ContractsProf Blog

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Valparaiso Univ. Law School

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Monday, March 3, 2014

Blockchain Contracting


WireMy student, Sam Henderson (who blogs here), directed my attention to this report on the Legal Informatics Blog about blockchain contracting and conveyancing systems.  Blockchain technology is apparently one of the many things that makes Bitcoin transactions foolproof, genius-proof, and completely impervious to rampant speculation, financial catastrophe and the bankruptcy of major dealers in the virtual currency.  So, like Bitcoin itself, applying blockchain technology could only democratize and decentralize commercial law, or so maintains this blog post on Thought Infection.

What a strange idea.  

Contracts are private legislation.  They are already about as democratic and decentralized as they could possibly be.  Sure, they are governed by the relevant laws of the relevant jurisdictions, but blockchain technology would not change that.  In any case, the law of contracts already permits the parties to choose the law that will govern them (within reason), so that's pretty decentralized and democratic.  

What is not democratic and decentralized about commercial law is the fact that contracts tend to be drafted by the powerful and imposed upon people as take-it-or-leave it deals through form contracting.  Given the complexity of the technologies associated with Bitcoin, it seems unlikely that adding layers of technology to commercial law would render it more democratic and less centralized.  

Unfortunately, Thought Infection's post is misinformed about contracts.  He writes

Whereas today contracts are restricted to deals with enough value to justify a lawyers time (mortgages, business deals, land transfer etc…), in the future there is no limit to what could be codified into simple contracts. You could imagine forming a self-enforcing contract around something as simple as sharing a lawnmower with your neighbor, hiring a babysitter, or forming a gourmet coffee club at work. Where this could really revolutionize things is in developing nations, where the ability to exchange small-scale microloans with self-enforcing contractual agreements that come at little or no cost would be a quantum leap forward.

Here are the problems with this as I see it:

  • Contracts are not restricted; they are ubiquitous;
  • Contracts do not require lawyers; they are formed all the time through informal dealings that are nonetheless legally binding so long as the requisite elements of contract formation are present;
  • To some extent, Thought Infection's imagined contracts already are contracts, and to the extent that they are not contracts it is because people often choose to form relationships that are not governed by law (e.g., do you really want to think about the legal implications of hiring a baby sitter -- taxes, child-labor laws, workman's comp . . . yuck!); and 
  • Microloans are already in existence, and the transactions costs associated with contracts do not seem to be a major impediment.

Look, I'm not a Luddite (I blog too), but I also don't think that technology improves our lives with each touch.  Technology usually makes our lives more efficient, but it can also make our lives suckier in a more efficient way.  Technology does not only promote democracy and decentralization; it also promotes invasions of privacy by the panopticon state and panopticon corporations or other private actors, reification of human interactions, commidication and alienation.  It has not helped address income disparity on the national or the global scale, ushered in an era of egalitarian harmony overseen by benevolent governments or pastoral anarchy.  

As to contracts specifically, however, there are lots of ways to use technology that are available now and are generally useful.  Last week, we discussed Kingsley Martin's presentation at KCON 9. Kingsley has lots of ideas about how to deploy technology to improve sophisticated contracting processes.  But for  the more mundane agreements, there is a nifty little app that a couple of people mentioned at KCON 9 called Shake.  For those of you looking for a neat way to introduce simple contracts to your students, or for those of you who want to make the sorts of deals that  Thought Infection thinks we need blockchain to achieve, Shake is highly interactive, fun and practical.

March 3, 2014 in Commentary, E-commerce, Web/Tech | Permalink | Comments (1) | TrackBack (0)

Friday, February 21, 2014

KCON 9 Lunch Speaker: Kingsley Martin

Kingsley Martin of KM Standards gave a luncheon address on "The Emergence of Contracts Standards and Its Future Impact on Legal Education."  He introduced us to some very impressive technology that can greatly increase the efficiency with which practicing attorneys review standard agreements.  Here's what it looked like:

Kingsley Martin

This technology enables an attorney to review a new document, say a merger agreement, by comparing it to a database of say 15 similar documents.  It immediately identifies the provisions that are similar to those found in the database, those found in the new document and not in the database, and those not found in the new document but common in other, similar agreements.  An attorney can then quickly pinpoint what is missing from the document and might need to be added and what unusual provisions might regard careful scrutiny.  

More particularly, the technology can also use the database to identify the most common language used in standard provisions and also variations in standard provisions so that one can see the range of how parties work out standard terms and pick out the language that is best suited for a particular deal. 

The steps are to identify the unitary elements of standard form agreements, identify the clauses components and then draft clauses in clear, standard English.  Ultimately, Martin thinks that such the technology can help attorneys negotiate optimal terms.  For example, if you are trying to find optimal compensation in an employment agreement at a public company, you could go on to EDGAR and get all the filings that disclose compensation terms.  The parties then should be able to discern from the data an appropriate compensation package.

