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Friday, February 22, 2008

Dispute Resolution and Strategic Sellers

A_9 Pre-dispute arbitration agreements carry with them the possibility that sellers who include such clauses in End User License Agreements may do so strategically -- that is, that they may use them to gain a systematic advantage over buyers.

Do sellers in general act strategically in incorporating pre-dispute arbitration?  That's the question that Florencia Marotta-Wurgler (NYU) (left) asks in a recent paper 'Unfair' Dispute Resolution Clauses: Much Ado About Nothing?, published as part of Omri Ben-Shahar's anthology Boilerplate: Foundations of Market Contracts (Cambridge 2007).  Here's the abstract:

Dispute resolution clauses are a common and potentially important component of many types of standard form contracts. I examine the use of dispute resolution clauses in 597 end-user license agreements (EULAs) of software packages sold online. I find that 75% of EULAs include choice of law clauses, 28% include forum selection clauses, 6% include arbitration clauses, and none include class action waivers. Sellers are equally likely to include dispute resolution clauses in the EULAs of consumer-oriented and business-oriented products. Despite the concerns of some legal academics, I do not find much evidence of "strategic" use of DRCs to advantage sellers over buyers. For example, sellers located in states with "seller-friendly" laws are no more likely to include choice of law or choice of forum clauses than sellers in states with stronger consumer protections; despite UCITA's flexible choice-of-law rules and otherwise seller-friendly provisions, sellers do not go out of their way to select UCITA; and, there is no evidence that fora selected are intentionally inconvenient to buyers. These results question certain proposals to regulate dispute resolution clauses in consumer form contracts on the basis of strategic behavior by sellers.

[Frank Snyder]

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