Verizon app and you're like, I didn't get service today. I'm arbitrating my bill for the month. And some combination of arbitration and customer support merges into a chat bot and delivers you an outcome.

43:58And that seems very bad. It also seems like where all of these companies want to go. What does that look like to you? Speaking personally, it's horrifying. I don't want to be a Luddite about these things. And I think AI can be very useful for certain parts of legal work, document review, and so forth. I think that there are two problems here. One, at a very high level, is when you're talking about dispute resolution, lawyers are, one, paid to understand the individual nuances of each case rather than sort of the generalities. And I have often found that sort of AI bots have been very ineffective at actually writing sophisticated legal briefs that are specific to a case because they can write sort of the generic section about what the legal standard is and so forth.

44:42but actually understanding the nuances of the case, it's more than just a matter of natural language processing. But even if they were perfect at it, I think, you know, for a justice system to work, people need to be bought into its legitimacy. And I think it's very hard to buy into the legitimacy of, you know, a large language model that's essentially a black box. How can people possibly believe that it was ultimately fair? I'll also say just at a more practical, technical level, one of the challenges we alluded to this earlier that you have with forced arbitration is that decisions often aren't written down or if they are written down, they're not made public.

45:18And the reason why that's so important in a functioning legal system, it's actually kind of sort of the key to a legal system, is that similar cases get treated similarly. That's what justice is. And when decisions aren't made public, it's actually literally impossible to come up, you know, to actually create a case law upon which people can make decisions. And so the way that arbitration is currently structured, even if in every other respect it was fair, if you have an AI that has no corpus of case law to rely on, the decisions are going to be ultimately arbitrary and case dependent and have no internal consistency.

45:57When I think about that, there's so much about AI and LLMs in the ether that is related to dynamic outcomes. You're going to talk to the system and the system will understand you and something will happen for you that maybe isn't happening for someone else. Uber CEO was just on the show and they're redoing all of their actual customer support to deliver dynamic outcomes. And instead of having written policies, they're basically just going to tell the AI, like, here are the vibes we want customers to feel. And I asked them, like, you're going to back into having policies because you still want the perception of being fair.

46:28And right next to that is all these companies instituting dynamic pricing, which is fundamentally unfair. And right next to that is they're all signing up for forced arbitration agreements where the outcomes can be totally arbitrary. And you will never know if your case was resolved next to the next case. And when you say justice is about like the same set of facts having the same outcomes, it feels like that's rippling through the entire experience of being an American right now. that you can be treated differently in almost every case, in every interaction in some way. Do you think just changing arbitration is like the first step towards being like, actually, we need to treat people more fairly.

47:04We need to equalize the outcomes instead of at every case saying, oh, like you have a credit card that's tied to this airline. We can see your spending. Your price is going to be up for this route, which is just we're barreling towards that every single day. That's a really profound question. And I've never really thought about it, though. Thank you for asking that. I certainly think at a practical level, forced arbitration, ending forced arbitration or constraining forced arbitration can help solve that. You know, when you talk about the problems, the dynamic pricing or the sort of personalization that an Uber CEO is promising, maybe even with the best of intentions, is likely going to create, violate a whole bunch of laws.

47:47So you can imagine a world in which otherwise well-intentioned dynamic pricing dramatically discriminates against people based on their race. Or dynamic, you know, hiring practices ends up discriminating, you know, in making job offers and so forth, dramatically discriminates against people based on their gender. So I think that this sort of attempt at personalization, intentionally or not, is probably going to violate a whole bunch of laws. And unless we constrain forced arbitration, it is going to be very hard for anybody to challenge those. I do think, in a sense, you know, the sort of arbitrariness that we're all experiencing, I really like the way that you've put it, can in some ways be chalked up to forced arbitration.

48:32And I don't want to sort of overpromise this one sort of thing, but maybe it's part of a larger story in that as so much of our societal disputes sort of get channeled outside of the public justice system and we don't have the development of the body of law and we don't have sort of public discussion of these issues. Yeah, I do think we grow sort of increasingly balkanized and isolated. And, you know, sort of at a certain level, sort of definitionally what we are as a society begins to fray. I mean, now we're deep into my own feelings. So just I apologize. Please go with me for one second. I have always thought that what The Verge sells to people is a sense of hope.

