Friday, September 6, 2013
I start my first year contracts course with consideration. For the first time, I’m also teaching a contracts drafting course. Based upon the contracts drafting texts that I reviewed, the general consensus seems to be that recitals of consideration are basically pointless. While I think that’s somewhat true in that they don’t contain performance obligations, it’s misleading, too. Courts not only consider recitals in construing clauses and the parties’ intent, a recital of consideration may create a rebuttable presumption or may estop a party from claiming lack of consideration. In other words, in some cases, it can save a party from a claim that consideration was insufficient.
A recent case involving a patent assignment, Network Protection Sciences v. Fortinet, 2013 WL 4479336 (N.D. Cal 2013), seemed to go even further when the court, applying Texas law, held that a recital was conclusive. The recital in question stated that the patent was assigned “for good and valuable consideration, the receipt of which is hereby acknowledged.” The party contesting the assignment argued that it was invalid because it was “beyond dispute” that no consideration was paid for it. The court, applying Texas law, rejected that argument finding the recital conclusive and that “(e)ven if no actual consideration were paid…NPS’s agreement to be bound by the choice-of-law provision would be deemed adequate consideration.” In other words, according to the court, the recital is conclusive with respect to the issue of whether there was consideration for the assignment but even if it weren’t, agreeing to the choice of law provision was sufficient consideration. Is this the law in Texas, is it unique to Texas, or did the judge make new law? Any contracts profs care to weigh in?
In any event, it seems that consideration wasn't the way to go anyway because (although the parties didn't raise the issue) the assignment seems to fall under Restatement section 332 regarding gratuitous assignments that are irrevocable if signed and delivered to the assignor. This makes sense to me because a written assignment can affect third parties who rely upon it.
The case is also noteworthy because it opens with a quote from a recent NYT oped, coauthored by Santa Clara law prof Colleen Chien, which discusses the problem of “patent trolls” (companies that buy up patents with the intent to sue for infringement, rather than to practice the patented invention). The court’s decision denying the defendant's motion to dismiss the patent infringement action was a bit disappointing given the way it began its opinion and the less-than-admirable behavior of the plaintiffs and their trollish behavior in pursuing the action. Where are the activist judges when you need them?
Wednesday, August 7, 2013
This post responds to the thoughtful comments offered by my co-blogger Jeremy Telman in his post about my op-ed. As he hinted, an op-ed provides a great forum for raising issues to a larger, non-academic audience but it is hardly the place to be thorough. Jeremy’s post gives me an opportunity to briefly touch upon the issues that I address in my forthcoming book. (Note: If you use the promotion code 31998 and click here you get a 20% discount).
Jeremy raised the issue of the inadequacy of doctrinal solutions. In fact, all of my proposed solutions are doctrinal. There are undoubtedly more effective way to achieve societal changes, but doctrine obviously matters and right now, the law of wrap contracts is a mess. It’s in a mess in a lot of different ways, yet the courts seem to be in denial, repeating the refrain that wrap contracts are “just like” other contracts. This is simply not so. Much of my scholarship looks at how technology shapes behavior and argues that courts should consider the role of technology when they interpret and apply the law. With respect to wrap contracts, courts ignore the ways that digital form affects both user perception and drafter behavior (i.e. overuse). My proposed solutions seek to make the effects of the digital form part of the court’s analysis.
One of these solutions, briefly mentioned in the op-ed and discussed in the book and elsewhere, is a “duty to draft reasonably” which acts to counter the burden of the “duty to read.” The duty to draft reasonably has very little to do with getting consumers to read contracts – it’s about getting companies to ask for less by making it less palatable for them to ask for more. As I explain in great length in my book, there are plenty of reasons why I am not a big fan of the duty to read –and why I think trying to get consumers to read is an inadequate solution. Consumers shouldn’t be expected to read online contracts, at least, not as they are now drafted. Reading wordy online contracts is not efficient and would hurt productivity. It’s also useless, since consumers can’t negotiate most terms. Instead, we should try to get companies to present their contracts more reasonably/effectively. We should require them to signal the information in an effective manner, the way that road signs signal dangerous conditions. For example, I propose using icons, such as the danger icon that accompanies this post, to draw consumers’ attention to certain information. Currently, courts construe “reasonable notice” to mean something other than “effective notice” – and this places too heavy a burden on consumers to ferret out information. A “duty to draft reasonably” shifts the focus from the consumer's behavior to the drafting company’s behavior. Could the company have presented the information in a better way? And if so, why didn’t it? This is a question that courts used to ask with paper contracts of adhesion – but for some reason, they have moved away from this with wrap contracts.
A related doctrinal adjustment that I propose in my book is specific assent. For terms that take away user rights (which I refer to as “sword” and “crook” provisions), the user should be forced to actively assent by, for example, clicking on an icon. The idea here is also not to get users to read, but to hassle them! Imagine having to click to give away each use of your data. What a pain – and that’s the point. The incorporation of a transactional hurdle or burden damages the relationship between the website and the user – and the more hurdles, the more annoying it becomes to complete the transaction.
Both proposals try to signal the type of company to the consumer. A website full of danger icons sends a very different message than one with only one or two danger icons. A website which requires a user to click forty times to complete a transaction won’t be around too long.
As for better solutions, there are ways to address specific problems by using third party tools and I am all in favor of technical solutions. For example, you can use duckduckgo or Tor to try to cover your tracks. But technical solutions have their shortcomings or limitations because they only address one part of the larger problem and it gets to be a bit like whack-a-mole as technology shifts and improves.