How might this affect teaching?  He thinks his basic contracts clauses could be reduced to playing cards.  One might then run various simulations with students (or one could just choose to characterize the exercise as a "game" that they students "play").  The students can then choose and negotiate using the various cards and see if they can work out a satisfactory deal.  Or they may not be able to achieve a satisfactory deal through the use of common terms, and then the challenge is to see if they can draft unique language suitable to their ends.

Anyone interested in seeing what the cards might look like can check them out here.

February 21, 2014 in Conferences, Teaching, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 21, 2014

Tips on the Rise... but Who Benefits?

After a night on the town, you decide to hire not a traditional taxi company, but rather a new and similar service provider that uses third-party private drivers operating their individually owned, unmarked cars and smart application payment technology.  The app says, “Gratuity is included.”  Would you expect the tips you give to go in full to the drivers or for the tips to be shared with the taxi-like company?  Probably the former, although tipping tactics and expectations seem to be changing.

The question of whether the drivers in the above situation have a viable claim to the full amount of the tips will soon be resolved in California in O’Connor v. Uber Techs, 2013 BL  338258 (N.D. Cal. Dec. 5, 2013).  After determining that no implied-in-fact contract can be said to exist between the drivers and the taxi-like company “Uber,” the court so far determined that Uber and its passengers may have entered into an implied agreement regarding the tips from which the drivers were ultimately intended to benefit as third parties to the contract between Uber and passengers.

In the USA, tipping is widely considered a fair way for service personnel to earn a more decent living than if they had to rely on base salaries.  This intersects with the current debate about whether the federal minimum wage should be increased.  According to recent CNN TV news, if salaries reflected the productivity levels of United States workers, the minimum salary should be $28/hr.  It is currently $7.25

But what about consumers?  Tipping seems to rising more rapidly than both salaries and inflation rates in general.  Not long ago (ten years or so), tipping 10% in restaurants was considered the norm, at least in California and parts of the Western USA.  Now, food servers, the drivers in the above case and undoubtedly others expect 20%; a 100% increase in ten years or so.  Many Los Angeles restaurants have begun to automatically add this 20% gratuity to their guest checks (some still leaving an additional line open for tips…).  In comparison, the average inflation rage was 2.5% per year over the past ten years.  During the 12-month period ending November 2013, inflation was 1.2%.  Of course, salaries may be a more accurate yardstick.  According to the Social Security Administration’s Average Wage Index, salaries increased by approximately 33% over the past ten years (approx. 3% from 2011 to 2012).

To be sure, service personnel and other workers deserve a decent income for their efforts in a wealthy, industrialized nation such as the USA.  The question is whether the burden of this should be placed on consumers in the form of more or less “hidden” costs such as tax and tips in somewhat uncertain amounts or whether the employers should be expected to more openly list the true bottom-line costs of their services as is the case in other nations.  A better route may be to increase the federal minimum salary to the much-discussed (e.g., here) “living wage.”  At a minimum, it would seem that all tips given should go to the workers and not be a mere way for companies to award themselves more money.

Myanna Dellinger

Assistant Professor of Law

Western State College of Law

January 21, 2014 in Food and Drink, Legislation, Web/Tech | Permalink | TrackBack (0)

Thursday, January 9, 2014

New in Print, Including Books

Only one article this week:

Robert W. Emerson and Uri Benoliel, Can Franchisee Associations Serve as a Substitute for Franchisee Protection Laws? 118 Penn St. L. Rev. 99 (2013)

But also a new book:

Mitchill Book

Contract Law and Contract Practice: Bridging the Gap Between Legal Reasoning and Commercial Expectation

By Catherine Mitchell

An oft-repeated assertion within contract law scholarship and cases is that a good contract law (or a good commercial contract law) will meet the needs and expectations of commercial contractors. Despite the prevalence of this statement, relatively little attention has been paid to why this should be the aim of contract law, how these 'commercial expectations' are identified and given substance, and what precise legal techniques might be adopted by courts to support the practices and expectations of business people. This book explores these neglected issues within contract law. It examines the idea of commercial expectation, identifying what expectations commercial contractors may have about the law and their business relationships (using empirical studies of contracting behaviour), and assesses the extent to which current contract law reflects these expectations. It considers whether supporting commercial expectations is a justifiable aim of the law according to three well-established theoretical approaches to contractual obligations: rights-based explanations, efficiency-based (or economic) explanations and the relational contract critique of the classical law. It explores the specific challenges presented to contract law by modern commercial relationships and the ways in which the general rules of contract law could be designed and applied in order to meet these challenges. Ultimately the book seeks to move contract law beyond a simple dichotomy between contextualist and formalist legal reasoning, to a more nuanced and responsive legal approach to the regulation of commercial agreements.

