Thursday, December 12, 2013
I happen to agree with the recent New York Times article on the usefulness of legal research. As many will recall, the basic idea was that a great deal of what is published is only that -- it exists in print and is largely unread or impractical. Part of the problem is that writing is a bit like hazing. Young people must do it to join the fraternity even if they have little new to say. Another problem is the actor and audience problem. Law professors appear are both. As writers they are the actors and as readers they are the audience -- the only audience. So they play their part and then rush back to the audience to applaud the "acts" of others. In these instances the work may be so theoretical that it is only of interest to very few, if any, and perhaps useful to no one at all. This is related to or the same as the skyhook problem as described by Monroe Freedman. As I understand it, work that is too theoretical and too burdened by assumptions is comparable to engineers talking about the impossible. Monroe H. Freedman, A Critique of Philosophizing About Lawyers' Ethics," 25 Geo. J. Legal Ethics 91 (2012).
That was how an Article by Daniel Markovits and Alan Schwartz, "The Myth of the Efficient Breach: New Defenses of the Expectancy Interest," 97 Va. L. Rev. 1939 (2011), stuck me. Why write anything further about the efficient breach? Of course, as always the joke was on me. I immediately set out to write yet another article about efficient breach which essentially says it does not exist, and Markovits and Schwartz are covering ground that is in large part both old and irrelevant. And with that I became the actor, the audience, and an actor acting out the roles of the actor an audience. I think this means my article, "A Nihilistic View of the Efficient Breach" 2013 Mich St.L. Rev. 167 , was a skyhook for skyhooks. If any of this interest to you and I hope not. Here is the link.
I realized why we do much of our writing. It's fun and we are addicted to ideas. It's a pretty good job! But are we at times too self indulgent?
Wednesday, December 11, 2013
Alan S. Kaplinsky & Mark J. Levin, Consumer Financial Services Azrbitration: What Does the Future Hold after Concepcion? 8 J. Bus. & Tech. L. 345 (2013)
Nicole F. Munro & Peter L. Cockrell, Drafting Arbitration Agreements: A Practitioner's Guide for Consumer Credit Contracts, 8 J. Bus. & Tech. L. 363 (2013)
Tuesday, December 10, 2013
Thursday, December 5, 2013
Eli Bukspan, Trust and the Triangle Expectation Model in Twenty-First Century Contract Law, 11 DePaul Bus. & Com. L.J. 379 (2013)
Veronica J. Finkelstein, Dollars and Horse Sense: Why Prudent Buyers and Sellers Should Account for Article 2 of the Uniform Commercial Code in Their Equine Sales Contracts, 5 Ky. J. Equine, Agri., & Nat. Resources L. 181 (2012-2013)
Wednesday, December 4, 2013
Unconscionability and the Contingent Assumptions of Contract Theory, 2013 Mich. St. L. Rev. 211 (2013), by Dr. M. Neil Browne and Lauren Biksacky, argues that basic assumptions of liberal contract theory – for example, that contracts are made by rational and informed parties – don’t hold. Therefore, courts should find more contracts unconscionable.
This short article would be a nice primer for law students on basic liberal contract theory, especially in conjunction with some Judge Posner readings. The authors argue that people often yield to irrational motives. They get in bar fights. They have road rage. They buy books on feng shui. Judge Posner might respond that the human rationality economists speak of is that of pigeons or rats, not angels. Dr. Browne, himself an economist, seems to take exception to that conception of human beings.
The article argues courts can do better than simply making people keep their ratty promises. Courts can allow people to be their best, most-informed selves by invalidating “irrational” promises made under distorting influences like advertising and cognitive biases. Courts can and should step in like adults over wayward children and guide them toward eudaimonia.
Yet the article notes that despite research showing people are often irrational and ill-informed, courts are not finding more contracts unconscionable. Why? The article doesn’t answer, but the reason is probably that to do so seems unworkable. If human irrationality were grounds for invalidating a contract, how many contracts would be secure? The law tends to be a great guardian of the status quo, and apparently some people like books about feng shui.
[Image by Vicky TGAW]
Tuesday, December 3, 2013
Thursday, November 28, 2013
Theodoros Chiou, On Royalties and Transfers without (Monetary) Consideration -- Looking for the "Magic Formula" for Assessing the Validity of Renumeration Clauses of Copyright Transfers under French Copyright Law. 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 585 (2013)
Louise Longdin & Phen Hoon Lim, Inexhaustible Distribution Rights for Copyright Owners and the Foreclosure of Secondary Markets for Used Software, 44 IIC: Int'l Rev. Intell. Prop. & Competition L. 541 (2013)
Michael Pressman, The Two-Contract Approach to Liquidated Damages: A New Framework for Exploring the Penalty Clause Debate, 7 Va. L. & Bus. Rev. 651 (2013)
Thomas J. Lilly, Jr. Participation in Litigation as a Waiver of the Contractual Right to Arbitrate: Toward a unified Theory. 92 Neb. L. Rev. 86 (2013)
Andrea M. Matwyshyn, The Law of the Zebra. 28 Berkeley Tech. L.J. 155-225 (2013)
Debra Pogrund Stark, Jessica M. Choplin & Eileen Linnabery, Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis. 46 Ind. L. Rev. 797-847 (2013) [and check out Kenneth Ching's review of this article here]
George G. Triantis, Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design. 18 Stan. J.L. Bus. & Fin. 177 (2013)
William Wood, It Wasn't an Accident: The Tribal Sovereign Immunity Story, 62 Am. U. L. Rev. 1587 (2013)
Wednesday, November 27, 2013
Today’s mini-review is of Dysfunctional Contracts and the Laws and Practices that Enable Them: An Empirical Analysis, 46 Ind. L. Rev. 797 (2013), by Debra Pogrund Stark, Dr. Jessica M. Choplin, and Eileen Linnabery.
