Just Because You Can, Doesn’t Mean You Should, Or What Disney’s Litigation Disaster Teaches Us About Tech Policy

There are many things to say about Disney’s recent self-induced litigation disaster. Not the case that good Disney lawyering just helped win; I am referring to the case where bad Disney lawyering tried to press the now-withdrawn legal argument that a plaintiff, suing over the death of their spouse allegedly stemming from an allergic reaction incurred after dining in a Disney-affiliated restaurant, had effectively waived their right to sue in court when they had subscribed to a trial of Disney+ some years earlier, thanks to its terms of service that included a provision that any disputes go to mandatory arbitration instead.

As someone on social media commented, “Bold of Disney to take the legal stance that if you watched one of their shows they can kill your spouse.” Which isn’t technically what Disney was doing, but so long as it managed to convey that perception, and that perception was reasonable, it may not matter that what the public thinks is technically inaccurate. What every company engaging with the public needs to recognize is that if you make choices that reasonably alarm the public, it may not matter that you were technically allowed to make those choices, because now you have to contend with having an alarmed public.

In this Disney case a few things went into its unfortunate argument. One was that it brought to the fore issues with adhesion contracts. Adhesion contracts are contracts where there’s been no negotiation between the parties; instead, if one party goes ahead and uses a product or service then these are the terms that essentially “stick” to that consumer relationship. In theory the consumer should have consented to these terms applying to them, but in practice this consent is generally elicited by statements like, “By clicking ok you agree…” or even “By using this product you agree…” and there is the concern whether doing those things elicits consent that is meaningful enough to make the contract valid and enforceable, especially as to its most onerous terms.

The issue is that contracts are binding agreements that are supposed to represent a “meeting of the minds” between the contracting parties – which in any B2C arrangement is the company and the customer. But with adhesion contracts where there’s no negotiation there’s always the question as to whether there ever was that meeting of the minds, especially since customers are so rarely aware of what they are agreeing to. There has to be that accord in order to know if the parties have agreed to be bound by the contract’s provisions, including the most demanding ones.

One kind of particularly demanding provision is the kind that specifies there be mandatory arbitration for any disputes that may arise. This type of provision is often criticized as being inequitable in how it cuts aggrieved parties off from the courts if they believe they’ve been harmed by the other. In negotiated contracts the parties could both agree that such a provision might make sense for their deal — perhaps they might choose them because it could lead to lower prices. But with adhesion contracts, it may represent an injustice to cut people off from the courts without them ever really having the chance to decide if they are ok with such a term.

For their part, companies have tended to like mandatory arbitration provisions because they are largely thought to mitigate what could be enormous legal risk arising from potentially multitudinous customer claims, or class action claims. If they had to fear going to court every time a customer was unhappy, validly or not, it could be debilitatingly expensive. (Of course, sometimes it turns out to be debilitatingly expensive to have to arbitrate.) But from the consumer perspective, such provisions are often thought to be harmful because it means they may not be able to effectively seek a remedy to an actual injury.

In this case Disney was trying to enforce a contract of adhesion with a mandatory arbitration provision. Which it was generally allowed to do, even though it could be regarded as consumer-unfriendly. But what Disney tried to do was worse than that, because the contract it was trying to enforce, with its onerous arbitration term, was an adhesion contract for an unrelated transaction with the company. What got everyone so outraged was that now you had the company (a) trying to close the courthouse door to a party with a claim of harm, (b) via a contract of adhesion, and (c) that was entered into by the customer in a context entirely different from the one in which the harm arose, and in a way that was unlikely to be foreseeable to the customer. Legally, Disney’s argument was a stretch, because it really strains our understanding of how contracts are supposed to work, manifesting mutual agreement, to use a contract from an apples transaction for an injury arising from one involving oranges. But the fact that it was a dubious legal argument wasn’t the issue – as far as litigation is concerned, you may want to take what swings you can, and even weak arguments might yet prevail. The issue was that Disney failed to recognize it was not just fighting in court but in the court of public opinion. And just because you can do something doesn’t mean you should, because there is more to lose than just the case.

Which is the greater message to take from this mess. In Disney’s case, by pursuing this litigation strategy, it was trying to save money in litigation costs. But it managed to cost itself at least as much in other harm. It did nothing to entice anyone to want to do business with it, whether as a streaming customer, restaurant diner, or patron of any other Disney service, and instead likely deterred it. The company will now have to spend resources to regain the customer goodwill it squandered by so fastidiously trying to stand on its rights.

But it stands as a cautionary tale for other companies, not just in terms of how they litigate, but how they make any business choices. Just because you can do something does not mean you should. In tech policy companies have historically benefited from a rather laissez-faire regulatory environment. And there are good reasons to want such hands-off policy, as more heavy-handed regulation can choke off speech and innovation. But with that freedom companies have often made choices that gratuitously antagonized the public. And there are consequences to antagonizing the public, because an angry public is likely to go to lawmakers to demand more regulation. And then there goes the nice laissez-faire freedom companies used to be able to enjoy.

Maybe if the resulting regulation were all apt and well-tailored with no collateral issues there would be no need for concern. But reactive regulation, written in the wake of public outrage, is rarely good. Much of what we’re contending with now in tech policy, regarding privacy, algorithms, AI, and plenty of other issues eliciting public outcry, is varying degrees of terrible, and even potentially unconstitutional. And so we fight it, but it’s hard to fight, and expensive to fight, and maybe not possible to always succeed at fighting. So as we find ourselves in the midst of some existential battles fighting for the freedom to continue to innovate it’s worth recognizing that maybe we wouldn’t be here if a little more care had been taken in making all those business decisions. Not because the law required it – it probably didn’t – but because the public’s good sense did.