Catherine Mitchell is a Reader in Law at the University of Hull.

Please click here to view the table of contents for this book

 December 2013   308pp   Hbk   9781849461214  RSP: £50 / €65

Discount Price: £40 / €52

 Hart Publishing is delighted to offer you 20% discount.

Order Online in the US

If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please mention ref: ‘CONTRACTSPROFBLOG’ in the special instructions field. Please note that the discount will not be shown on your order but will be applied when your order is processed.

US website: http://www.hartpublishingusa.com/books/details.asp?ISBN=9781849461214

 Order Online in the UK, EU and ROW

If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please type the reference ‘CONTRACTSPROFBLOG’ in the voucher code field and click ‘apply’.

UK, EU and ROW website: http://www.hartpub.co.uk/BookDetails.aspx?ISBN=9781849461214

If you have any questions please contact Hart Publishing

Hart Publishing Ltd, 16C Worcester Place, Oxford, OX1 2JW

Telephone Number: 01865 517 530 Fax Number: 01865 510 710

Website: www.hartpub.co.uk   

[JT]

January 9, 2014 in Books, Recent Scholarship, Web/Tech | Permalink | TrackBack (0)

Monday, December 2, 2013

Privacy Invasion? Facebook Has an App for That

Over at the Huffington Post, Sam Fiorella takes note of the egregious terms in Facebook Messenger's Mobile App Terms of Service.  These terms include allowing the app to record audio, take pictures and video and make phone calls without your confirmation or intervention.  It also allows the app to read your phone call log and your personal profile information.  Of course, an app that can do all that is also vulnerable to malicious viruses which can share that information without your knowledge.  But, of course, this is allowed only with your "consent."

 

[Nancy Kim]

December 2, 2013 in Current Affairs, E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Sunday, November 24, 2013

Wrap Contracts Symposium: Response to Rustad, Zacks and Amato and Closing Thoughts

Wrap contracts

 I want to thank all the experts who participated in last week's  symposium on WRAP CONTRACTS:  FOUNDATIONS AND RAMIFICATIONS .  They raised a variety of issues and their insights were thoughtful, varied and very much appreciated.  I also want to thank Jeremy Telman for organizing the symposium and inviting the participants.

Today, I’d like to respond to the posts by Michael Rustad, Eric Zacks and Theresa Amato.  Eric Zacks emphasizes the effect that form has on users, namely that the form discourages users from reviewing terms.  Zack notes that contract form may be used to appeal to the adjudicator rather than simply to elicit desired conduct from the user and that forms that elicit express assent - such as “click” agreements - help the drafter by aiding “counterfactual analysis surrounding the ‘explicit assent’” issue.  In other words, drafters may use contract forms to manipulate adjudicator’s decisionmaking and not necessarily to get users to act a certain way.  (This is a topic with which Zachs is familiar, having just written a terrific article on the different ways that drafters use form and wording to manipulate adjudicators’ cognitive biases). 

Both Michael Rustad and Theresa Amato focus, not on form, but on the substance of wrap contracts – the rights deleting terms that contract form hides so well.  Amato comes up with an alternative term to wrap contracts – online asbestos – to highlight the not-immediately-visible damage caused by these terms.  As a consumer advocate and an expert on how to get messages to the general public, Amato understands the need to overcome the inertia of the masses by communicating the harms in a way that can drown out the siren call of the corporate marketing masters.  So yes, a stronger term may be required to jolt consumers out of their complacency although the real challenge will be getting heard and beating the marketing masters at their own game. 

Michael Rustad notes that my doctrinal solutions fall short of resolving the problem of predispute mandatory arbitration and anti-class action waivers.  He’s right, of course, although I think reconceptualizing unconscionability in the way I propose (by presuming unconscionability with certain terms unless alternative terms exist or the legislature expressly permits the term) would reduce the prevalence of undesirable terms including mandatory arbitration and class-action waivers.  Rustad, who has considerable expertise on this subject, mentions that many European countries are further along than we are in dealing with unfair terms.  Many of those jurisdictions, however, also have legislation which limits class actions, tort suits or damages awards.  In addition, they don’t have the same culture of litigation that we do in this country.  Wrap contracts have their legitimate uses, such as deterring opportunistic consumer behavior and enabling companies to assess and limit business risks. In order to succeed, any proposal barring contract terms or the enforceability of wrap contracts must also consider those legitimate uses. 

Wrap ContractsI believe there is a place for wrap contracts and boilerplate generally but their legitimate uses are currently outweighed by illegitimate abuses of powers.  Wrap contract doctrine has moved too far away from the primary objective of contract law – to enforce the reasonable expectations of the parties--  and my solutions were an attempt to move the train back on track.  My focus was on doctrinal solutions but the problems raised by wrap contracts are complex and my solutions do not foreclose or reject legislative ones. I’m a contracts prof, so my focus naturally will be on contract law solutions (if you have a hammer, everything looks like a nail, I guess).  Doctrinal responses have the advantage of flexibility and may be better adapted to dynamic environments than legislation which can be quickly outdated when it comes to technology or business practices borne in a global marketplace. 