Ultimately, any comprehensive solution has to be implemented by the government – either the legislature or the judiciary. But it’s up to us, the consumers, to raise the issue as one needing a solution and we can do this through the democratic process and by marching with our feet. I agree with Jeremy that there are problems with collective action – there are coordination and resource issues as well as cognition limits, but that doesn't mean we shouldn't do anything. I don’t want to get into the thicket of that in this already too-long post, but I address this issue at great length in my book and propose that one way to deal with this is by reconceptualizing unconscionability.
Consumer advocacy groups and the websites referred to by Jeremy in his post certainly help with the collective action problem. They inspire us to get off the couch. Not easy when companies make it so comfortable for us to do nothing but that’s the nature of the beast here – it’s the same in other areas where consumers face the corporate marketing machinery and its expertise in manipulation. As Kate O'Neill notes in the comments to Jeremy's post, we contracts profs have a role which is to point out the inconsistencies and contradictions in judicial application of doctrine and propose better ways to evaluate legal issues. Some may scoff that judges don’t read law review articles --or books written by academics-- but it’s our job to keep trying.
Wednesday, July 24, 2013
The Ninth Circuit recently decided an interesting case involving video on demand – or is the Hopper a DVR? That was one of the questions at the heart of Fox Broadcasting Company v. Dish Network. (Jeremy Telman had previously blogged about the case when the complaint was first filed a year ago). At issue was the Dish Network’s PrimeTime Anytime service which only works with the Hopper, a set top box with digital video recorder and video on demand functionalities. PrimeTime Anytime records Fox (and other) network shows and stores the recordings for a certain number of days (typically eight) on the Dish customer’s Hopper. Dish does not offer video on demand from Fox (but see discussion below). Dish started to offer a new feature called “AutoHop” that allows users to skip commercials on shows recorded on PrimeTime Anytime (although it doesn’t delete the commercials, the user can press a button to skip them). Fox sued Dish for copyright infringement and breach of contract and sought a preliminary injunction. The Ninth Circuit upheld the district court’s denial of the motion. The copyright issues are interesting, but I’m going to skip over them using this blog’s virtual AutoHop feature and get right to the contract issues, which are much more interesting to readers of this blog.
There were two agreements at issue here. There was a 2002 license agreement and a subsequent 2010 letter agreement (there were others but these were the two relevant ones). Pursuant to the 2002
agreement, Fox granted Dish a limited right to retransmit Fox’s broadcast signal to Dish’s subscribers. It also contained several restrictions and conditions and prohibited video on demand. A 2010 letter agreement, however, agreed to video on demand provided that Dish agreed to certain conditions, the primary one being that it couldn’t show the content without commercials.
So the basic questions (overly simplified for blog purposes) were – did Dish distribute Fox video on demand content? If so, did it comply with the terms of the 2010 letter? (Okay, that’s not exactly how the court or the parties put it, but those were the issues stripped down to their essence).
Fox argued that Dish breached this provision of the 2002 contract:
“EchoStar acknowledges andagrees that it shall have no right to distribute all or any portion of the
programming contained in any Analog Signal on an interactive, time-delayed, video-on-demand
or similar basis; provided that Fox acknowledges that the foregoing shall not restrict EchoStar’s practice of connecting its Subscribers’ video replay equipment.”
The district court construed the word “distribute” as requiring a copyright work to “change hands” (analogous to under the Copyright Act). Because the copies remained in users’ homes,they did not change hands and there was no distribution. Fox challenged this construction and argued that the prohibition against distribution meant that Dish would not make Fox programming available to its subscribers on the aforementioned basis. The Ninth Circuit found both Fox’s and the district court’s constructions plausible (yes I realize there’s a distinction between interpretation and construction but I don’t want to go there right now, although you may).
The Ninth Circuit withheld judgment on which construction was better but stated that “in the proceedings below, the parties did not argue about the meaning of ‘distribute.’ We express no view on whether, after a fully developed record and arguments, the district court’s construction of ‘distribute’ will prove to be the correct one.”
The court did, however, express skepticism that PrimeTime Anytime was not “similar” to video-on- demand (remember, the 2002 contract prohibited “video-on-demand or similar basis”)(emphasis added by yours truly). The “distribution” of that, therefore, would violate the 2002 contract. Dish argued that its service was not “identical” to VOD but, as the Ninth Circuit noted, did not explain why it was not “similar.” (Note: I hope all you contracts profs are feeling ever more relevant! And our students thought we were just making mountains out of molehills when we focused on the importance of contract language). The addition of that word “similar” might just save Fox when the case goes to trial. Especially since, as even the district court held, if PrimeTime Anytime is VOD, then Dish clearly breached the contract which prohibited skipping commercials. The district court, however, wasn’t convinced that it was VOD. Rather, the district court concluded that it was a hybrid of DVR and VOD and “more akin” to DVR than VOD.
In other words, the district court’s analysis went along these lines – the 2002 contract was not breached because there was no distribution of VOD (or similar) content. The 2010 contract was not breached because this was not VOD but DVR. In short, this was not VOD and there was no distribution of a VOD-like service.
