I pointed this out when PayPal made the same change, and I'm going to do it again: if you actually think that you are likely to end up in a legal battle against a giant with a lot of money, you probably want arbitration instead of lawsuits, and in fact that is what you will be fighting to get everyone to agree to that when you start your suit.

The reason is that otherwise you just end up playing a game where the really large entity files a bunch of motions you have to reply to, and your lawyer starts billing you in the 5-6 digits before you've even had a chance to make your case to the judge. For most individuals (or even small companies) this might cancel out whatever you are trying to accomplish with your lawsuit.

It also means that you are able to handle the issue from home, possibly from your house, without having to deal with a lawyer in the Delaware (PayPal) or California (Instagram), and you can do this without having to first have a complex battle over where the jurisdiction of your argument is (something a friend of mine is going through right now).

Meanwhile, both Instagram and PayPal continue to allow you to use small claims court to file smaller issues. With PayPal, as they are in Delaware, that is for claims up to $15k, which is more than most individuals keep in their PayPal accounts, and for Instagram (in California) that is $7.5k (although I'm not certain what to compare this against, as I'm not certain what people would ask for when they sue).

Additionally, it actually offers you protections: in both the PayPal and Instagram versions of the clause, they are subject to the same arbitration requirements that you are; the alternative is that they can just decide to start a complex legal issue with you, causing all of the aforementioned costs and complications, even if they doubt they'll be able to win (but, of course, do think they could convince the judge to not throw it out of court; although even asking the judge to do that might be costly for you).

(edit) Woah... except that Instagram actually has exceptions to the arbitration clause, which give them some things they can still sue you over (such as API misuse and network intrusion). (I am fairly confident the PayPal one did not; I had a lawyer review it, and that did not come up, and I actually read that one thoroughly.) That is really lame. :( That said, issues involving your IP (including trademarks and copyrights, such as on your photos) are not subject to this clause either. (/edit)

The downside people often cite is an inability to participate in class-action lawsuits, but individual players in such deals really don't get anything out of it: the main reason you should then care is if you feel the need to make a philosophical point that class actions should happen because they are a way to keep large entities with distributed customers in check; to note: I totally appreciate that stance.

That is important enough that I will repeat it: I totally understand that someone would then decide that they don't care about the earlier stated benefits (which, to be clear, after my comments on this related to PayPal, I ended up seeking real legal advice on from my corporate lawyer, and he actually came up with those same reasons) and thereby would decide to opt out anyway. However, a lot of people seem to have knee-jerk reactions to the "arbitration" part, and that can be a benefit.

(The downsides were that it might take a few more days if you are trying to get injunctive relief--such as forcing PayPal to immediately reactivate your account so you can continue your business ASAP while you resolve the issue--and that you would probably not be able to appeal the decision if you didn't like the outcome.)

(I will then say that the result, in my situation for the PayPal arbitration clause, ended up being a semi-tentative "ok, let's opt out"; however, it should be noted that I move millions of dollars through my account annually, have a business model where I'm forced to keep many hundreds of thousands of dollars in my account at almost all times, and at this time do not have an alternative way to cheaply and automatically pay international vendors small quantities of money, so I'm overly reliant on them.)