Admittedly, when it comes to wrap contracts, doctrinal flexibility hasn’t really worked in favor of consumers, but that only makes it more important to keep trying to sway judicial opinion.  I know there are those who question whether judges read legal scholarship, but I know that there are many judges (and clerks) who do. The case law in this area has spiraled out of control so that it makes no sense to the average “reasonable person” and has opened the door to the use of wrap contracts that exploit consumer vulnerabilities.

My book was not intended as a clarion call to rid the world of all wrap contracts; rather, it was intended to point out how much damage wrap contracts have done, how much more they can do, and to provide suggestions on how to rein them in and use them in a socially beneficial manner. 

I’m grateful to have had the opportunity to hear the insightful comments of last week’s highly respected line-up of experts and to share my thoughts with blog readers. 

[Nancy Kim]

November 24, 2013 in Commentary, Contract Profs, E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Friday, November 22, 2013

Wrap Contracts Symposium, Part VII: Theresa Amato

This is the seventh in a series of posts on Nancy Kim's Wrap Contracts: Foundations and Ramifications (Oxford UP 2013). 

Amato

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.”  

Nancy Kim

“Yes,” writes Professor Nancy S. Kim. “As strange as it may seem, under contract law you can legally bind yourself without knowing it.”

Contract law experts nod in accord, some in resignation or with ennui.  Non-lawyers are instead completely shocked when I describe this reality.   They have no idea that by visiting a website, sending an email, tweeting or posting, or any of these now common, everyday acts that they are giving consent to use those services and are therefore binding themselves to the various “terms of use” – even if they may have only “constructive” and not actual notice of them. 

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.”

Court decisions to date have favored corporate vendors over consumers whose actual online navigating experience using these products and services covered by “wrap contracts” is given insufficient acknowledgement.  No consumer wants to fill out an online form only to be then told to click somewhere else to find buried terms of use, thereby putting at risk the time they have spent entering data to confirm the transaction.    Nonetheless, as Kim concludes:

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. 

Wrap ContractsThank 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.   

Kim notes that “What we call something matters.” I agree, and after reading her parade of horrible online scenarios in Chapter 10, “Contracts in Wonderland,” and just how far afield these “wrap contracts” are from the fundamental principles of contract law, I started thinking of new labels for these “wrap contracts” and their innocuous, almost blasé sounding, “terms of use.”  

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. 

Though “online asbestos” may sound hyperbolic in academic circles, there needs to be a massive push back on behalf of consumers – for the nomenclature does matter.  “Terms of use” and “wrap contracts” sound far too innocuous when we know that people do not realize they are being exposed to, and through buried notices alone “agreeing” to, the dangerous loss of their rights and the theft of their property.   To get organized, as we at Fair Contracts educate about and encourage, the tide will not turn until people are fully aware of what happens when they alight on a website.  Ubiquity, harmonization of users, inertia, facility, consumer biases, are all operating to the detriment of consumers and to the advantage of corporate profit seekers.

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]

 

November 22, 2013 in Books, Commentary, Recent Scholarship, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Thursday, November 21, 2013

Wrap Contracts Symposium: Response to Moringiello and Hartzog

 

Wrap Contracts

        It’s my pleasure to respond to Tuesday’s posts from Juliet Moringiello and Woodrow Hartzog.   Juliet Moringiello asks whether wrap contracts are different enough to warrant different terminology.  Moringiello’s knowledge in this area of law is both wide and deep  and her article (Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307) greatly informed my thinking on the signaling effects of wrap contracts.  The early electronic contracting cases involved old- school clickwraps where the terms were presented alongside the check box and their signaling effects were much stronger than browsewraps.  Nowadays, the more common form of ‘wrap is the “multi-wrap,” such as that employed by Facebook and Google with a check or click required to manifest consent but the terms visible only by clicking on a hyperlink.  Because they are everywhere, and have become seamlessly integrated onto websites, consumers don’t even see them.  Moringiello writes that today’s 25-year old is more accustomed to clicking agree than signing a contract.  I think that’s true and it’s that ubiquity which diminishes their signaling effects.  Because we are all clicking constantly, we fail to realize the significance of doing so.  It’s not the act alone that should matter, but the awareness of what the act means.   I’m willing to bet that even among the savvy readers of this blog, none has read or even noticed every wrap agreement  agreed to in the past week alone.  I wouldn’t have made such a bold statement eight years ago.    