Query if the 2010 amendment had adopted the “VOD or similar” language instead of just “VOD”; in other words, what if it permitted Dish to offer Fox’s programming as VOD or “similar” service? My guess is that they specifically drafted it narrowly to include just “VOD” to limit the scope of the license – but that it ended up backfiring to exclude the conditions on “similar” services. Funny how drafting rules of thumb can sometimes come back to bite you. Note the problem was created because the definitions were not consistent in the 2002 and 2010 agreements – it created a gap regarding a service (a “VOD similar service”) which required judicial construction. Distribution of VOD or similar services was prohibited under the 2002 contract but VOD was permitted under the 2010 provided commercials were not skipped. And what happens to showing (not distributing) "similar services to VOD"? Mind the gap!
There was a final issue regarding a “good faith” in performance type clause. The Ninth Circuit concluded that there was no evidence that Dish launched PrimeTime Anytime “because it was unwilling to comply with the requirements to offer Fox’s licensed video on demand service, rather than because Dish lacked the technological capability to do so.” Frankly, I’m not sure why this was not a bigger issue since it seems, at least to me, that Dish is trying to get around the “no commercial skipping” restriction in the 2010 agreement by using the Hopper.
The Ninth Circuit noted a few times that it was applying a “deferential standard of review” given the request for a preliminary injunction so I don’t think Dish can rest easy just yet. I think Fox’s case will eventually hinge upon how the contract issues are resolved. What is the meaning of “distribute”? (I don’t know enough about how Dish technology works to determine whether distribution occurred. Even under the district court’s definition, could it have occurred? Does rebeaming signals constitute distribution? Is the service analogous to a lease? I think there’s room here). Is the PrimeTime Anytime service VOD or not? And isn’t that 2002 agreement relevant in determining what the meaning of VOD is under the 2010 amendment? Finally, why did the court give the “good faith in performance of contract” such short shrift?
I didn't get to review the actual agreements, but I would look at what exactly is being licensed under the 2002 agreement. Does it exclude the VOD-like service or include it? The gap seems odd to me - it must be addressed in one of the agreements. What exactly does Dish have the right to do? That seems to me one of the keys to unlocking the "correct" interpretation of the contract - and help determine whether the obligation of good faith is being fulfilled.
The real hammer here is going to be contract renewal - if Dish pisses off Fox and the other networks then it may kiss its business goodbye if they don't renew their contracts. (As I mentioned, I haven't seen the contracts so don't know what the terms are).
As the court notes, the parties probably didn’t contemplate a hybrid DVR and VOD (this is the old “anticipating the future and new technologies” problem that contract drafters have to which I’ve previously referred) I think the copyright issues weigh more heavily in favor of Dish whereas Fox has the better argument re the contract issues. Of course, the much larger policy issue is how to strike the balance between contract and copyright – a recurring issue since the late eighties…Generally, it's been advantage contracts.
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.....
Thursday, July 11, 2013
I cover all of this ground (and more) in my forthcoming book but more on that later....
Wednesday, July 3, 2013
The NYT's (new) ethicist, Chuck Klosterman tackled the issue of non-disparagement clauses in last Sunday's magazine (you have to scroll down past the first question about the ethics of skipping commercials). Klosterman stated that, "(n)ondisclosure provisions that stretch beyond a straightforward embargo on business-oriented “trade secrets” represent the worst kind of corporate limitations on individual freedom — no one should be contractually stopped from talking about their personal experiences with any company." He adds, "You did, however, sign this contract (possibly under mild duress, but not against your will)." A non-disparagement clause, however, is quite different from a blanket nondisclosure provision - the ex-employee may presumably talk about her personal experiences, as long as she leaves out the disparaging remarks. "Mild duress" is an oxymoron since duress, by its definition, is not mild and if you sign something under duress, you are signing it against your will. Despite getting the nuances wrong, the advice -- which is basically to say nothing bad but say nothing good either -- is sound. Sometimes silence speaks volumes.
Non-disparagement clauses in settlement agreements are fairly common and I don't think they are necessarily outrageous (it is a settlement agreement afterall). That's not the case with this agreement, posted courtesy of radaronline and discussed at Consumerist. The agreement doesn't contain a non-disparagement clause but still manages to be overreaching. The agreement, purportedly from Amy's Baking Company , requires that its employees work holidays and weekends, and extracts a $250 penalty for no-shows. It also forbids employees from using cell phones, bringing purses and bags to work, and having friends and family visit during working hours. The contract also contains a non-compete clause, prohibiting employees from working for competitors within a 50 mile radius for one year after termination. What the agreement doesn't contain is a non-disparagement clause - and a clause prohibiting employees from sharing the terms of the agreement with others. My guess is that those clauses will probably show up in the next iteration of the contract....
Friday, June 14, 2013
I just finished reading contracts prof Amy J. Schmitz's article, Sex Matters: Considering Gender in Consumer Contracting, 19 CARDOZO J. LAW & GENDER 437 (2013) which I thought was particularly timely given all the interest in consumer contracts. As Schmitz points out, too often discussions about "context" are left out of discussions about consumer contracts, especially from efficiency theorists who "mistakenly assume that market competition and antidiscrimination legislation address any improper biases in contracting." Schmitz's article is a thoughtful and comprehensive work that canvasses and synthesizes existing research, including behavioral economics and consumer legislation, in this area. She does a great job of highlighting ways in which existing legislation falls short of protecting against gender discrimination and incorporates a great deal of empirical and cognitive research regarding how gender affects both parties in consumer contracting scenarios. She notes that the available data suggests that women receive "less financially attractive sales and loan contracts, which may lead to higher debt loads for women." (at 447) Schmitz also conducted her own survey and shares the results which indicated gender disparities in areas such as confidence in ability to negotiate terms and ability to get companies to change terms. She argues in this article (as she has elsewhere) that context and "contracting culture" matters, and argues that gender be considered among the factors contributing to a contracting culture. For those who think that the free market is a fair market, Schmitz's paper should provide food for thought (as should this article that discrimination in housing persists against non-whites).