Apparently, many real estate contracts limit buyers’ remedies to return of earnest money, and many courts enforce such limitations. The problem is that if a buyer’s only remedy for breach of contract is the return of earnest money, then the seller hasn’t really bound himself to anything. If the seller doesn’t want to perform, all he has to do is return the earnest money. This encourages the kind of strategic behavior that contracts are supposed to prevent. For example, a seller may agree to sell real estate, but if the property's market value increases, the seller can breach the contract, return the earnest money, and sell the property to a second buyer at a higher price. The seller essentially gets to speculate on the buyer's dime.
Further, many buyers don’t understand the meaning of these limitation of remedy clauses, even if they read them. The authors conducted a study which suggests more than a third of people who read a limitation of remedies clause fail to comprehend that their remedies have been limited. The authors use this finding to challenge some courts’ reasoning that buyers knowingly consent to the limitation of their remedies.
The authors offer several reforms, and two are particularly interesting: (1) enacting legislation that prohibits limiting buyers’ remedies to the return of earnest money, and (2) replacing the exacting standards of unconscionability with a "reasonable limitation of remedy” test similar to that used in evaluating liquidated damages.
This article is state-of-the-art in its use of empirical research to aid legal analysis. It not only provides interesting data, but it also marshals that data against flimsy intuitive arguments still common wherever people talk about contracts.
[Image by thinkpanama]
Tuesday, November 26, 2013
Friday, November 22, 2013
Our seventh guest blogger, Theresa Amato, is the executive director Citizen Works which she started with Ralph Nader in 2001. After earning her degrees from Harvard University and the New York University School of Law, where she was a Root-Tilden Scholar, Amato clerked in the Southern District of New York for the Honorable Robert W. Sweet. She was a consultant to the Lawyers Committee for Human Rights (Human Rights First) and wrote an influential human rights report on child canecutters in Haiti and the Dominican Republic. She then became the youngest litigator at Public Citizen Litigation Group, where she was the Director of the Freedom of Information Clearinghouse in Washington D.C. In 1993, Amato founded the nationally-recognized, Illinois-based Citizen Advocacy Center and served as its executive director for eight years. She currently serves as its Board President. Most recently, she has launched Fair Contracts.org to reform the fine print in standard form contracts. In 2009, The New Press (New York) published her book, Grand Illusion: The Myth of Voter Choice in a Two-Party Tyranny. She also appears prominently in the Sundance-selected and Academy Awards short-listed documentary “An Unreasonable Man.”
“Yes,” writes Professor Nancy S. Kim. “As strange as it may seem, under contract law you can legally bind yourself without knowing it.”
In her valuable book, Wrap Contracts, Foundations and Ramifications, Professor Kim does a service to all by explaining how courts enforce these online contracts “where consumers have no intent of entering into a contract.” She points out that “[t]he requirement of manifestation of consent seems to be subsumed in wrap contract cases with the issue of notice.” As a result, “the nondrafting party does not actually need to either receive notice or understand or intend the meaning attributed by the courts to a particular action.”
courts have constructed consent in an entirely unreasonable fashion by twisting doctrinal rules, conjuring up notice, inferring action from inaction, and blithely ignoring the central role of intent in contracts. They engage in this hocus pocus in order to enforce transactions that they believe provide a net benefit to society.
These “wrap contracts” consumers often unknowingly “agree” to may be buried in the hyperlinks and are not merely proprietary instructions for how to use the product or service. As Professor Kim explains, consumers are not only under affirmative obligations in these “wrap contracts,” they may be subject to a smorgasbord of rights-reducing language. Exclusive jurisdiction, forced arbitration, waived class actions, and the vendor’s one-way reserved rights to change the terms whenever it wants to are aggressive consumer rights reducers, often eviscerating decades of public policy and legal decisions that have afforded consumers their rights. In some cases, consumers are agreeing to muzzle themselves from complaining about the product or service. Fine print contracts may not only strip mine the legal rights of consumers, but they can also take or “steal” their property and privacy.
Thank you, Professor Kim for spelling it out for all to read. Not only do consumers not need a pen to sign on a dotted line, or in some cases even a button to click that one “agrees” to terms certainly not read, but “wrap contracts” take it even further. Consumers don’t even need to know they are agreeing, much less to what set of terms. Nonetheless, “wrap contracts,” now often “multi-wrap contracts,” as Professor Kim notes, “by their form, permit companies to impose more objectionable terms than paper contracts of adhesion.”
When people begin to understand how their rights are treated in the “wrap contract” rabbit hole, this offends sensibilities. For those not attuned to the “degradation of consent,” so aptly explained in Professor Margaret Jane Radin’s book Boilerplate, The Fine Print, Vanishing Rights, and The Rule of Law, this sort of contract peonage is not only unwelcome, it runs counter to everything the non-drafting parties think of as fair play.
Professor Kim’s use of the term “crook provisions” should not be understated and aligns with popular sentiment when consumers are fully informed of this state of affairs. Companies now grant themselves the right to “appropriate” -- once known otherwise as “stealing” or, charitably, “taking”-- from consumers for no payment. They then turn around and make a profit on what heretofore we would have considered the possessions of the consumer, e.g. their content, images, personal information and shopping habits.
As Professor Kim explains: “a crook provision anticipates no such offensive action by the consumer and has no direct relationship with the product or services offered by the company. It is simply an attempt to sneak an entitlement from the user without payment, either in terms of money or goodwill.” Indeed.
