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Wednesday, May 29, 2013

Boilerplate Symposium Part XVI: Guy Rub on Market Solutions to the Boilerplate Problem

RubThis is the sixteenth in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.

Guy A. Rub is an Assistant Professor of Law at the Ohio State University Moritz College of Law.

Those who have not read Professor Radin’s book, Boilerplate, might be tempted to believe that they are fully familiar with the problem of boilerplate provisions in standard form agreements. While the problem of consumers who accept agreements they did not read is well documented, Radin’s masterpiece is so comprehensive, and analyzes the issues that boilerplate provisions raise so thoroughly, and in many instances from a novel angle, that it makes us stop and re-think about this reality and its implications. The reader is challenged to reconsider the effects of these standardize arrangements on our democratic process, our autonomy, and our legal system as a whole.

One of the strengths of the book, and there are many of them, is that while it identifies and lucidly analyzes these problems it also acknowledges some of the advantages of mass-market standard form agreements and therefore includes a broad discussion of possible remedies to the identified problems.

One such suggested remedy is a market solution. Market solutions, if feasible, are in many respects superior to other solutions. First and foremost, they do not require a central decision making process, which turns out to be extremely hard in this context. Indeed, if market participants can effectively shop for efficient or fair contractual Boilerplateterms, then society probably does not need to make certain difficult decisions: for example, society might not need to decide whether consumer class actions are an effective mechanism to rein in large corporations (and therefore maybe the right to bring such claims should not be waivable) or mainly a vehicle for filing frivolous and expensive claims. Market solutions might also eliminate the need of a centralized entity to collect information on individuals’ preferences in a diverse world. Thus, if consumers effectively shop for better terms, society might not need to collectively decide the proper scope of a warranty; a question that might have different answers with respect to different products, different markets, and even different consumers.

Are market solutions feasible? Professor Radin, I believe, is somewhat skeptical and I am at least as pessimistic. It is well documented that consumers do not read standard form agreements and that regulatory schemes that are designed to give them the opportunity to read have little effect on their decision making process. See, e.g., Florencia Marotta-Wurgler, Will Increased Disclosure Help? Evaluating the Recommendations of the ALI’s “Principles of the Law of Software Contracts,” 78 U. Chi. L. Rev. 165 (2001). In a forthcoming article, Ian Ayres and Alan Schwartz suggest, inter alia, that reading might not be required as long as the contract does not include unexpected terms that are worse than the consumers’ expectation, and that a disclosure scheme should focus on these terms. While this might be true that consumers’ awareness of such terms might suffice, one might doubt whether, in most cases, consumers can reasonably be expected to read even a subset of simplified boilerplate terms.

Therefore, if we believe that no regulatory scheme can make a substantial number of consumers read even a subset of the boilerplate provisions, then other solutions must be explored to make consumers shop for contractual terms. Radin explores a few such solutions, including: watchdog groups, seals of approval, rating agencies, and automatic filtering. What is common to these solutions, or a combination of several of them, is that they require a third party to use some judgment to evaluate the desirability of the contractual terms. This is not an unusual way to make shopping decisions. Many of us use websites that rate laptops before we buy one and, at least in some cities, we look at the sanitation “grade cards” on the windows of restaurants before we chose where to eat (notwithstanding Dan Ho’s recent research on the problems in that scheme). It is important to appreciate that currently there are very few comparable systems with respect to boilerplate terms and, as explained below, I am skeptical if more will emerge in the future.

We need to first consider what should be the final product of this evaluation process by the third party evaluating entity. If we believe that consumers, rationally or not, do not bother to read contractual terms as they are too complex, then we should reasonably assume that after this evaluation process the third party must present the consumer with well-dissected and simple information. Indeed, consumers will probably not spend time reading a detailed report regarding the terms of the contract. Making a simplified report, which can be as simple as an A-B-C ranking, or even a binary decision to grant a seal of approval or not, requires the exercising of substantial discretion by the evaluating entity. This ranking process is not trivial. How should one rank an agreement that includes a Virginia choice of law provision and a broad warranty provision with limitations of consequential damages? How should the rating of such a contract be in comparison to a contract that has a choice of venue in Florida, a narrower warranty provision, and no limitations on remedies? How should the evaluating entity evaluate the inclusion of a mandatory arbitration provision? Doesn’t it depend on that entity’s perspective as to the desirability of consumer class actions? But didn’t we try to create a market scheme that avoids delegating these types of decisions from the consumers to a central entity?!

Indeed, it might have been ideal if we could have sketched a scheme in which the consumers drive the process of regulation boilerplate terms. However, the same seeds that lead to the problem in the first place—the consumers’ limited resources, limited rationality, and sometimes pure ignorance—might make such a solution impracticable. Thus, if we believe that the problem of unread boilerplate provisions is severe, other solutions, which are explored in Radin’s extensive book, e.g., regulation through tort law, should be seriously considered.  

[Posted, on Guy Rub's behalf, by JT]

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