Sony Spits on Innovation

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What do you do when you're afraid of being sued for fumbling your online service? Force customers to agree not to sue you in exchange for using said service. This is innovation, Fool, Sony (NYSE: SNE  ) style.

You may remember that Sony's PlayStation Network suffered a lengthy outage this spring. Hackers apparently took down the system with orchestrated denial-of-service attacks the company wasn't prepared for. Users howled in protest.

In response, Sony has issued new terms for using the PlayStation Network that require users to submit to "negotiation" and ultimately arbitration in the event of a dispute -- with the definition of dispute being any "dispute, claim, or controversy" relating to any Sony service. No lawsuits allowed. PC World writer Matt Peckham, who covers the change in detail, calls the move "awfully crass of them."

Give Peckham credit for being more polite than I can be. Because, as I see it, CEO Howard Stringer is spitting on customers while calling it rain. He's copped out, giving the strategy wheel to lawyers instead of building a better PlayStation Network. Legalese trumps legitimate upgrades, apparently.

Half of me wants to short Sony stock right now. Trouble is, that might be disingenuous. I find myself hoping customers toss their PS2s from a second-story floor in protest, replacing their consoles with new offerings from Microsoft (Nasdaq: MSFT  ) and Nintendo (OTC BB: NTDOY.PK).

The other half of me wants to scream. How does anyone at Sony think is OK? I feel like I'm stuck in a Seth Meyers skit. Innovation is too expensive. Customers need to just deal. Really, Sony? You couldn't spare a few bucks to create a more secure network? Or at least a quarter to call an ex-hacker and find out what a decent digital lock looks like?

Delivering anything online carries risks. Just ask Adobe Systems (Nasdaq: ADBE  ) . Hackers have targeted the software supplier continuously, and with some success. But rather than blame customers for taking risks, Adobe works overtime to plug holes. Exactly what a software company should do, Mr. Stringer.

This whole affair makes me sick. Am I the only one? Please weigh in using the comments box below. You can also keep track on the video gaming space by adding any of these stocks to your Foolish watchlist.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Adobe Systems, Microsoft, and Nintendo, creating a diagonal call position in Adobe Systems, and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 21, 2011, at 10:45 AM, TMFBent wrote:

    Ever read the terms of service from online brokers or other investment advisors? You're most likely binding yourself to the same exact thing, if not, something worse, which is arbitration by an industry-sympathetic body.

    This is pretty standard stuff.

  • Report this Comment On September 21, 2011, at 10:56 AM, TheDumbMoney wrote:

    Every single credit card, banking contract, brokerage contract, online streaming contract, iTunes contract, etc., that you have, has this language. Ever "adhesive" (i.e., we don't get to negotiate it) contract between a company and a consumer has this language.

    And it's usually in all-caps about half-way through the contract.

    So dude, have both you and Mr. Peckham been living under a rock for the last ten years?

    The real point of these contracts is to contract away the right to file class actions, which can be contracted away in the private arbitration context, forcing everyone to sue individually.

    It's perfectly legal and encouraged under a long, long line of Supreme Court case law favoring private arbitration, and (some say) seeking an end-run around class action law in the courts.

    Looks to me like the only news here may be that Sony is exceedingly late to the game.

    Take comfort in the fact that arbitration basically still is a court proceeding, usually before a retired judge. Filing an arbitration is very similar to filing a lawsuit, it's just that the procedures are simply more relaxed than they are in court, which can be either a good or a bad thing.

  • Report this Comment On September 29, 2011, at 4:56 PM, Lem00 wrote:

    What makes you so sure the PlayStation Network hasn't been made more secure since the hacking incident? Wasn't part of the shutdown time used to rebuild the network more securely?

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