So where is the counteraction to this outright mugging of consumer rights and property? The ubiquity of these contracts has masked the reality of their potential to do serious harm to consumers such that consumers are not even aware of the magnitude of the problem.
For lack of a better term at the moment, I think we should nonetheless stop calling them “contracts” and start treating them as the equivalent of “online asbestos.” Like asbestos in its heyday, manufacturers and service providers use “wrap contracts” everywhere. They have properties that facilitate commerce but that does not mean that they are not toxic and dangerous for those exposed to them.
Moreover, like asbestos, some of the dangers will not necessarily emerge for decades when content thieves and data aggregators use consumer information to the detriment of the consumers. Perhaps due attention will be paid when the content providers, i.e. the consumers/users, begin to realize they cannot expunge those posts from their teens or more uncensored moments that now prevent them from getting hired or getting credit. Or perhaps regulators will begin to pay sufficient attention to the one-sided misappropriations when serious amounts of data are compromised by those with criminal intent (already it is happening) and with frequency for millions of users.
The question is, how long will it take for U.S. regulation and the courts to catch up to the need to ban or strictly limit the use of these offensive sword and crook provisions? For asbestos it took at least half a century, while manufacturers whined the whole way about regulation even as they knew for decades of its dangers much as “wrap contract” apologists do now. No, these “contracts” may not kill you, but they can make your life miserable and we would all breathe better if consumers were treated more fairly.
Professor Kim’s doctrinal adjustments (“a duty to draft reasonably; replacing blanket assents with specific assent; considering contract function when apply existing doctrinal rules, and reinvigorating unconscionability”) are a very solid start, though they are only a beginning. In some cases, such as replacing blanket assent with specific assents, the proposed remedy may only devolve into the Pavlovian clicking response now exercised by consumers with routine oblivion to the consequences, believing they have little choice if they want the product or service behind the click.
Courts should be helping consumers enforce their intent, not creating doctrinal chaos as Kim writes by reciting, “law that originates from the paper-based contracting world to this brave new digitally based world when they might be better off acknowledging the difference that contract form and function make to the reasonable expectations of the parties.” The courts have instead largely given corporations a judicial pass thus far and Professor Kim’s rebalancing of burdens (from the nondrafting party to the drafting party) is the least that they could begin to impose to adjust the invocation of the judicial force of the state.
I think we should be asking for much more on behalf of consumers and could take cues from other countries with more advanced notions of consumer protection and data privacy. Not only should legislators, regulators and courts protect consumers from exposure to online asbestos by outright banning, or at minimum reforming, many of these harmful provisions, but corporations who have taken rights from consumers should also be required to begin remediation efforts – immediately. These corporations can start by returning the misappropriated property and other stolen goods to their rightful owners.
[Posted, on Theresa Amato's behalf, by JT]
Thursday, November 21, 2013
This is the sixth in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our sixth guest blogger, Eric Zacks, is an Assistant Professor of Law at Wayne State University Law School.
Deciphering the Function of Form in Wrap Contracts
Form and function collide again and again in Professor Kim’s engaging Wrap Contracts. As Kim explains, the wrap contract’s form is deeply connected to its function, and her description and devastating critique of these varying forms illuminate the complexities of how we interact with, and are affected by, such contracts. She argues that the form ought to reflect the function of the wrap contract so that users better understand the nature of the contract. In this comment, I seek to address the ways form may already reflect function, albeit not in the manner that Kim necessarily would prefer.
As in industries utilizing paper consumer contracts, competition among businesses that employ wrap contracts demands that they develop a nuanced understanding of how the non-drafting parties and judges interact with contracts. For example, we should not be surprised by contracts that induce deference to the contract as written from the non-drafting parties. To that end, the prevalence of particular wrap contract features, such as the use of multiple hyperlinks to obtain the text of a license or lengthy and complex terms, are unsurprising because they make it more unlikely that non-drafters will try to (or actually) understand the content of the contract. Similarly, delivering the product prior to, or simultaneously with, the “execution” of the contract through the use of shrinkwrap or delaying the opportunity to review contract terms until the website user has sunk time and energy into filling out an order form, deter contract term detection or review and reflect drafters’ sophisticated understanding of individual decision-making processes.
Wrap contracts presumably also could be designed to make the adjudicator comfortable with enforcing the contract as written against the non-drafting party. The “click-through” on a website is a powerful device because it lends itself nicely to a particular counterfactual analysis that “but for” the click, the customer would not have been bound. Because the customer did click, adjudicators typically conclude that she should be held responsible for the terms of the contract. Importantly, this adjudicative response is triggered even though, as Kim notes, “adherents to these contracts to these contracts are typically oblivious to what they have done,” suggesting that the click triggers a psychological response similar to contracts with a more passive means of acceptance (such as simple disclosure of terms).
Kim’s metaphors of the shield, sword, and crook to explain the different functions of the wrap contracts (Chapter 5) also are helpful because they can help identify the underlying motivation for certain provisions. By understanding whether the primary function of the contract is to protect the drafting party (the “shield”), obtain better transaction terms (the “shield”), or seek benefits beyond the scope of the transaction (the “crook”), we may then speculate as to which form of a wrap contract makes sense from the drafter’s perspective.
If, however, the goal is to prevent the use of the software in a particular manner, then the form of contract as it appears to the adjudicator may be more important than a contract form that deters returns. Accordingly, the contract form may emphasize notice of the terms, if not outright acceptance. I suspect that a “click-through” box may help in this regard, although the blatancy of wrongful or inappropriate use, particularly of free software, may not require an additional volitional act on the part of the user (such as explicit assent to the contract) to convince an adjudicator to enforce the contract as written. The courts, as noted in Kim’s book, typically find notice of non-negotiated terms to be sufficient when such wrongful use has occurred.