*Yes, I knew that putting "sex" in the title would increase traffic.
Friday, May 24, 2013
Given all the excitement over boilerplate on this blog, I thought it would be a good time to remind readers of problems that might arise that don't exactly involve (just) boilerplate, It's not just the words in the contract -- the way the contract is presented can create problems, too. I've been meaning for a while to discuss this NYT article about a lawsuit against Dollar Rent a Car. According to the article and the complaint, the plaintiffs were customers who specifically declined the insurance coverage that car rental companies are always pushing (and which is often covered by customers’ personal auto insurance policy and/or credit card). They were then handed a tablet and asked to sign electronically. When they returned the car, they were surprised with a much larger-than-expected bill that included a “loss damage waiver” which, like insurance, “waives” the customer’s liability for loss or damage to the car.
I planned to blog about this last month, but just as I was about to, I received a reprint of Russell Korobkin’s article, recently published in the California Law Review. The title, The Borat Problem in Negotiation: Fraud, Assent and the Behavioral Law and Economics of Standard Form Contracts, sounded intriguing and as I started to read it, I realized that the article addressed a lot of the issues raised by the car rental form contract/electronic signature situation. I thought it might be fun (er, contracts prof style-fun) to view the Dollar Rent a Car problem through the lens of Korobkin’s proposed Borat solution.
According to the article, the Dollar-Rent-A-Car plaintiffs explicitly told the car rental agent that they were declining insurance coverage yet unknowingly signed for it on an electronic tablet. This illustrates one way that contracting form matters –I suspect it was easier for customers to be misled by the “loss damage waiver” language because they didn’t have an easy way to read the surrounding language. While paper consumer contracts are generally adhesive, customers do have the option of declining insurance coverage. While many customers may still have overlooked the meaning of the language, others may have scanned the few sentences immediately before the signature line (this seems particularly true of the plaintiffs, who one of whom is an insurance lawyer).
Sales agents are typically paid a commission to upsell the insurance coverage and each of the plaintiffs paid a hundred to several hundred dollars more than they expected to pay.
I tried to get a copy of Dollar’s rental agreement off their website. While their general policies are posted, which references their rental agreement, the agreement itself is not available. That’s already a strike against them in my book – why not post the rental agreement on your website since you’re going to have your customer sign it anyway? I think it’s because the company doesn’t really expect anyone to read the agreement. Most people don’t read, but that doesn’t mean they wouldn’t if the company made more of an effort to make the agreement accessible and readable.
Without a copy of Dollar’s actual rental agreement, I can only make assumptions about what it contains but my guess is that it contains an integration clause and a no-oral modification or “NOM” clause. The latter may not be enforced but the former brings the contract into the grip of the parol evidence rule. The PER rule won’t effectively block a fraud claim, but fraud claims may be difficult to prove in this context. The other avenue for redress is under a consumer protection statute claiming unfair or deceptive trade practices. But what about contract law – can it do anything here to help the consumers?
Korobkin’s article doesn’t specifically address consumer actions, but he tackles the “Borat Problem” which often occurs in consumer contracting situations. According to Korobkin, the Borat Problem occurs when two parties “reach an oral agreement. The first then presents a standard form contract, which the second signs without reading or without reading carefully. When the second party later objects that the first did not perform according to the oral representations, the first party points out that the signed document includes different terms or disclaims prior representations and promises.”
As readers of this blog are well aware, contractsprofs went through a slight obsessive period with the Borat contract when it first arose. To quickly summarize, several people who were in the 2006 movie, Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan sued the producer, Twentieth Century Fox, claiming that they were misled into appearing in it. Korobkin states that these plaintiffs claimed that the studio obtained their consent using a two part strategy, “false representations followed by standard form contracts that included language designed to contradict or disclaim those representations.”
Sound similar to the Dollar situation? Although the Dollar agent didn’t expressly make false representations, they allegedly acted in a way that misled the plaintiffs into believing they were acting consistent with their wishes, and that the contract they were signing reflected their understanding. Korobkin discusses existing legal remedies to the Borat problem and concludes they are not so satisfying for various reasons. He then discusses the risk of “bilateral opportunism,” meaning that a “pure duty to read” rule leaves nondrafting parties vulnerable to exploitation by drafters and a “no-exploitation rule” leaves drafters vulnerable to opportunistic behavior (i.e. bad faith claims) by nondrafters. He discusses the different ways that each party might take advantage of the other under either rule and throws in a good amount of behavioral economics to back up his arguments – for example, “confirmation bias” makes it difficult for even sophisticated nondrafters to notice when a contract term contradicts a prior representation made by the drafter. Korobkin also discusses the role of trust, specifically that reading a contract may signal that the nondrafter doesn’t trust the drafter. I think trust plays a role (even if small) in the Dollar scenario – afterall, nobody wants to be that jerk in line who challenges the smiling service rep. There's also social pressure in that nobody want to be that jerk holding up the line of foot tapping customers by asking questions about fine print (believe me, I know).
