SAN FRANCISCO (LN) — A federal judge on Thursday compelled arbitration of a putative class action against Figma, Inc., holding that the company's 2023 Terms of Service delegated threshold arbitrability questions to an arbitrator — even as the court acknowledged the plaintiff's arguments about a contractual carve-out for intellectual property claims were strong.
Raza Khan filed suit against Figma alleging the company misused intellectual property to train its AI products. Khan conceded that Figma's 2023 Terms of Service contained an arbitration agreement but argued his claims fell within a contractual carve-out for injunctive relief to protect intellectual property — meaning, he contended, the case belonged in court.
U.S. District Judge Charles R. Breyer held that he was not the right person to resolve that question. The 2023 terms incorporated the American Arbitration Association's Consumer Arbitration Rules, which themselves delegate arbitrability, and the same section of the agreement specified that arbitration covers "disputes related to [] use of the Services or these Terms" — language broad enough to encompass disputes about the agreement's own scope.
"Plainly, arbitrability is encompassed themselves," Breyer wrote. The court ordered the case stayed pending arbitration, noting it was doing so "regardless of the inefficiency of doing so."
Khan had argued the 2023 terms lacked an express delegation clause and that the structure of the agreement created ambiguity, pointing to an unpublished Ninth Circuit decision, Ruiz v. Kelly Services Global, LLC, which held that AAA rule incorporation did not clearly delegate threshold arbitrability questions where the underlying agreement was ambiguous about arbitrating disputes concerning the agreement itself. Breyer distinguished Ruiz, finding the 2023 Figma terms explicitly covered disputes about the terms themselves — removing the ambiguity that doomed delegation in Ruiz.
Figma had also pressed its 2025 Terms of Service, which contained an express delegation clause giving the arbitrator "exclusive authority to resolve all threshold arbitrability issues, including whether these Terms are applicable, unconscionable, or enforceable, as well as any defense to arbitration." Khan disputed ever agreeing to the 2025 terms, arguing he received no adequate notice of them. Breyer declined to resolve that dispute, finding the 2023 terms dispositive on their own.
Khan's unconscionability challenge fared no better. Breyer found at most a minimal degree of procedural unconscionability arising of an express delegation clause in the 2023 terms, but rejected the substantive unconscionability argument outright, holding that delegating the scope of an arbitration carve-out to an arbitrator is not unconscionable — it is routine. The court also deferred to the arbitrator Khan's argument that the class action waiver in the 2023 terms conflicts with California's McGill rule, which requires the availability of public injunctive relief under the Unfair Competition Law.
If the arbitrator ultimately agrees with Khan that his claims fall within the intellectual property carve-out, the case would return to state or federal court in San Francisco under the venue provision of the 2023 terms.