Lastly, if the goal is to use the contract as a crook, then a contract that requires a more active acceptance of the contract terms (such as clicking “I agree”) may be preferable from the drafter’s perspective. By being able to point to the specific act of the click and a “better” assent, a drafting party may be better able to extract property rights unrelated to the transaction under adjudicative scrutiny. The extraction of the property rights by the drafting party may appear wrongful to the adjudicator, but counterfactual analysis surrounding the “explicit” assent to the contract may point to a different result.
With respect to the metaphors described above, I do question whether the distinction between shield and sword holds up sufficiently in many cases. License agreements containing shields and license agreements containing swords essentially provide the user with a restricted license, and the difference between the two types is a bit unclear. For example, Kim describes the restrictions on copying and transferring software discussed in ProCD, Inc. v. Zeidenberg as a shield and the restriction on reverse engineering discussed in Davidson & Associates v. Jung as a sword. As each can be described as a shield protecting the licensor from unfair or undesired business practices or a sword preventing the licensee from exercising certain rights, it may be simpler to divide the world of wrap contract provisions into defensive (those that manage business risks related to the license or transaction) and offensive (those that extract rights unrelated to the license or transaction). In any event, the specific categorization does not undercut Kim’s more significant conclusion that the use of shield and sword provisions has enabled the use of crook provisions.
It also would be interesting to know whether these different contract goals and functions do, as an empirical matter, affect the form chosen by the drafting party as described above. Of course, the judicial slide towards “notice that terms exist” as “consent” noted in Wrap Contracts could somewhat obviate the need for such planning, and the multiple goals of the drafting party also are not necessarily mutually exclusive. Wrap Contracts provides us with a welcome exploration into the connection between form and function in these ubiquitous contracts and suggests how understanding this connection can help us address problematic contracting practices in this still-developing context.
[Posted, on Eric Zacks' behalf, by JT]
This is the fifth in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our fifth guest blogger, Michael Rustad, is the Thomas F. Lambert, Jr. Professor of Law and Co-Director of the Intellectual Property Law Concentration at Suffolk University Law School.
Reforming Wrap Contracts
In her insightful new book, Nancy Kim contends that “wrap contracts” take the form of a traditional contract but constitute a “coercive contracting environment.” (Nancy S. Kim, Wrap Contracts: Foundations and Ramifications 1-3 (Oxford University Press, 2013)). Professor Kim contends that the problem with “wrap contracts” is “their aggressive terms.” (Id. at 4.) My Suffolk University Law School research team, focusing on contracting practices in social media websites, found strong empirical support for Professor Kim’s argument that wrap contracts are overly aggressive and in need of law reform. My own empirical work with a team at Suffolk University Law School has uncovered a growing number of social networking sites incorporating mandatory arbitration and anti-class action waivers. (Michael L. Rustad, Richard Buckingham, Diane D’Angelo, and Kathryn Durlacher, An Empirical Study of Predispute Mandatory Arbitration Clauses in Social Media Terms of Service Agreements, 34 University of Arkansas Law Review 1 (2012) (Symposium Issue on ADR in Cyberspace)).
The most pernicious of the waivers are those against joining class actions. In our study of predispute mandatory arbitration agreements in social media wrap contracts, we found eleven of the thirty-seven arbitration clauses preclude consumers from initiating or joining class actions. Class action waivers have the practical effect of denying justice to a large number of consumers by divesting them of the right to join with other aggrieved social media users to pursue relief under state consumer law. Many of the first generation lawsuits against SNSs were class actions or collective proceedings because the damages for any one individual user were too small to make the lawsuit cost-justified. Immunity breeds irresponsibility in the information-age economy, where an increasing number of companies are divesting consumers of any civil recourse by including class action waivers in their terms of service.
The creators of SNS and other wrap contracts are overly aggressive about including anti-class action waivers, in large part, because the U.S. Supreme Court routinely upholds predispute mandatory arbitration clauses and anti-class action waivers. In a 5-4 decision, AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the U.S. Supreme Court held that the Federal Arbitration Act preempted California’s use of state unconscionability law to render class action waivers unenforceable. Let’s be clear about what Concepcion means for ordinary consumers. With these rulings, the Court is padlocking the courthouse door to elderly nursing home patients harmed by neglectful caretakers. Keep in mind that the typical nursing home resident or his caretaker has probably not even read the arbitration clause buried on page 20 or deeper into an admissions contract. What this means is that if your Mother or Grandmother suffers septic shock from decubitus ulcers caused by neglect, her estate will have no recovery because no lawyer in her right mind will take a case where mandatory arbitration and its running partner, class action waivers are in play. Trial lawyers do not take nursing home cases to arbitration because of the perception that arbitrators will give lower awards for non-economic damages and almost never award punitive damages. In my informal survey of attorneys specializing in nursing home neglect, I have been unable to find a single case where a trial lawyer represented a nursing home patient in arbitration. The Court’s decisions are, in effect, a federal takeover of arbitration, preventing the states and private plaintiffs from challenging one-sided and oppressive consumer arbitration clauses on grounds of unconscionability. When wrap contracts couple mandatory arbitration clauses with class-action waivers they essentially create a liability-free zone in cyberspace. Class action waivers preclude Internet users from filing a class action or even joining an existing one. This de facto immunity shields social networking sites from class actions for violations of privacy, contract, tort, or intellectual property rights that would otherwise be recognized in federal and state courts.