49:11Like we cover people who make things and we cover companies who build really remarkable things. And then people use those things to build new things. Like it's just the cycle of what a tech magazine is. Like fundamentally, we're like, here's some new stuff. Do you like it? And then people say, now I can make a different kind of music than ever existed before. And that is very fun. And lately I have sensed just an overwhelming kind of nihilism from our audience, particularly our young audience. And I relate it very much to a feeling of powerlessness. And I relate that feeling of powerlessness directly to arbitrary outcomes.

49:45We started by talking about corruption, right? And what is corruption except you're rich so you don't have – the justice system won't touch you. Or you can spend enough money to make the DOJ go away. And I – maybe it's – maybe putting all enforced arbitration is too much. Maybe you can't bear all the weight. But there's some part of it where it's like, where do you begin? How do you escape the sense that everything is arbitrary and actually the system should be more fair? And maybe the system should be more elegant, but maybe we actually just have to do a bunch of hacks to make it more fair. No, that's a really deep sentiment.

50:16And I both understand it and don't agree with it because I taught a class at Stanford last year on January 6th and talking to young students about like the current political moment and both. And it was, you know, very unsettling both how deeply young students were thinking about so many of these issues and at the same time how scared they were to act on them. Not just because the problem seemed so large that it was paralyzing, but because they were literally worried about getting doxxed or losing their job outside of college or law school or whatever it happened to be if they said the wrong thing.

50:52And so I completely understand sort of the people's sense of sort of overwhelming despair and nihilism. I will say, you know, I am not particularly despairing. I'm not particularly nihilistic in large part because of the work that I do. So I am fortunate in that I get to talk to a lot of people who have done one specific thing, which is they have chosen a issue that they care about, and then they stick with it for several years. And I, over and over again, this happens to me about every six to nine months, I'm astounded by the amount of change that one person has had on a specific issue just because they stuck with it for one year or three years or 20 years or whatever it happens to be.

51:34You know, I watched a handful of people completely change the prison phone industry. I watched a handful of people, like, make mobile housing in their communities dramatically more fair. And so, you know, it kind of goes back to what we were talking about earlier in our discussion. Whereas I think when your viewers and when your listeners and when your readers sort of see things in the macro, I completely understand how disparate it is. But I will say I remain incredibly hopeful about the power of individual people if they stick with something to make progress because I have seen it happen over and over and over again.

52:09Well, Brennan, I think that's as good of a place to end it as I can think of. How should people think about escaping arbitration now? How should people think about taking more control over this one aspect of things? You're not going to escape it by reading your contracts more carefully because most of them aren't negotiable and Verizon's not going to let you negotiate them. So we're not going to ethically consume our way out of this problem. This is, to your earlier point, something we are going to solve collectively. Ultimately, that's going to happen in city councils and state legislatures. I worked with a young, very smart University of Chicago law student to draft some model legislation.

52:44I have a personal website, brendanballou.com, where you can download it, send it to your legislator, and get them starting to pass some laws. So I think that is the practical way that we're going to make progress here. The book is called When Companies Run the Courts. It's a great read. The previous book was called Plunder About Private Equity. Still comes up on Decoder all the time. I recommend that one as well. Brendan, we're going to have to have you back, and we'll just do more therapy for me personally. Thank you so much for being on Decoder. Thank you. I'd like to thank Brendan Ballou for taking the time to join me on Decoder.

53:13and thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode or really anything else at all, drop us a line. You can email us at decoderattheverge.com. We really do read all the emails. You can also hit me up directly on Threads or Blue Sky. Decoder's on YouTube. It's at decoderpod. It's also on TikTok and Instagram with the same handle. Those channels are a lot of fun. If you like Decoder, please share it with your friends and subscribe or read your podcasts. Decoder's production of The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt.

53:37Our editor is Ursa Wright. Our editorial director is Kevin McShane. The Decoder Music is by Breakmaster Cylinder. We'll see you next time.

54:10Do that with Acrobat.