Korobkin’s “Borat Solution” would require specific assent to written terms that are inconsistent with prior representations. This effectively puts the burden on drafters to include a “clear statement” that the particular provision takes precedence over prior representations and “realistic notice” which would generally mean that the parties actively negotiated the term. I like this proposal (and have proposed something very similar to it in the context of online agreements) because it recognizes that drafters have the power to make terms more salient. The notion of blanket assent puts too much of a burden on the nondrafting party instead of the party that has the power to actually communicate the terms more effectively.
So would the Borat solution have changed anything in the Dollar scenario? I think so, but for a different reason than the actual Borat scenario. A clear statement and realistic notice would preclude having customers sign on an electronic tablet without also making immediately visible the relevant provision. In other words, the customer wouldn't be asked to sign without being able to read the waiver provision. Although it's not expressly stated, it seems implied from the NYT article that the contract provision was not viewable on the tablet. If that's the case, that provision would not be enforceable.
So, for those of you planning to research the consumer contracts conundrum this summer, in addition to Margaret Jane Radin’s book, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law and Oren Bar-Gill’s book, Seduction by Contract, I recommend that you add Korobkin’s article to your summer reading list.
A (presumably U.S.) buyer (identified on the web only as "b-thumper") ordered a BMW M3 in "Atlantis Blue with Blue deviated stitching and the Individual Piano trim" and paid for European delivery. "European delivery" allows the buyer to pick up the car at the BMW Museum in Germany and take it for a lap around the Nürburgring.
As recounted over at Jalopnik, the Internets displayed divided sympathy for b-thumper, who, upon arriving in Germany, discovered that the car BMW delivered was Atlantic blue and not Atlantis blue. Seller offered to repaint but buyer wanted a substitute car in Atlantis blue with the customized interior.
Sorry b-thumper, but these are the type of fun facts contracts profs dream about! Assuming we are applying the UCC, does the Atlantis shade of blue substantially impair the value of the BMW? My colleague Jack Graves reminds me that the CISG doesn't apply unless the buyer was purchasing the car for a business purpose. What remedy would German law provide the buyer?
[Meredith R. Miller h/t Shawn Crincoli]
Thursday, May 2, 2013
Wednesday, April 24, 2013
The Sacramento Bee reports that a California legislative committee (if you really want to know, it’s called the Assembly Arts, Entertainment, Sports, Tourism and Internet Media committee) “gutted” a bill that would have illegalized “paperless” tickets. Paperless tickets are more (or is it less?) than what they sound like – they are a way for companies like Ticketmaster to sell seats without permitting purchasers to resell those seats. Purchasers must show their ID and a credit card to attend the show. The bill pitted two companies, Live Nation (owner of Ticketmaster) and StubHub, against each other.
This bill and the related issues should be of interest to contracts profs because it highlights the same license v. sale issues that have cropped up in other market sectors where digital technologies have transformed the business landscape. Like software vendors and book publishers, Ticketmaster is concerned about the effect of technology and the secondary marketplace on its business. Vendors, using automated software (“bots”), can quickly purchase large numbers of tickets and then turn around and sell these tickets in the secondary marketplace (i.e. at StubHub) at much higher prices. Both companies argue that the other is hurting consumers. Ticketmaster argues that scalpers hurt fans, who are unable to buy tickets at the original price and must buy them at inflated prices. Stub Hub, on the other hand, argues that paperless tickets hurt consumers because they are unable to resell or transfer their tickets.
The underlying question seems to be whether a ticket is a license to enter a venue or is it more akin to a property right that can be transferred. Or rather, should a ticket be permitted to be only a license or only a property right that can be transferred? The proposed pre-gutted legislation would have taken that decision out of the hands of the parties (the seller and the purchaser) and mandated that it be a property right that could be transferred. In other words, it would have made a ticket something that could not be a contract. Of course, given the adhesive nature of these types of sales, a ticket as contract would end up being like any other mass consumer contract – meaning the terms would be unilaterally imposed by the seller. In this case, that would mean the ticket would be a license and not a sale of a property right.
It’s not just the media giants who are feeling the disruptive effect of technology - we contracts profs feel it, too.
[NB: My original post confused StubHub with the vendors who use the site. StubHub is the secondary marketplace where tickets can be resold. Thanks to Eric Goldman for pointing that out].
Monday, April 22, 2013
The FTC recently charged a company, Wise Media, with unfair and deceptive business practices. The FTC complaint alleges that Wise Media charged unwitting mobile phone users for “premium" text services, or junk text messages (horoscopes, love tips, other “useful” information…) that consumers never authorized. The practice is referred to as “bill cramming,” and consumers often failed to notice the indefinitely recurring charges of, in this case, $9.99/month. Even when they did and sent a text to “stop” the messages, the company often failed to comply with the request.
Consumers often miss these charges because they aren’t aware that their mobile phone bills contain charges by third parties and because the charges are not clearly indicated. The result? Wise Media has made millions of dollars by surreptitiously charging consumers.