Social networking sites that combine mandatory arbitration with anti-class action waivers ensure that these powerful entities will not be accountable for failing to secure and safeguard their users' sensitive personally identifiable information. Social media sites can use the names, likenesses, and personal information of their users with impunity. Consumer class actions are often the only practical alternative in securing legal representation under the contingency fee system in cases where actual compensatory damages are small or nominal. Class actions enable litigants with slight monetary damages claims to combine actions in a representative action. Without class actions, social networking sites are effectively immunized from the judicial process and may continue unfair practices with impunity.
Professor Nancy Kim’s suggested law reform to police overly aggressive terms in webwraps would be to tip the doctrine of unconscionability on its head. Her proposed reform for webwraps would presume that these standard forms are unconscionable, except if validated by legislative decree or if there were meaningful alternatives in the marketplace. (Id. at 248). However, even a revivified unconscionability doctrine will be preempted by the U.S. Supreme Court’s current reading of the Federal Arbitration Act. (“FAA”). Congress must act to prohibit predispute mandatory arbitration and class action waivers in all types of wrap contracts. In the end, U.S. companies would benefit from mandatory terms constraining or cabining wrap contracts.
The golden age of the broad enforcement of U.S. style wrap contracts will end soon because of the increasingly flattened world where U.S. companies license content to European consumers. In Germany, consumers associations have successfully challenged the terms of CompuServe, AOL, and Microsoft: the first was subject to a default judgment; the other two agreed to a binding cease-and-desist declaration. All three American companies have entered into settlements in which they agreed to change their marketing practices. When it comes to consumer rights for wrap contracts, the U.S. is like Mars—and Europe is like Venus. Europe rejects freedom of contract in consumer transactions, recognizing that this is a legal fiction in non-negotiated standard form contracts. The European Commission takes the position that, even if a consumer assents to an abusive term, it is unenforceable as a matter of law, and European consumers, unlike their American counterparts, cannot be hauled into distant forums and be divested of mandatory consumer protection. Professor Kim has done a superb job in identifying the problem with wrap contracts, but her solution falls short of addressing problems such as predispute mandatory arbitration and anti-class action waivers.
[Posted, on Michael Rustad's behalf, by JT]
Wednesday, November 20, 2013
Fan Cui, Ying Ge & Fengchun Jing, The Effects of the Labor Contract Law on the Chinese Labor Market, 10 J. Empirical Legal Stud. 462 (2013)
Gerrit De Geest, N Problems Require N instruments, 35 Int'l Rev. L. & Econ. 42 (2013)
Jay M. Feinman, The Enforceability of Releases in Property Insurance Claims, 19 Conn. Ins. L.J. 251 (2013)
Yuval Feldman, Amos Schurr & Doron Teichman, Reference Points and Contractual Choices: An Experimental Examination, 10 J. Empirical Legal Stud. 512 (2013)
Fali Huang, Contract Enforcement: A Political Economy Model of Legal Development, 29 J.L. Econ. & Org. 835 (2013)
Osnat Jacobi & Avi Weiss, The Effect of Time on Default Remedies for Breach of Contract, 35 Int'l Rev. L. & Econ. 13 (2013)
Giorgio Zanarone, Contract Adaptation under Legal Constraints. 29 J.L. Econ. & Org. 799 (2013)
Tuesday, November 19, 2013
We are delighted to see our very own Meredith Miller in the Top Ten. Congratulations, Meredith!
Wrap Contracts Symposium, Part IV: Juliet Moringiello on “Wrap” Terminology: Needlessly Confusing or Useful Analytical Tool?
This is the fourth in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our fourth guest blogger, Juliet Moringiello, is a Professor at Widener University School of Law, where she regularly teaches Property, Sales, Secured Transactions, and Bankruptcy, and has taught seminars on Cities in Crisis and Electronic Commerce. From 2004 – 2010, she was the co-author, with William L. Reynolds, of the annual survey of electronic contracting law published in The Business Lawyer.
Yes, we said it. As Prof. Nancy Kim notes in her terrific new book Wrap Contracts: Foundations and Ramifications, my co-author Bill Reynolds and I have argued that the use of the terms “clickwrap” and “browsewrap” to describe electronically-presented contract terms might be needlessly confusing, and that the terms themselves may even be irrelevant. Yet Nancy, whose work I admire tremendously, has not only embraced this wrap terminology, but has written an entire book about how wrap contracts are materially different from their paper standard-form predecessors. And I enthusiastically agreed to participate in this symposium so that I can sing the praises of this book and encourage ContractsProf readers to go right over to the Oxford University Press web site and buy the book. What gives?
Emerging business practices have long challenged contract doctrine. Contract rules that assumed two parties with equal bargaining power sitting down to hammer out a deal have evolved, both through statutory and case law, to adapt to a world in which parties transact by the use of non-negotiated standard-form terms. Are non-negotiated standard-form terms that are delivered electronically so different from their paper predecessors that they require a new set of rules? Nancy makes a convincing argument that they are, and her (spoiler alert!) ultimate prescriptions include the imposition of a duty to draft reasonably, a rejection of the doctrine of blanket assent in favor of a specific assent requirement, and a redefinition of the doctrine of unconscionability. Although she recognizes that contract doctrine continuously evolves to account for new business practices, Nancy convincingly argues that it is not evolving appropriately in the mass-market electronic contracting realm.
Why should the law treat electronically-presented standard-form contract terms differently from how it treats the same terms presented on paper? The main contribution of this book is its argument that form (and thus “wrap” form) matters tremendously. One of the reasons that Nancy offers to support her position is that the electronic form has altered the substance of standard-form contracts. Freed from the spatial constraints imposed by the paper form, purveyors of electronic terms can offer many more terms in a form contract than could their paper-world predecessors. As a result, consumers are being presented with voluminous and complex terms governing, among other things, data collection and property rights. As a result, according to Nancy, wrap contracts “by their form, permit companies to impose more objectionable terms than paper contracts of adhesion.” Wrap Contracts is filled with specific examples of such terms.
