Amazon’s recent email to customers declaring the end to binding arbitration.

For a major corporate declaration, it was relatively brief. And as short as the email was, it can be distilled further into three simple words: So sue us.

When Amazon recently declared that it was abandoning binding arbitration as a method of settling customer disputes — and in doing so, actually informing millions of people about an arbitration clause they didn’t know they’d agreed to in the first place — much of the tech industry took notice.

As a legal inoculation against lawsuits, hidden arbitration clauses have become an industry-standard in products ranging from downloaded music to iPhones to concert tickets. Employment, too. But Amazon decided to suddenly stop and simply let unhappy customers take them to court.

Let’s take a look at why.

What did the email actually say? 

There is a screengrab of the actual email above. Most, if not all, Amazon customers received a note like this during the past month. Note the hyperlinked conditions of use. More on that later.

What is binding arbitration?

Outside of the court system, binding arbitration is maybe the most popular dispute-setting construct in U.S. history. The American Bar Association broadly defines it as “a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments.”

This is not the same as mediation; a neutral arbitrator has judge-like authority to render a binding decision. The process is like a trial with statements and evidence but more streamlined. And the rules of evidence are not necessarily as strict as a state court might require.

What does this mean when I buy a product?

When a person buys a cell phone, for example, the fine print that comes along with that phone very likely contains a section that prevents lawsuits by forcing the customer to use a neutral arbitrator to settle disputes. The act of buying a phone from that company means the customer also has agreed to this deal. Many people are not aware of this until they end up in a dispute with that company.

(GeekWire File Photo)

Why did Amazon — and other companies — adopt arbitration standards for dispute resolution?

Two primary reasons: Cost and ease. The use of binding arbitration dates back more than 100 years but for practical purposes, the modern use really began in the 1980s and 1990s when the U.S. Supreme Court expanded the Federal Arbitration Act. This series of decisions gave large corporations considerable power to force employee and customer disputes into the arbitration process and away from the expense and unpredictability of state and federal courts.

Put simply, the cost of going to arbitration is less expensive and generally more predictable for corporations than preparing for court. Plus, it often is private and secretive which keeps the buying public unaware of problems. Lastly, the language can stymie class-action lawsuits.

During the past 15 years, the use of binding arbitration clauses for a myriad of products has exploded, especially when commerce moved increasingly interstate, international, and online. Want proof? Simply check the “Terms of Use” or “Terms of Service,” on virtually any online purchase site. Typically, that is where binding arbitration language lurks.

The rapid expansion of binding arbitration has caused alarm with consumer advocates.

OK, then why did Amazon step away from this process after decades of using it? 

Amazon representatives haven’t talked about this much. Or at all. The company did not respond to GeekWire’s inquiry on this topic.

But there have been plenty of informed speculation by legal experts. The New York Times reported that the company faced 75,000 arbitration claims stating that its Alexa devices recorded customers “without their consent.”

While Amazon denied the claims, arbitrating so many disputes can become more expensive than lawsuits. And in this case, the thousands of claims were no coincidence. In recent years, consumer law firms have filed thousands of similar claims to turn the arbitration process back against the companies that mandated it. Uber has endured such efforts, noted the Wall Street Journal. So has Intuit, the maker of TurboTax. This means the companies that mandated arbitration now have to pay for it en masse.

Case in point: When the law firm Keller Lenkner pursued claims against DoorDash on behalf of 5,000 drivers who were “improperly classified as contractors,” the delivery company tried to ask out of its own mandated binding arbitration clause in exchange for a chance to settle the matter as a class-action in federal court.

Where does it go from here?

Great question. Many companies’ legal teams are going to closely watch how this turns out for Amazon. As consumer attorneys became more clever and aggressive in turning corporations’ binding arbitration clauses against them, some companies like Amazon would rather take their chances in court. The thinking is that most people will not want to hire an attorney to resolve a small claim. And that most disputes won’t expand into an expensive class-action claim.

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