             Woodrow Hartzog provides a different angle on the wrap contract mess by looking at how they control and regulate online speech.  With a few exceptions, most online speech happens on private websites that are governed by “codes of conduct.”  In my book, I note that the power that drafting companies have over the way they present their contracts should create a responsibility to exercise that power reasonably.  Hartzog expands upon this idea and provides terrific examples of how companies might indicate “specific assent” which underscore just how much more companies could be doing to heighten user awareness.  For example, he explains how a website’s privacy settings (e.g. “only friends” or authorized “followers”) could be used to enable a user to specifically assent to certain uses.  (His example is a much more creative way to elicit specific assent than the example of multiple clicking which I use in my book which is not surprising given his previous work in this area).

                Hartzog also explains how wrap contracts that incorporate community guidelines may also benefit users by encouraging civil behavior and providing the company with a way to regulate conduct and curb hate speech and revenge porn.  I made a similar point in this article.  I am, however, skeptical that community guidelines will be used in this way without some legal carrot or stick, such as tort or contract liability.  (Generally, these types of policies are viewed in a one-sided manner, enforceable as contracts against the user but not binding against the company).   On the contrary, the law – in the form of the Communications Decency Act, section 230- provides website with immunity from liability for content posted by third parties.  Some companies, such as Facebook, Twitter or Google, have a public image to maintain and will use their discretionary power under these policies to protect that image.  But the sites where bad stuff really happens– the revenge porn and trash talking sites – have no reason to curb bad behavior since their livelihood depends upon it.  And in some cases, the company uses the discretionary power that a wrap contract allocates to it to stifle speech or conduct that the website doesn’t like.  A recent example involves Yelp, the online consumer review company that is suing a user for posting positive reviews about itself.  Yelp claims that the positive reviews are fake and is suing the user because posting fake reviews violates its wrap contract.  What’s troubling about the lawsuit, however, is that  (i) Yelp almost never sues its users, even those who post fake bad reviews, and (ii)  the user it is suing is a law firm that earlier, had sued Yelp in small claims court for coercing it into buying advertising.  To make matters worse, the law firm’s initial victory against Yelp (where the court compared Yelp’s sales tactics to extortion by the Mafia) for $2,700 was overturned on appeal. The reason?  Under the terms of Yelp’s wrap contract, the law firm was required to arbitrate all claims.  The law firm claims that arbitration would cost it from $4,000-$5,000.

                I agree with Hartzog that wrap contracts have the potential to shape behavior in ways that benefit users, but most companies will need some sort of legal incentive or prod to actually employ them in that way. 

 

 [Nancy Kim]

November 21, 2013 in Commentary, Contract Profs, E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wrap Contracts Symposium, Part VI: Eric Zacks on Deciphering the Function of Form in Wrap Contracts

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 

Zacks-webForm 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.

Wrap Contracts

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]

November 21, 2013 in Books, Commentary, Recent Scholarship, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wrap Contracts Symposium, Part V: Michael Rustad on Reforming Wrap Contracts

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

MrustadIn 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)). 

By incorporating predispute mandatory arbitration clauses into their terms of service, a growing number of social networking sites (SNSs) are divesting consumers of their rights to civil recourse against providers who violate their privacy, commit torts, or infringe their intellectual property rights. SNS users around the world are required to agree to predispute mandatory arbitration as a condition of joining social networking communities. Consumers who enter into “clickwrap” or “browsewrap” terms of service agreements waive their right to a jury trial, discovery, and appeal, without reasonable notice that they are waiving these important rights. American consumers might be surprised that they have agreed to litigate in Mumbai, Hong Kong, or the People’s Republic of China when they clicked agreement to SNS terms of use.  These mandatory arbitration agreements incorporated in terms of use are essentially an anti-remedy because the cost of arbitration will usually exceed the amount at stake.  Requiring consumers to arbitrate in a far-off forum functions is an absolute immunity from liability because the cost and inconvenience of pursuing arbitration will far exceed the damages that could be recovered if they prevail.

Wrap ContractsThe 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]

November 21, 2013 in Books, Commentary, Recent Scholarship, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 20, 2013

Wrap Contract Symposium: Response to Calo and Cherry


             Wrap ContractsI’m thrilled to have the opportunity this week to engage with an outstanding line-up of scholars on the topic of wrap contracts.  In today’s post, I will respond to posts by Ryan Calo and Miriam Cherry.  

Miriam Cherry observes that wrap contracts raise much of the same issues raised by contracts of adhesion and my book canvasses those similarities.  But they also raise different issues, primarily because their digital form makes it easier for companies to abuse and for consumers to ignore and also because courts don’t adequately recognize how form affects the behavior of both parties.  The difference in form leads to a difference of degree so that it’s virtually impossible (pun intended) to engage in any online activity without agreeing to the terms of an unreadable wrap contract.  My proposals aim to respond to the ways in which form affects perception to get us closer to the underlying objective of contract law – to fulfill the reasonable expectations of the parties.  The form of wrap contracts raises issues that are unique to them and consequently, call for different solutions - solutions that respond to the problem of form. 

