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Tuesday, September 13, 2005

Boilerplate Revealed

Gilo, David and Porat, Ariel, "The Hidden Roles of Boilerplate in Standard Form Contracts " . Michigan Law Review, Vol. 104, March 2006 http://ssrn.com/abstract=798308

This article focuses on other benefits the supplier can derive from the transaction costs that boilerplate language creates, most of which have been ignored by courts and legal writers. As the Article demonstrates, transaction costs generated through boilerplate language could have different impacts on different types of consumers, enabling, inter alia, screening out unwanted consumers, price discrimination, cartel stabilization and the studying of consumer preferences. On other occasions, the transaction costs are imposed in order to hide benefits granted to certain consumers. On yet other occasions the transaction costs are self-imposed by the supplier, in order to signal to buyers or to his competitors that negotiation of the contract would be very costly. There are also cases in which boilerplate language does create asymmetry of information between the supplier and his consumers, as in the classic discussions of boilerplate language, but the asymmetry is used as a cartel-facilitating tool, an anticompetitive signaling device, or a tool for creating the appearance of a fair contract, rather than to merely extract surplus from uninformed consumers.

One of this Article's conclusions is that the law's concern should not be only with harsh boilerplate terms, but also with beneficial boilerplate terms. At times, beneficial boilerplate terms extract surplus from uninformed consumers, exactly as harsh terms do, but by using a different technique. Another conclusion of the Article is that boilerplate language should be carefully reviewed even when no particular terms are hidden in it, neither beneficial nor harsh, because the boilerplate provisions could be used just for the sake of artificially complicating the transaction.

The Article also inquires whether the various uses of boilerplate language are desirable from a social perspective, and if not, it asks how the law should discourage them. The Article shows that the lack of awareness of the various uses of boilerplate language on the part of courts, legislatures and administrative agencies has resulted in a lack of sufficient legal tools to handle these uses. One of the Article's goals is to develop such tools.

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