What I find particularly interesting and troubling is the potential interaction of contract law in the area of electronic contracts and consumer protection. What distinguishes a deceptive business practice (although not necessarily an unfair one) from a “hard bargain” is consent. The FTC complaint, for example, was filed because the charges were “unauthorized” by consumers - they were signed up "seemingly at random" without consumer "knowledge or permission." The FTC has, in my view, done a pretty terrific job of protecting consumers given the lack of resources and the wide range of consumer-harming activities out there. Courts have not done so well. What happens where contractual “consent” (such as in the form of a clickwrap”) is obtained for an unfair practice, such as bill cramming? What if the consumer had clicked "I agree" on a clickwrap to the premium service? Would the contract law notion of “consent” mean that the consumer had authorized the “premium text” service, even when we all know that nobody reads clickwraps and browsewraps? Or would the commonsense version of consent championed by the FTC prevail?
I talk about this disjunction between, what I refer to as “wrap contract doctrine” (since, let's face it, the digital contract cases are not consistent with traditional contract doctrine despite what Easterbrook and others claim) and the FTC’s more commonsense approach to consumer perception and business practices in my forthcoming book on wrap contracts. (Did you know a plug was coming? I actually didn’t but there it is.) The conclusion I reached was that there appears to be a disconnect between contract law notions of “reasonable notice” and the FTC’s notion of “reasonable notice” (which I find more reasonable….) The takeaway for businesses – just because you obtain consent for a particular business practice via an online contract which may meet the surreal standards of contractual consent set forth by courts doesn’t mean that the practice in question won’t be viewed as an “unfair and deceptive” one by the FTC.
Monday, March 4, 2013
( H/T to Ben Davis -and his student - for posting about the article to the Contracts Prof list serv).
This article indicates that the average Internet user would need 76 work days in order to read all the privacy policies that she encounters in a year. (Unfortunately, the link to the study conducted by the Carnegie Mellon researchers and cited in the article doesn’t seem to be working). But you don’t need a study to tell you that privacy policies are long-winded and hard to find. That’s one of the reasons you don’t read them. Another is that they can be updated, often without prior notice, so what’s the point in reading terms that are constantly changing? Finally, what can you do about it anyway? Don’t like your bank’s privacy policies – good luck finding another bank with a better one.
So, what’s the difference between a contract and a notice? The big difference is that the enforceability of a notice depends upon the notice giver’s existing entitlements, i.e. property or proprietorship rights whereas a contract requires consent.
If I put a sign on my yard that says, Keep off the grass, I can enforce that sign under property and tort law. As long as the sign has to do with something that is entirely within my property rights to unilaterally establish, it’s enforceable. If the sign said, however, ‘Keep off the grass or you have to pay me $50” – well that’s a different matter entirely. That would require a contract because now it involves your property rights.
Privacy policies are more like notices – and should be treated as such even if they are in the form of a contract (such as a little clickbox that accompanies a hyperlink that says TERMS). If a company wants to elevate a notice to a contract, it should require a lot more than that simple click. Because the fact is, contract law currently does require the user to do more than click – it requires the user to read pages and pages of terms spread across multiple pages – at a cost of 76 days a year. The standard form contract starts to look a lot less efficient when viewed from the user’s perspective.
Thursday, February 14, 2013
The brochure for the wildlife sanctuary cried out to us: "Be Stalked By a Mountain Lion!" So we went, foregoing opportunities to be served by a sommelier, pounded by a masseuse, guided by a docent or entertained by a performer.
When we arrived at the sanctuary, and I announced to the ticket taker that we would like to be stalked by a mountain lion, he looked confused. Craning his neck to shout a question to someone who made something above minimum wage, he said, "Do we have a mountain lion?"
"That's the cougar," came the disinterested response.
"Oh," said the ticket taker. "He hides a lot."
My heart sank, but we trudged on. We weren't stalked, and while I contemplated a breach of warranty claim, my wife wrote a poem. Indiana Poet Laureate, Karen Kovacik is featuring that poem today on her blog, No more corn, as a Valentine's Day poem. We reproduce it here:
On Not Being Stalked by a Mountain Lion BE STALKED BY A MOUNTAIN LION! said the brochure. But we weren’t stalked, Although for a lazy hour along the path We strolled and talked-- Totally helpless, as you pointed out, Pitifully clueless, meant for lion-prey (Apart from the fence and the ditch too broad to leap Even for mountain lions). You scanned the sway And shadow play of branches for a glimpse Of that quicksilver shape-- O the rising unease, the chills, the chase, the last- Minute, hairsbreadth escape! “He’s probably sleeping,” the gate attendant shrugged When you complained No icy green-gold gaze had pricked our necks. Later it rained, And we drove back and chased each other into bed And slept an hour or two. There was nothing boring about not being stalked By a mountain lion with you. This poem originally appeared in Able Muse Review.
Monday, February 11, 2013
The LA Times reports that the state of California has terminated its contract with SAP Public Services, a contractor that was supposed to fix the state's outdated computer network system that handles paychecks and medical benefits for 240,000 state employees.
While both SAP and California are unhappy about the state of events, I have just covered breach, substantial performance, conditions and damages in my Contracts course and was delighted to find a real life scenario to illustrate the relevance of the material we just covered.
So what triggered CA's termination? SAP was hired three years ago but when its program was tested, it made errors at "more than 100 times" the rate of the old system.