Ryan Calo focuses on the role of technological design in contract formation and enforcement which is not surprising given his extensive expertise and research in this area regarding effective notice.  The way that technological design of contracts affects parties’ behavior is underappreciated in the literature on contracts of adhesion.  Calo observes that the potential for mischief through the use of standard terms is even worse than the examples I give in my book  (this is a great relief since I am often accused of exaggerating the dangers of wrap contracts).  As Calo notes here and elsewhere,  the digital contracting environment has made it easier for companies to understand the consumer and so manipulate the consumer’s perceptions and behavior.  I agree and would like to respond to his wish that I had addressed the argument made by Scott Peppet and others (who I’ll call “digital solutionists”) who claim that this very environment might aid the consumer and that increased digitalization could ameliorate the limits of freedom of contract.  I agree with the first part, but disagree with the second.  Greater access to information and the digital landscape may, in many cases, aid consumers who can research products, announce their “likes” and dislikes, and tweet their dissatisfaction to attract the customer service departments of large companies.  This shouldn’t, however, influence the discussion regarding freedom of contract.  There is a distinction to be made between the product or service that is the subject of the contract and the terms of the contract itself.  The former is salient to consumers and they will often research that information before they act.  For a variety of reasons, including cognitive biases but also tricky design employed by companies, the latter is not.  Anyway, comparing terms does no good if the terms are all the same – it’s the old fiction about “shopping for terms” reincarnated in digital form.  

Even assuming that the current state of affairs changes and there is awareness and competition for contract terms, the consumer is already inundated with too much information online.  Are we really going to impose a requirement or an expectation that they read through online reviews or download an app simply in order to understand the contract terms?  Even if the reviews exist (which they may not for some products or companies) and even if they are accurate (which they may not be), they add a layer of complexity to consumer transactions which may hamper effective decision-making and aggravate cognitive biases.   How much research is a consumer expected to do simply to be able to buy a product, bank or communicate online?  And is that something we want as a society – wouldn’t this negatively impact productivity, increase transaction costs for the consumer, and muck up the wheels of commerce (and isn’t this why we tolerate standard form contracts in the first place, to improve productivity, reduce transaction costs and grease the wheels of commerce)?

Drafting companies have all the power in the digital contracting environment – they have the bargaining power of old school drafters of adhesive contracts but they also have the power to present the terms in a multitude of ways.  They decide whether and how to attract user attention.  They determine whether to use clickwraps, browsewraps, multi-wraps, graphics or sounds.  They exercise that power in a way that meets very minimal legal requirements of notice.  The onus is on the consumer to ferret out terms, chase down hyperlinks, understand dense legalese and reconcile conflicting language.   Are we going to require even more of consumers, expecting them to “go beyond” the contract by reading online contract reviews and downloading the “compare contracts” app (assuming one exists)?  Maybe digitalization or augmented reality will make it easier for consumers to compare terms  --but it will likely make it more complicated especially when those terms are constantly changing thanks to modification at will provisions.   Doesn’t it make more sense to require the company to draft the terms so they are easy to find and understand?  There’s more to say about the digital solutionist view but I will leave that for another forum.  For now, my response is that the digital solutionist view is actually part of the problem, rather than the solution because it, like wrap contract doctrine, demands nothing from drafting companies and creates more work for consumers, exacerbating the lopsided balance of burdens that currently exists.

 

 

[Nancy Kim]

 

               

November 20, 2013 in Books, Contract Profs, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 19, 2013

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.

Morigiello“Wrap” Terminology: Needlessly Confusing or Useful Analytical Tool?

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.

Wrap ContractsAlthough 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.

Although Nancy cites to studies that support her contention that many computer users do not know that their actions will result in legally-binding agreements, here is one area in which I find the “wrap” umbrella unhelpful. Today’s 25-year-old is probably more accustomed to clicking to agree than to signing to agree. On the other hand, few people other than those reading this post may know that the “Terms of Use” link on the bottom of a web page purports to give notice of contract terms. Therefore, the two “wrap” terms, clickwrap and browsewrap, describe two forms that send very different signals.