Although my co-author and I have argued in the past that courts are slowly getting electronic contracts right, most of the electronic contracting cases that result in published opinions involve challenges to choice of forum clauses. We read almost all of those opinions from 2004 through 2010, when we wrote the annual surveys of electronic contracting law for The Business Lawyer.The opinions never get to the substantive guts of the electronic standard terms; they can’t, because often their punch line is “you agreed to arbitration, so arbitration is where you are going to resolve these issues.” When one compares an electronic choice of law clause to the same clause on paper, it looks like an apples-to-apples comparison. The main difference appears to be the way the terms were transmitted, not the substance, so courts tend to analyze only whether the electronic terms are reasonably communicated to the non-drafting party. So long as the non-drafting party can access the terms via an arguably conspicuous link, the courts hold that there is sufficient notice and therefore assent. This judicial conflation of notice and assent is not unique to electronic contracting law, but Nancy argues that its application is inappropriate to wrap contracts because often individuals do not have any idea that they are entering into legally-binding agreements.
[Posted, on Juliet Moringiello's behalf, by JT]
Wrap Contracts Symposium, Part III: Woodrow Hartzog, Wrap Contracts as Mediators of Social Interaction
This is the third in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our third guest blogger is Woodrow Hartzog, an Assistant Professor at Samford University’s Cumberland School of Law and Affiliate Scholar at the Center for Internet and Society at Stanford Law School.
Professor Kim’s book is an extremely valuable addition to the literature. Kim adeptly distinguishes wrap contracts from traditional contracts. Perhaps more importantly, Kim distinguishes wraps from boilerplate paper contracts. In this review I will argue that Kim’s case for wrap exceptionalism could be taken even further for parties in highly interactive relationships, such as the relationship between social media and their users.
One of Kim’s most valuable contributions is her explication of how the form of wrap contracts accounts for their proliferation, content, and problematic legal treatment. The absence of any meaningful physical restraints on wrap contracts, like the available area on paper for text and the ceremony required to actually sign paper contracts, has resulted in a difference in kind from other contracts, not just a difference in magnitude.
Kim also focuses on the problematic content of wrap contracts. Kim’s thesis is that the form of wraps makes reading them so burdensome that problematic content is inevitable. Drafters can insert terms that are unfavorable to the adherent because they know that adherents will not read them. Kim develops a helpful taxonomy of shield, sword, and crook terms. These categories can be roughly described as limitations on liability for offered services (shield terms), terminations of rights held by the other party (sword terms), and appropriation of benefits unrelated to the consideration that is the subject of the transaction (crook terms).
I agree with Kim’s observations that both the form and content of wrap contracts make them substantially different than paper contracts, including paper boilerplate. But Kim may have left out an important variable in her case that wraps deserve exceptional legal treatment. Kim could better highlight the importance of the service being offered by the drafter of the wrap contract and the form that service takes. Many of the examples used by Kim involve standard commercial transactions such as Amazon or iTunes. But commercial websites are unlike other websites, notably the social web. Social media offer tools for social interaction and self-expression, which, until the Internet, have been largely boilerplate-free activities.
Social media wrap contracts differ from their commercial website counterparts in at least two important ways: 1) Social media are much more interactive than traditional websites. This interactivity is an opportunity for websites to obtain specific assent to terms; and 2) many social media wrap contracts include social behavior restrictions, such as community guidelines. These restrictions simultaneously cost and benefit adherents precisely because they are universally applied and non-negotiable.
Greater Interactivity Can Lead to Specific Assent
All websites are becoming more interactive, but few more so than social media. Users can utilize privacy settings, tag others, and click and drag in ways that communicate preferences to websites like never before. These user expressions and the design that enables them are ideal opportunities for meaningful assent. In many ways, website design can communicate messages to users more effectively than boilerplate ever could. For example, privacy settings often make it clear that “only friends” or authorized “followers” will have access to your information. If a website’s data access and use policy is also part of the wrap contract, should the settings or the wrap govern who can access user info?
Kim proposes that “drafting parties should receive specific assent to obtain rights belonging to the nondrafting party that are not directly created from the drafting party’s license or promise. In other words, sword and crook provisions…require specific assent but shield provisions do not.” (195) Assuming binding privacy policies generally operate to effectuate consent to a website’s collection and use of the adherent’s data, privacy settings would seem to be an effective way to obtain specific assent under Kim’s proposal.
Community Guidelines Benefit Contract Adherents Yet Also Leave Them in a Bind
Social media often require many commitments from their users. For example, Facebook requires its users to promise not to “provide any false personal information on Facebook,” “bully, intimidate, or harass any user” or “do anything unlawful, misleading, malicious, or discriminatory.” These kinds of terms make it virtually impossible to interact online without fear of breaching the required contract. Users can either hardly use the website or roll the dice and hope they don’t get caught.
Yet there is a dichotomy that makes these terms difficult to categorize. They are a cost to the user who must refrain from certain kind of otherwise permissible conduct, yet they are also a benefit to that same user because every other user also promised to refrain from the same antisocial or illegal behavior. Here, the uniform and non-negotiable nature of wraps is precisely what makes them attractive to users. These terms can be used to combat scourges like hate speech and revenge porn.
While Kim recognized that wrap contracts are beneficial because they facilitate mass transactions and minimize risk for drafters, she overlooked the benefits that wrap contracts can have when terms set rules for how Internet users interact with each other.
Given that social behavior restrictions simultaneously cost and benefit the adherent, it is unclear if Kim would subject these terms to additional scrutiny as “sword” or “crook” terms.