Was failing this test a breach? If so, was it a minor or material breach? It seems it would depend on what was in the contract. As contracts profs know, the first place to look in a contract dispute is the contract itself. The are terms in the contract that will be relevant in evaluating whether there was a breach or the applicable measure of damages. For example, there may be performance targets (i.e. conditions) that SAP had to meet which weren't met. Those conditions would be relevant in determining each party's obligations (would the contract terminate upon failure to meet the condition, for example?) There's also likely to be a provision dealing with whether SAP gets paid per deliverable or target met or per person/hour or time spent on a project. If this was a scheduled deliverable, then the facts tend toward finding a breach (or, if the contract language indicates, it could be a condition that was just never met). If it was a test done in the course of moving the project toward completion, CA may have jumped the gun. A material breach would allow CA to then terminate its obligation. If not a material breach, CA should have sought adequate assurance of performance and could itself be in breach by terminating the contract.
Facts matter, as I repeat like a broken record to my students (I guess I should update my reference for the iPod generation) - so it matters what it means to say that SAP failed the test. The LA Times reports that:
"During a trial run involving 1,300 employees....some paychecks went to the wrong person for the wrong amoung. The system canceled some medical coverage and sent child-support payments to the wrong beneficiaries."
Furthermore, because the system sent money to retirement accounts "incorrectly,"' the state had to pay $50,000 in penalties.
Given the late stage of the project, if not a material breach itself, the failed trial seems to at least give rise to a reasonable belief that SAP would breach. What did CA do then? Did it immediately terminate or seek explanations/reassurance?
Another issue is what damages measure is applicable? CA paid SAP $50million dollars but it had incurred much more trying to get the system up and running. It wasn't clear to me whether the $50million dollar amount was the amount paid up to that point, or the total due to SAP. In class, the cases we study regarding breach of contract to provide services typically involve some type of construction contract. The standard measure then would be the difference between the cost of completion and the contract price. But in a situation like this, the cost of completion is a bit funny given the various factors involved - and the period of time it would take to implement a new project (SAP took the project over from a prior contractor). Furthermore, the purpose of the new system wasn't so CA could make money (no loss profit measure applicable here). Given that, the standard expectation measure likely would not be appropriate and a reliance (or restitution) measure makes more sense. Not surprisingly, CA is seeking recovery of the $50million dollars paid.
What about SAP? Will it claim that it substantially performed? I don't think it can with a straight face, but again, I am only basing my conclusion upon the facts contained in the newspaper article. Will SAP seek restitution for the reasonable value of its services to CA? It very well may, (and any students reading this, should raise it on an exam...) since it has spent three years on this project. Based upon the information in the article, it doesn't sound as though CA received any benefit from the services rendered. If SAP is determined to be the breaching party, it may not get awarded anything. The real world problem for SAP is that trying to hang on to money for delivering a system that doesn't work might hurt its reputation even more. And it doesn't help that the other party is a state entity - meaning lots of future potential business at stake. (The LA times noted that SAP projects with other CA entities are not going so well, either).
As is true for other contracts profs, I spend a lot time trying to situate doctrine into a problem solving (or minimizing) scenario since this is how most lawyers deal with contract law. For example, prior to cancelling the contract, the attorneys for the state of CA most likely sat down and discussed its available options under both the contract and contract law. SAP, too, likely reviewed (or is reviewing) its options under the contract and contract law. My guess is that the contract terms probably permit CA to cancel under these circumstances, although a spokesperson for SAP stated that it believed it had "satisfied all contractual obligations in this project."
I'm sure I missed a few things in my quick analysis of ths situation, so feel free to note any other issues in the comments.
Thursday, February 7, 2013
Shades of Hamer v. Sidway! A man offered his daughter $200 if she quits Facebook for five months. It seems that the daughter was well aware of the irresistible time-wasting hazards of the popular social networking site, but needed an incentive to quit. The father even had her sign a contract. But, as contractsprofs know, it's not the written form that makes the contract but the bargain. Even though quitting Facebook may be better for productivity (as I keep telling my students....), it is still a legal "detriment" so if she's successful, dad should pay up.
Tuesday, January 29, 2013
A Pennsylvania homeowner is suing the seller of the house and a real estate agent, claiming fraud and misrepresentation, for failing to tell her that the home she recently purchased had been the scene of a murder-suicide the previous year. The homeowner had moved to Pennsylvania from California with her two children after her husband's death. She learned of the murder-suicide from a neighbor, several weeks after moving in. You can read about it here.
I don't know about you, but I think a murder suicide is pretty material, although there aren't enough facts here to indicate whether the seller and agent deliberately concealed the fact or whether the buyer inquired as to any unusual events happening in the house.... With respect to the seller, it might be one of those "tough luck" situations where the law just doesn't help the buyer even if the court feels sympathetic toward the buyer's situation. It's not clear whether the agent is the buyer's agent - if so, the agent should have disclosed this as a fiduciary. But it's more likely that the agent was actually the seller's agent, and not the agent of the buyer or a dual agent. (Got that? Just because someone has the word "agent" in their job title doesn't make that person your agent. Who is paying the commission? When in doubt about where the agent's loyalties lie - ASK the agent).
The lesson here - especially relevant given the recent rise in home sales - is BUYER BEWARE. I wonder if a quick online search of the address would have uncovered the grisly events that took place in it. It would probably be prudent for all potential home buyers to expressly ask, "Did anything unusual ever happen in this house that we should know about such as any crimes?" A buyer should also ask how long the current sellers have lived in the house and why they are moving. [In this case, such a question probably wouldn't have helped the homeowner. The immediate sellers were not the owners of the house when the murder-suicide took place, but subsequent owners who bought it, presumably at a low price given what had just happened in it, and then turned around and sold it to the out-of-state buyer]. The seller's failure to disclose in a situation where the buyer has specifically asked is entirely different from a failure to affirmatively disclose unasked for (albeit material) information.