That said, one of Nancy’s most convincing contributions in Wrap Contracts is her discussion of how notice in the electronic context is not the same as notice in the paper world. Again, form matters. Whether terms are presented in clickwrap, browsewrap, or multiwrap form, the notice that contract terms are available often appears on a different web page from the terms themselves. As a result, she argues, even the most conspicuous “Terms of Use” hyperlink is not the same as its paper counterpart, because the latter includes a conspicuous notice of contract terms on the same sheet of paper as the terms themselves. And perhaps here is where Nancy, Bill and I don’t really disagree. Bill and I don’t like the terms clickwrap and browsewrap because pure clickwrap, which requires an affirmative act to accept terms, is very different from browsewrap, which does not. We think that courts that focus on that distinction produce questionable results. Bill and I recognize, as does Nancy, that many online contracts today are really a combination of clickwrap and browsewrap, or “multiwrap” (unlike us, she was clever enough to use the term). Nancy, on the other hand, uses the term “wrap” as convenient shorthand for the diverse electronic presentations that allow online vendors of goods, services, and computer programs to present many more, and therefore more onerous, terms, than their tangible world predecessors. Form matters, and the electronic “wrap” form is physically different from the paper form in ways that stretch the boundaries of traditional contract doctrine. Her engaging explanation of these modern contract forms illustrates that perhaps, courts are not getting electronic contracts right and that they need to be nudged to do more. Wrap Contracts can provide that nudge.

[Posted, on Juliet Moringiello's behalf, by JT]

November 19, 2013 in Books, Commentary, Recent Scholarship, Web/Tech | Permalink | Comments (0) | TrackBack (0)

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.

WhartzogWrap Contracts as Mediators of Social Interaction

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.

Wrap ContractsSocial 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.

Social media often require commitments in the form of “community guidelines” that are sometimes incorporated into the terms of use. For example, Facebook, Twitter, and Flikr all have community guidelines that are ostensibly provided to keep the online community civil and protect other users. Many of these rules are quite broad and vague. Professor Kim vividly illustrates the fallout from violations of broadly drafted terms when discussing Young v. Facebook, a dispute over the termination of a user’s Facebook account for violation of Facebook’s policies.

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]

November 19, 2013 in Books, Commentary, Recent Scholarship, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, November 18, 2013

What Harm Can A Wrap Contract Cause Anyway?

I'm enjoying the posts from Ryan Calo and Miriam Cherry about my book, Wrap Contracts:  Foundations and Ramifications and plan to post a response later this week.  A common question I get (after, Are these things really legal?) is What harm can these contracts cause anyway?  Well, one woman claims that a company can use them to ruin your credit.  The woman, Jen Palmer, ordered some trinkets from KlearGear.com but she claims that she never received them and canceled the payment.  After she allegedly failed to reach someone at the company, she  wrote a negative review of KlearGear.com on a consumer reporting website stating that they have "horrible" customer service.  KlearGear allegedly emailed her, claiming that her negative review ran afoul of a non-disparagement clause in their online terms of sale.  She says that they told her to remove the post or face a $3500 fine.  Ms. Palmer was unable to get the post removed and alleges that KlearGear.com reported her to a credit bureau!  She claims that she is now fighting the negative mark on her credit report which is preventing her from getting loans for a new car and house repairs. 

I don't think the terms of sale are enforceable against Ms. Palmer but that's almost beside the point.  Contracts are used in a variety of ways - one of those ways is to deter problems.  Not many consumers are willing to fight to test the enforceabilty of a contract in court.

But I have a question:  Why would a credit agency ding someone's record simply because they received a call from an online retailer about someone who wasn't even a customer breaching the terms of sale?  I checked KlearGear's website and couldn't find the non-disparagement clause in their terms of sale- they might have removed it after the negative publicity or it might not be in another agreement that doesn't appear until a customer places an order.  There's got to be more to this story...or else we've just entered a new era of abuse by wrap contracts.

 

[Nancy Kim]

November 18, 2013 in Current Affairs, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wrap Contracts Symposium, Part I: Ryan Calo

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.  

Ryan Calo

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.

Wrap ContractsSimilar 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]

November 18, 2013 in Books, Commentary, Recent Scholarship, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 12, 2013

Evolving EULAs

EULA imageHello, I’m one of the new contributors. Thanks for letting me feed the beast.

I’ll be writing some mini-reviews of recent articles and essays. If you have something fresh that you’d like reviewed, e-mail me ([email protected]).

Today I’m reviewing Set in Stone? Changes and Innovation in Consumer Standard-Form Contracts, 88 N.Y.U. L. Rev. 240 (2013), by Florencia Marotta-Wurgler of New York University School of Law and Robert B. Taylor.

Set in Stone studies the evolution of End User License Agreements (EULAs) by comparing their 2003 content to their 2010 content. The article provides a wealth of data about EULA development based on company type, product type, term type, word count, “bias” toward seller or buyer, innovative terms, legal representation, and impact of litigation on terms.

The article focuses on changes in EULAs’ relative buyer-friendliness. For example, a EULA that has changed to inform buyers of their right to return a product has become relatively more buyer-friendly, but a EULA that has changed to allow a seller to remotely disable a buyer’s software is relatively less buyer-friendly.

The article concludes that EULAs are becoming relatively less buyer-friendly. Surprise!