These observations are meant to support Kim’s proposals, not counter them. Kim rightly criticizes the current legal approach to wrap contracts. Her solutions wisely harness the elasticity of existing contract doctrine to right the ship. Social media vividly illustrate the problematic proliferation of wraps in unprecedented areas. Yet they also represent opportunities to effectuate Kim’s proposed solutions.
[Posted, on Woodrow Hartzog's behalf, by JT]
Monday, November 18, 2013
A screwdriver can be used for turning screws and opening cans of paint. Or it can be used as a dagger in mortal prison combat. Likewise, a contract can “facilitate an efficient private ordering of society,” but it can also be “a means of social dominance and oppression.” Law professors should be quicker to tell new students about the shank-side of contracts.
That’s the gist of Teaching Contract Law: Introducing Students to a Critical Perspective Through Indentured Servitude and Sharecropper Contracts, 66 SMU L. Rev. 341 (2013), by Dr. Gregory Scott Crespi.
Crespi provides a sample lecture in which he tells of homeless English people becoming indentured servants and former slaves becoming sharecroppers. In both cases, contracts were used to bind people to functional slavery.
Crespi gives this lecture around the third class of the semester. He believes that informing students of such abusive contracts early in their legal educations allows them to bring a critical perspective to subsequent doctrinal studies and to consider the law’s context and unintended social consequences.
Dr. Crespi has done us several services by publishing this piece: (1) he has given us a brilliant lecture to use if we don’t feel like doing our own critical research; (2) he has kept it short, six printed pages, excluding footnotes; and (3) he has told us some important stories about abusive contracts.
But I wonder if Crespi’s approach is like teaching students to play tennis without a net? Does the first-semester 1L understand the intended consequences of the law well enough to opine on the unintended consequences? Students arrive at law school fluent in cynicism, but they have difficulty describing the relationship between well-established doctrines and the common good. So perhaps students should be encouraged to develop a critical perspective later, rather than sooner.
Using Crespi’s screwdriver analogy, imagine a master carpenter saying to his new apprentice, “The first thing about a screwdriver is that it turns screws. The second thing is that it can open a can of paint. The third thing is that it can be sharpened into a dagger and used to kill a man.” It’s a fascinating narrative, but is it apt for the apprentice? I’m inclined to think students need to know doctrine before they can criticize it and that giving new students the critical perspective too early might cause them to develop a distorted view of Contracts and the world.
Query the right view of Contracts and the world. If the professor think it’s more shanks than screwdrivers, perhaps the critical lesson should come early. I probably won’t be giving that lesson until at least class number four.
[Image by Xeni Jardin]
This is the second in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Our second guest blogger, Miriam A. Cherry, is a visiting professor at the University of Missouri School of Law and a tneured professor law at Saint Louis University.
The Duty to Draft Reasonably
Professor Nancy Kim’s “Wrap Contracts” is a foundational book, one that delves deeply into recent cases surrounding online contracting. Based on existing strands of contract theory, Prof. Kim expresses concern about the ways in which wrap contracts reinforce, and in many instances, amplify, one-sided contracting that may harm consumers in adhesion contracts. Pointing to a recent study, Kim notes that it would cost the average American Internet user the equivalent of $3,534 a year to read the privacy policies of each website that he or she visits.” (213) Noting that wrap contracts bear little similarity to the model of free assent that undergirds traditional contract theory, Kim sensibly argues for a more balanced model of drafting and enforcement.
Prof. Kim is not alone in calling for a more level playing field between businesses and consumers. Indeed, Margaret Jane Radin’s recent book, Boilerplate, contains a similar approach, and earlier work by legal academics, Todd Rakoff and Fredrich Kessler, provided what is now a well-understood and well-articulated argument against contracts of adhesion. The approach finds support in decades of writing by legal academics, ethicists, journalists, and consumer advocates, who have all voiced similar problems with the one-sided nature of adhesion contracts.
Granted, wrap contracts are different – and perhaps even more disturbing – than the original adhesion contracts that engendered them. But the fact remains that wrap contracts spring from - and build on – the same set of problematic assumptions that underlie adhesion contracts. Given that this literature is well-known, Prof. Kim faces a high hurdle to say something interesting and new.
The piece of Prof. Kim’s solution that most resonated was her idea of imposing a “duty to draft reasonably,” (176). Her solution would seem to be the converse of the current idea that consumers have a “duty to read.” Right now this is a one-sided duty without a corresponding responsibility on businesses posting wrap contracts or adhesion contracts. Some of the devices she describes in the book – how some online businesses have used wrap contracts as sword, shield, and crook (in instances where consumers are subject to overreaching behavior) reinforce the impression that Prof. Kim’s recommended intervention is needed. As such, imposing such a reasonableness requirement to make a wrap contracts enforceable seems eminently sensible. Prof. Kim’s book is timely, well-researched, and will play an important role in the debates about adhesion and wrap contracts that are sure to happen in years to come.
[Posted, on Miriam Cherry's behalf, by JT]
This is the first in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). Today's contributor, Ryan Calo, is an assistant professor at the University of Washington School of Law and the Faculty Director of the Tech Policy Lab at the University of Washington. He previously served as a director at the Stanford Law School Center for Internet and Society (CIS) where he remains an Affiliate Scholar.
I am delighted to contribute to this online symposium around Nancy Kim’s new book, Wrap Contracts: Foundations and Recommendations. Even if you are closely familiar, as I am, with Kim’s previous work, I recommend picking up a copy; the author both synthesizes and meaningfully extends her important thinking on the evolving role of contracts in a digital world. The sophisticated practitioner, too, has something to gain, particularly from later parts of the book where Kim explores the origins and strategic uses of wrap contracts and makes recommendations that attorneys may one day encounter in a court opinion or Federal Trade Commission complaint.
