Friday, July 19, 2013
Apple had a MFN clause in its contracts with five major book publishers. Last week, Judge Denise Cote (SDNY) held that this clause was part of a conspiracy to fix e-book prices. The contracts required the publishers to give Apple’s iTunes store the best deal in the marketplace on e-books.
What does this decision mean for MFN clauses, which are used in a number of industry contracts? The WSJ took up this topic in a recent article:
Defendants in antitrust cases have liked to have the sound bite that no court has found an MFN to be anticompetitive," said Mark Botti, a former Justice Department antitrust lawyer now in private practice. "They can no longer say that."
Apple, meanwhile, has strongly denied that it conspired to fix prices, and has said it will appeal the decision.
Judge Cote avoided a broad denunciation of MFN clauses, but her decision could haunt contract negotiations in industries as diverse as entertainment and health care, legal experts said. In recent years, the Justice Department has sued a few companies over the use of MFN clauses and is investigating others.
"While most favored-nation clauses can be competitively benign, when they are used as a tool to engage in anticompetitive conduct that harms consumers, the Antitrust Division will take enforcement action," said Assistant Attorney General Bill Baer, who oversees the division at the Justice Department.
MFN clauses guarantee the recipient the lowest prices or rates charged to any buyer. While in theory that could encourage competition and lower prices for consumers, in practice such agreements sometimes end up establishing a minimum price, according to antitrust lawyers and government officials.
Apple said the provisions guaranteed its customers would get the lowest price for new and popular e-books. But Judge Cote offered a less-flattering interpretation.
"[The MFN] eliminated any risk that Apple would ever have to compete on price when selling e-books, while as a practical matter forcing the publishers to adopt the agency model across the board," she wrote in her 160-page ruling.
The article reports that the Justice Department is expected to request that the court “impose a variety of conditions on Apple's business, including barring the company from using MFN clauses,” sending the viability of MFN clauses into doubt.
More of the article here on the WSJ site (subscription required).
[Meredith R. Miller]
In the Style section of yesterday's NYT, there was an article about recent law school grads studying for the bar exam in some pretty nice places. It sounds much nicer than when I did it - which was stuffed in a cubicle at the law school library. But I was a bit puzzled towards the end of the article when one recent grad indicated that he uses mnemonics to remember "the elements of a contract — offer, acceptance, termination, consideration, excuses and defenses." I don't teach contracts as "elements," but rather in terms of phases - e.g. formation, performance, breach, remedies --. and I certainly wouldn't include "termination excuses and defenses" as elements. Does anyone?
Thursday, July 18, 2013
We reported in May here about Northwest Inc. v. Ginsberg, a case on which the U.S. Supreme Court granted cert. so that it can decide "Whether the court of appeals erred in holding, in contrast with the decisions of other circuits, that respondent’s implied covenant of good faith and fair dealing was not preempted under the Airline Deregulation Act because such claims are categorically unrelated to a price, route, or service, notwithstanding that respondent’s claim arises out of a frequent-flyer program (the precise context of American Airlines, Inc. v. Wolens ) and manifestly enlarged the terms of the parties’ undertakings, which allowed termination in Northwest’s sole discretion."
Stephen Colbert reports on another tragic case of lost air miles, this time involving a frequent-flying cello. The report is provided below:
Wednesday, July 17, 2013
Twenty-five years after the Baby M case, some states (including one shaped liked a mitten), still have not passed legislation addressing the legality of surrogacy contracts. So it is that the Wisconsin Supreme Court just last week upheld a surrogacy contract much like the one at issue in Baby M in a case called In re Paternity of F.T.R.: Rosecky v. Schissel.
The contract at issue was called a parentage agreement (PA). The PA provided that the Rosecky's would become the parents of the child that resulted from Monica Schissel's pregnancy. The child was the product of Ms. Schissel's egg and Mr. Rosecky's sperm. The Court concluded that the PA was enforceable except for two things. Termination of Ms. Schissel's parental rights could not occur automatically by contract, and the contract would not be enforceable if such enforcement was deemed not to be in the best interests of the child. The Court reversed the lower court's decision, which set aside the PA, and remanded for proceedings in which the terms of the PA are to be enforced unless at odds with the best interests of the child.