N.B. Under California real estate law (which imposes a duty to disclose facts materially affecting the value of real property where the facts would be hard to uncover), the result would probably have been different. See Reed v. King, 145 Cal. App. 3d 261 (1983) involving a failure to disclose a multiple murder by a home seller. Interesting, given that the PA home buyer was from California and might have expected a bit more from the seller based upon her real estate experiences there...
Thursday, January 24, 2013
I recently finished a book manuscript on the subject of “wrap contracts” – shrinkwraps, clickwraps, browsewraps, tapwraps, etc. These non-traditional contracts are interstitial, occupying space in and between contracts and internet law, but not neatly fitting into one alone. I'll be blogging a lot more about them in the future.
On the subject of wrap contracts, not long ago I bought a new laptop with Windows 8 pre-installed.
But that didn’t mean I didn’t have to agree to this:
What's interesting is that my old laptop, which I ordered online, came in a package like this:
Like the typical shrinkwrap, ripping the plastic bag (which was necessary to get to the laptop inside it) was deemed acceptance.
Both were examples of rolling contracts, but they came in different forms -- and neither gave me notice of any terms to come at the time of the transaction. Yet consider the hassle I would have to go through if I decided, after having received the goods and a "reasonable opportunity to read" the terms, that I didn't want to accept the terms. I would have to ship back the computer or take it back to the store, and try to explain that I was rejecting it because I disagreed with the contract terms.
Honestly, now - don't you think the retailer would just think I was nuts? Or that I had found a better deal elsewhere? (Or that I had done something sneaky, like somehow copied the software or infected the computer with a virus?) How many think I would actually get my money back if there was nothing (else) wrong with the laptop(s)?
Tuesday, January 15, 2013
The N.Y. Times reports that Conde Nast has issued new contracts to its writers with changes that diminish their right to profits from articles. Conde Nast is the publisher for magazines like Wired, Vanity Fair and The New Yorker. (You remember magazines, right? They’re printed on paper and you can usually find them at airports. Unlike newspapers, they don’t leave inky residue on your fingers). Conde Nast writers typically lack job security and benefits, signing one-year contracts – but they are (or were) allowed to keep the rights to their work. These rights could be valuable if an article becomes a movie, like “Argo” or “Brokeback Mountain.” Under the new contracts, however, Conde Nast has exclusive rights to articles for periods of time ranging from thirty days to one year and option rights where payments to the writer top out at $5K. If the article is turned into a movie, there is also a cap on what writers can receive.
It would be easy for me to demonize Conde Nast given my association with writers. Yet, it’s no secret that the demand for glossies is diminishing and that publishers need to figure out a way to monetize their content better – otherwise, there won’t be any magazine writers at all. Perhaps Conde Nast could bargain employee benefits for these rights, the way newspapers do. Maybe they could increase the cap based on different variables. Maybe they could lift the exclusivity for certain writers after a period of time (or a designated number of successes). Maybe they could commission articles that they conceived in-house, so that the work is a traditional work for hire, and the cap isn’t tied to an idea that originated with the writer. In any event, it’s clear that Conde Nast needs to evolve with the marketplace; what’s not so clear is that this is the way to do it.
Monday, January 7, 2013
Below is a parking ticket I got from a parking lot outside of a hotel I stayed at over the holidays. The fact that the ticket announced itself as a contract caught my attention. It was as if the busboy in a restaurant, after clearing the table and placing a towel in his waistband, pulled out a pad of paper and announced, "My name's Devon, and I'll be your server tonight."
Nothing against busboys or servers. They each have their designated role, and for some reason restaurants keep them separate. If you ask a busboy to bring you some ketchup, the best he can do is pass word on to the server that you need something, who will then send over the ketchup sommelier who will intimidate you with questions about what you have in mind for what he calls "catsup," what kind of tomato you prefer and if there was a particular vintage you had in mind. Similarly, it seems a bit ambitious for a simple parking ticket to announce itself as a contract. That's all I'm saying.
At this point, it should not shock us that our knowing assent to terms is not required for the the formation of a consumer contract, but still I found this little parking ticket a bit jarring. The reason for that is as follows. At the hotel at which I stayed, you actually don't use the ticket to get in and out of the parking lot; you use your room key, which has no contractual langauge written on it. Nor were there signs elsewhere in the parking area that I noticed about limitations of liability. I got the ticket because I parked my car before getting my room key.
Moreover, the information provided does not seem adequate to establish a contract. How long can I park my car? What do I pay for the license to do so. That information was not provided to me until I checked in to the hotel. If I had just wandered into that parking lot without checking into the hotel, I would have no information about parking rates, and I'm not sure how a court would go about implying a price term in this case. Social conventions suggest that I ought to know that by taking a ticket, proceeding through a raised gate and entering a parking lot, I am agreeing to pay for the privilege, but that should not mean they can charge me whatever they please.
If I had parked outside the front entrance of the hotel, unpacked my stuff, registered and then parked my car, I would have used my room key to get into the parking lot and never have received the notice printed on the ticket. I suspect that the hotel somehow would still have found a way to limit its liabilty for any damage to my (rental) car while it was parked in its lot, but I really have no idea how or if it matters. It's all for the best, because this way I started my little holiday thinking about contracts.