Lessons from Google AdWords Arbitration Clause: Novation, Retroactive Application, Scope

Arbitration Mediation

Google’s arbitration and class action waiver provisions in their AdWords agreement provides some lessons for lawyers who draft contracts, particularly ones accepted online and updated via notice, as well as lawyers who litigate over enforcement of arbitration.  The recent case of Mark Trudeau and Troy Martial Arts, Inc. v. Google LLC illustrate some of Google’s contract language and methods of updating their contracts.  That case was litigated in California which many court followers opine is a pro-consumer, anti-arbitration jurisdiction; if so, this means that Google’s legal strategy is developed to the point it can withstand scrutiny under unfriendly analysis.

Of note, we previously discussed similar retro-active application issues in Adtrader, Inc. v. Google LLC.

The primary issues at play:

  • Is the arbitration clause procedurally and substantively unconscionable?
  • Google inserted an arbitration clause in 2017 — does it apply retroactively when the contract had been in existence since 2012?
  • Did Google properly modify the contract through notification to the other party?

In the Trudeau case, the contract began in 2012.  At the time, Google’s 2006 Terms of Service (TOS) were in effect.  In 2013, Google’s clients were given notice and asked to accept this retroactivity term:

11 Term. Google may add to, delete from or modify these Terms at any time without
liability. The modified Terms will be posted at www.google.com/ads/terms.
Customer should look at these Terms regularly. The changes to the Terms will not
apply retroactively and will become effective 7 days after posting. However,
changes specific to new functionality or changes made for legal reasons will be
effective immediately upon notice. . . .

In 2017, Google then added this changes-to-terms provision which allowed Google to make “non-material” changes at any time, without notice, but would give notice of “material” changes.  The latter are NOT retroactive and go into effect in 7 days; if the changes are for “legal reasons,” then they go in effect immediately.  Of note, there’s no discussion of the definition or application of words/phrases like material, non-material, and legal reasons.

12 Changes to Terms. Google may make non-material changes to these Terms at
any time without notice, but Google will provide advance notice of any material
changes to these Terms. The Terms will be posted at google.com/ads/terms. Other
than changes made under Section 13(G), the changes to the Terms will not apply
retroactively and will become effective 7 days after posting.  However, changes made
for legal reasons will be effective immediately upon notice.

At the same time in 2017, this was the arbitration provision Google added.  For the purpose of the Trudeau case, see the underlined portion:

13 Dispute Resolution Agreement.
A. Arbitration of disputes. Google, Customer, and Advertiser agree to arbitrate all
disputes and claims between Google and Customer or between Google and
Advertiser that arise out of or relate in any way to the Programs or these Terms. This
agreement to arbitrate (“Dispute Resolution Agreement” or “Section 13”) is intended
to be broadly interpreted and includes, for example:

1. claims brought under any legal theory;

2. claims that arose before Customer or Advertiser first accepted any version of these
Terms containing an arbitration provision;

3. claims that may arise after the termination of Customer’s or Advertiser’s Use of
the Programs; . . . .

The arbitration provision also included a 30-day opt out period, stating:

F. 30-day opt out period. Customer (both for itself and for any Advertiser that
Customer represents) and Advertiser have the right to opt out of this Dispute
Resolution Agreement. A Customer or Advertiser who does not wish to be bound
by this Dispute Resolution Agreement (including its waiver of class and
representative claims) must notify Google as set forth below within 30 days of the
first acceptance date of any version of these Terms containing an arbitration
provision (unless a longer period is required by applicable law). Customer’s or
Advertiser’s notice to Google under this subsection must be submitted via webform
available at adwords.google.com/nav/arbitration. An opt-out notice does not revoke
or otherwise affect any previous arbitration agreement between Customer and
Google or between Advertiser and Google.

Finally, also in 2017, Google added a futures changes to the dispute resolution clause which, as suggested, allows Google to amend the arbitration clause in the future:

G. Future changes to Dispute Resolution Agreement. If Google makes any changes
to this Dispute Resolution Agreement (other than a change to Google’s Notice
Address), Customer or Advertiser may reject any such change by notifying Google
via webform as set forth in Section 13(F) within 30 days of the change. It is not
necessary to submit a rejection of the future change to this Dispute Resolution
Agreement if Customer or Advertiser had properly opted out of arbitration in
compliance with the requirements of Section 13(F). By rejecting a future change,
Customer or Advertiser is agreeing that it will arbitrate any dispute in accordance
with the language of this Dispute Resolution

In an email to its customers about the insertion of this arbitration provision, Google wrote, “Please
review these Terms carefully. They include the use of binding arbitration to resolve disputes
rather than jury trials or class actions. Please follow the instructions in the terms below if you
wish to opt out of this provision.

So let’s go back to answer our three bullet-pointed questions:

  • Is the arbitration clause procedurally and substantively unconscionable?

In its relevant parts, here’s what the California court wrote:

A district court faced with a petition to enforce an arbitration clause engages in a limited
two-part inquiry: first, it determines whether the arbitration agreement is valid, and second, it
determines whether the agreement encompasses the claims at issue. Ashbey v. Archstone Prop.
Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015). A district court does not consider challenges to
the contract as a whole, but rather only specific challenges to the validity of the arbitration clause
itself. See Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70 (2010) (noting the “two types of
validity challenges” but holding that only challenges to the validity of the agreement to arbitrate
are “relevant to a court’s determination whether the arbitration agreement at issue is enforceable”).

Under
California law, a contractual clause is unenforceable only if it is both procedurally and
substantively unconscionable. See Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir.
2006). The Ninth Circuit has held that “the threshold inquiry in California’s unconscionability
analysis is whether the arbitration agreement is adhesive.” Mohamed v. Uber Techs., Inc., 848
F.3d 1201, 1210 (9th Cir. 2016) (quoting Nagrampa, 469 F.3d at 1281 (alterations and internal
quotation marks omitted)). “[I]f there is an opportunity to opt out,” the arbitration agreement is
not adhesive, and thus not procedurally unconscionable. Id.

  • Google inserted an arbitration clause in 2017 — does it apply retroactively when the contract had been in existence since 2012?

Google has a number of provisions which say that newly added terms are not retroactive.  The Court said they did not apply in the context of the arbitration clause since the parties did not need to look outside of the scope of arbitration to see that it was already retroactive.  Specifically, snipping a portion above, it says that the 2017 arbitration clause applies to “claims that arose before Customer or Advertiser first accepted any version of these
Terms containing an arbitration provision.”  The Court held this was enforceable.

  • Did Google properly modify the contract through notification to the other party?

Google won this point as well.  The Court held there was meaningful opportunities to opt out and the Plaintiff failed to do so.

If you are writing or dealing with enforcement of arbitration provisions, consider this wording and the Court’s analysis in Trudeau.

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