Chief Justice Abrahamson, joined by Justice Bradley, filed a lengthy concurrance in which she made two points: First, while she would not hold surrogacy agreements to be per se invalid, Chief Justice Abrahamson stresseed the need for courts to scrutinize them closely, given that they are contracts for the use of human bodies for altruistic or commercial purposes, which also are designed to create a child and to establish custody of that child. Second, Chief Justice Abrahamson criticized the majority opinion for treating the case as a contract dispute when actually the posture of the case made such an analysis inappropriate. The case began as a petition for recognition of paternity rights, custody and placement brought by Mr. Rosecky. As a result, according to the Chief Justice policy considerations relevant to family law should prevail. She agreed with the main opinion that the lower court erred in setting aside the PA, but she was equally critical of the main opinion, which in her view did not give adequate wait to statutory provisions relevant to a determination of the best interests of the child.
It just happens that a new article on this subject by Yehezkel Margalit has just gone up. It is called In Defense of Surrogacy Agreements: A Modern Contract Law Perspective. Here is the abstract from SSRN.
The American public’s attention was first exposed to the practice of surrogacy in 1988 with the drama and verdict of the Baby M case. Over the last twenty-five years the practice of surrogacy has slowly but surely become increasingly socially accepted and even welcomed. This evolution serves to emphasize the bizarre judicial and legislative silence regarding surrogacy that exists today in the vast majority of U.S. jurisdictions. In this article I describe and trace the dramatic revolution that took place during the recent decades as the surrogacy practice has totally changed from one viewed as problematic and rejected to a socially widespread and accepted practice. As set forth below, this recent shift demands increasing legal recognition of the legality of surrogacy contracts and moderate regulation of their enforcement. In doing so, this article explores the various intrinsic contractual problems of surrogacy contracts - the problem of unequal power of the contracting parties, the problem of change of heart and the problem of changed circumstances. As presented the preliminary normative claim regarding those contractual problems was not properly addressed by classical contract law, however, with the development of modern contract law we are now supplied with a well-equipped framework and doctrines appropriate for dealing with such problems. In order to demonstrate my innovation I will represent one main solution that the modern contract law gives us for each given contractual problem. The article then concludes with an appeal to the legislature and judiciary for a legal framework and a suggested outline of the practical administrative-legal mechanisms for accomplishing the complete legal and social recognition of surrogacy contracts.
Tuesday, July 16, 2013
Monday, July 15, 2013
As Jeremy Telman noted in his post, the OUP website which sells my forthcoming book on wrap contracts contains a wrap contract that requires users to the site to accept cookies. This type of wrap is what I refer to as "contract as notice", and much better than what most websites do, which is implement a "notice as contract". The OUP website requires specific assent to a particular term which raises the salience of the term. My guess is that OUP provides this because its parents company is based in the U.K. which has better laws about this kind of stuff. Most US corporate websites throw a bunch of terms into a browse wrap to which the user is deemed to have given blanket assent. Visitors to OUP's website -- which requires specific assent -- are made aware of the cookies, whereas most visitors to other sites aren't even aware that a contract governs. This is the difference between effective notice and ineffective notice, aka contracts that nobody reads but that courts deem are still enforceable via constructive assent.
The real problem with not reading is the nature of the terms that go unread--if you don't read terms, what's to stop a company from piling them on, adding more intrusive privacy stripping terms and rights deleting provisions ( to use a Radin-esque term). According to case law, not much.
I set my browser to alert me when I visit a website with cookies and I just couldn't visit any site without having to press the "allow" icon several times. Now I allow first party cookies, and ask for a "prompt" from third parties. I wouldn't be able to use my computer otherwise.
And now, we have the pleasure of being tracked in person. This morning, the NYT reported that some physical stores have started testing technology that allows tracking of customers' movements by using their smart phone signals. Nordstrom tried the old "Notice as Contract" method, by posting a sign telling customers they were being tracked. Those customers who saw the sign were creeped out. How long before we get used to these notices - and start to ignore them? How long before they are so ubiquitous that we have as little choice as we do online to stop a company from tracking and collecting information about us?
BTW, you can't read the NYT article unless your browser is set to allow cookies.....