Indeed, Kim is one of only a handful of legal scholars (another is Woodrow Hartzog, whom Kim mentions) who engage in a sustained way with the growing importance of interface design (i.e., the very look and feel of a website or digital product) on contemporary contract formation and enforcement. You see this, for instance, in her wonderful discussion of responsible drafting in Chapter 11. And while I cannot show causation, as opposed to correlation, I would note that the Federal Trade Commission has in recent years brought enforcement proceedings based in part on interface design, in one case hiring a human-computer interaction specialist to act as an expert witness.
What has most amazed me in my own examination of this space is the range of possibilities the digital environment offers. If there were one critical note I would sound about Kim’s otherwise substantively and methodologically comprehensive book, it is that she does not always countenance the full boundaries of consumer experience. Kim cites to Oren Bar-Gill (at page 83) for the proposition that the growing complexity of contracts hides their true costs from the imperfectly rational consumer. Kim also develops various scenarios in Chapter 10 meant to underscore the powerlessness consumers feel to address conflicts with web companies. But the prospect for mischief is worse still: As the short title of Bar-Gill’s book, Seduction By Contract, suggests, companies may leverage what they know about consumer psychology to design purposefully disadvantageous terms. I would (and do) go further in forthcoming work, arguing that firms increasingly control every aspect of their interaction with consumers. We should expect this control, coupled with the firms’ meticulous knowledge of consumers and their economic incentive to maximize profit, to lead to a wider variety of digital abuses than Kim acknowledges. Contract becomes not a just a shield against liability here but, in a few instances, a species of license for ethically questionable business practices.
Similar criticisms could focus on Kim’s pessimistic assessment of the potential prospective advantages that a more mediated world might have for consumers. Kim explores how a better understanding of design can improve disclosure and contract in an online environment. I certainly agree, as Kim notes, that the digital nature of contemporary commerce could result in enhanced disclosure, and maybe even drag notice beyond inscrutable prose and into the twenty-first century. But what I expected and did not see—what I hope still to see from Kim—is a response to the work of Scott Peppet. Peppet argues that increased digitalization could, if anything, strengthen the traditional understanding of freedom of contract by conferring on consumers radical new tools of evaluation and comparison. I would want to understand why the dangerous ascendance of wrap contracts is not substantially offset by other digital developments that empower consumers. (Eric Goldman recently made this comment about my work, so it is top of mind).
To summarize: Kim’s is a rich and engaging book that I would recommend to anyone who is intellectually curious about consumer contracts or whose professional life in some way depends on them. I learned a lot and agree with many of Kim’s recommendations. By way of critique, I would say only that Kim’s book does not answer every single fascinating question about digital contract. Perhaps no book could, nor would I necessarily want hers to. Then I would not so eagerly anticipate Kim’s future work.
[Posted, on Ryan Calo's behalf, by JT]
Thursday, November 14, 2013
Readers who followed our Boilerplate symposium or who are otherwise fans of Peggy Radin's work will be interested to know that she has not rested on her laurels since the publication of Boilerplate. She has some scholarship forthcoming, and you can get a sneak preview over at SSRN.
Here are some titles and abstracts:
This chapter develops an analytical framework that could help legal analysts – especially common law judges – make better decisions about boilerplate in the context of rights deletions deployed by firms against consumers. It is based on one aspect of the author’s recent work, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law (Princeton University Press, 2012). A great deal of mass-market boilerplate – such as hidden lists of terms that recipients have no idea exist – should not be treated as contractual, and should be regulated by other means. But when courts insist on treating boilerplate as contractual, I encourage them to consider an improved analysis. That analysis takes into account three factors: (1) the nature of the right of recipients deleted by the boilerplate; (2) the quality of consent to the boilerplate deletion; and (3) the extent of social dissemination of the deletion. Two particular features of current doctrine should be improved. The procedural/substantive requirement in unconscionability doctrine is misapplied when a judge ignores the nature of the right once she concludes that the quality of consent is adequate, because some rights are market-inalienable, or partially market-inalienable. Market-inalienable rights tend to be rights that are constitutive of civil society, that are not salient to individual decision-makers, and/or that are important for the progress or well-being of the collective as a whole. Also, the notion of reasonable expectation should be avoided because it engenders a truly mischievous positive/normative ambiguity, and seems to license a conclusion that the more something is imposed on people, no matter what it is, the more it is permissible. The approach taken here need not be interpreted as innovative, because it can be understood as a reinvigoration of principles of equity that have been corrupted.
In today’s US, transactions between firms and consumers (including businesses in the position of consumers) routinely contain fine-print terms deleting rights to legal remedies against the firm, such as exculpatory clauses, waivers of consequential damages, and mandatory pre-dispute arbitration clauses. This chapter argues that such remedial rights should not be treated as mere default rules routinely waivable by recipients of fine-print contracts (‘boilerplate’), because such rights deletions threaten the rule of law by undermining rights structures that are central to the state’s obligations toward the public. When remedial rights are subject to easy waiver by boilerplate, they place recipients into a situation that might be called quasi-anarchy; that is, a one-sided situation resembling the anarchy that the state is supposed to supplant. Moreover, they underwrite a scheme of privatization that amounts to exercise of arbitrary power over recipients; and they transgress the principle of equality before the law by separating people that retain legal rights from people that do not. Such rights should remain situated in the public realm, and subject to a species of market-inalienability. This chapter thus argues for a modified version of the public/private distinction, related to maintaining the rule of law.