Affirming a breach of EULA or ToS in subscription environments

It is common practice for the EULAs and ToSs written by providers of virtual worlds to prohibit a broad range of conduct, but to only rarely enforce those prohibitions as written. Could it be possible that by failing to enforce, the provider could be prevented from exercising the right to terminate for breach? For example, if the ToS prohibits RMT, but the provider knows that everyone engages in RMT and generally turns a blind eye, could it be prevented from enforcing the ToS against one particular participant?

In prohibiting certain conduct, a contract will usually provide a right of termination to the platform owner. In certain circumstances, where the right of termination has not been consistently exercised, the platform owner may be treated as having affirmed the breach and elected to continue the contract. Election, in this sense, refers to a choice between inconsistent rights – the right to receive performance of the contract and the right to terminate.¹⁾ If faced with a threatened or purported termination, the onus of proving that the platform owner has elected to affirm is on the participant.²⁾ The participant must be able to show that the platform owner knew of the breach, and unequivocally, by words or conduct, indicated a choice not to terminate.

The requisite knowledge is at least knowledge of the breach, and may extend to knowledge of the existence of the right to terminate.³⁾ In most cases where the platform owner is alleged to have affirmed the contract, given the fact that the platform owner is used to dealing with such cases and is usually legally advised, it would generally be possible to presume that it knew of its right to terminate if it knew of the circumstances of the breach.⁴⁾ The more important question will be whether knowledge can be implied from the fact that many different people are acting in breach of their respective agreements, or whether actual knowledge of the specific breach is required before an election can be effective.⁵⁾ As a question of fact, this will always depend on the circumstances, but it is possible that in many cases, knowledge only of general non-compliance with a EULA will not be sufficient to give rise to an election in a particular instance.

If knowledge can be imputed, the participant must still be able to show an unequivocal choice. Subjective intent is not required; instead, the provider must be shown to have objectively conducted itself in a manner “which would be justifiable only if an election had been made one way or the other”.⁶⁾ Because express communication of a choice is unlikely in the circumstances we are concerned with, the participant will be required to show conduct which is inconsistent with the exercise of the right to terminate. Mere failure to immediately terminate is not sufficient, as long as the provider does nothing to affirm the contract and so long as the participant is not prejudiced by the delay.⁷⁾ However, voluntary receipt of the participant's performance (for example, receipt of the monthly subscription fee) could be treated as unequivocal conduct.⁸⁾

The doctrine of election potentially provides an interesting limit on the ability of providers to terminate a subscription for breach where they are aware of the breach and continue to receive subscription fees. It will almost certainly be effective where the provider has actual knowledge of the breach and neglects to terminate before the next subscription fee is collected.⁹⁾ It is less likely to be effective where there is only actual knowledge of general non-compliance and constructive knowledge of a particular participant's breach, but it is not unimaginable that a court could find that an election had been carried out in these circumstances. In most cases, however, unless actual knowledge can be shown, a participant may have a better chance at imposing a limit on termination by estoppel rather than election. More on that later.