Data provides the great joy of quibbling over its meaning. For example, is a EULA that informs buyers they can return a product really buyer-friendly? Such notice may render the EULA more enforceable, which actually may be more seller-friendly. But quibbling aside, Set in Stone makes a major contribution simply by giving us a treasure trove of data.

A few thoughts on this important article:

More data, please: Set in Stone measures EULAs’ relative buyer-friendliness, but it acknowledges that it lacks the price information we would need to determine whether EULAs are increasing welfare or merely redistributing wealth. This is the big question, isn’t it? Hopefully some enterprising, empirically-minded scholar will relate Set in Stone to the relevant pricing data and tell us whether we’re better off now than we were ten years ago.

Democratic degradation: Set in Stone does provide evidence of the democratic degradation described in Margaret Radin’s Boilerplate. Set in Stone notes that EULAs increasingly include terms that allow sellers to control buyers’ performance through technological means as opposed to litigation. For example, some EULAs allow sellers to remotely terminate a buyer’s ability to use software when the seller deems the software has been misused. Isn’t this like a liquidated damages clause that lets the seller unilaterally determine the buyer has breached and provides the buyer’s ATM pin number? Should buyers have their day in court before sellers enjoy their remedies? Even if buyers were receiving price discounts in exchange for their legal rights, we might think such seller self-help mechanisms are contrary to our basic political arrangements.

Lawyers as product engineers: Set in Stone suggests that EULAs are more susceptible to innovation than other contracts. So, if contracts are product components, perhaps lawyers can engineer better products. Entrepreneurial lawyers could identify EULAs containing inefficient terms and revise them to create economic surplus. Lawyers could be trained to identify and eliminate EULA inefficiencies. In-house lawyers could be transformed from cost centers to profit centers. And all without doing any math! Well, we might have to do some math.

[KC]

[Image by James Provost]

November 12, 2013 in Commentary, Recent Scholarship, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 6, 2013

Eric Goldman on Getting from "Dope" to "Nope"

GoldmanOn Monday, the Distrct Court for the  Southern of New York issued its opinion in  Beastie Boys v. Monster Energy Company, 12 Civ. 6065 (PAE) (S.D.N.Y. November 4, 2013).  The issue in the case was whether DJ Z-Trip had authorized Monster Energy to use a remix and video Z-Trip (Mr. Z-Trip?) had made of Beastie Boys songs.   Z-Trip wrote to Monster Energy saying, "Dope!" in the context of series of exchanges with Monster Energy over use of of the remix, and Monster Energy construed that word as consent.

Santa Clara Law Professor Eric Goldman (pictured) has a thorough anlysis here.

[JT]

November 6, 2013 in Celebrity Contracts, Contract Profs, In the News, Music, Recent Cases, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, October 14, 2013

More on Google Apps for Education

After posting earlier today on the privacy issues associated with Gmail for those of us whose work accounts are Gmail accounts, I learned that Google's general terms of service do not necessarily apply to institutional accounts.  

Here's some language from the Google Apps for Education website:

Any data you put into Google Apps is yours, and it says just that in our contracts. Your information is safe from other organisations, even though it's all on the same servers. Apps’ powerful, easy-to-use tools help administrators manage things like users, documents and services, and keep track of usage and data via dashboards. And of course you fully own the data, not Google.

That's rather comforting, but then there is this:

Google Apps is governed by a detailed Privacy Policy, which ensures we will not inappropriately share or use personal information placed in our systems. Google complies with applicable US privacy law, and the Google Apps Terms of Service can specifically detail our obligations and compliance with FERPA (Family Educational Rights and Privacy Act) regulations. Google is registered with the US-EU Safe Harbor agreement, which helps ensure that our data protection compliance meets European Union standards for educational institutions.

I find this less comforting because of the word "inapropriately" and because US privacy law and FERPA may not be enough to address all of the privacy issues involved.

If anybody has knowledge or information about this, pelase feel free to chime in.

[JT]

October 14, 2013 in About this Blog, Commentary, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Friday, October 11, 2013

Gmail Users and Email Spying

One of the dangers of constructive contractual consent (a foundational principle of wrap contract doctrine) is that it might be used to prove statutory consent and thereby strip unknowing consumers of rights provided by law.  Scholars such as Wayne Barnes and Woody Hartzog have argued that constructive contractual consent can undermine privacy protections provided by federal law.  While there aren’t too many federal laws protecting consumer privacy, the ones that do exist generally provide that a practice is permissible if consumers consent.  Google raised that very argument recently in its defense to a lawsuit that claimed that Google’s practice of scanning users' emails violated federal and state wiretapping laws. 

                The Wiretap Act, as amended by the Electronic Communications Privacy Act, prohibits the interception of “wire, oral, or electronic communications,” but it is not unlawful “where one of the parties to the communication has given prior consent to such interception.”  Plaintiffs argued that Google violated the Wiretap Act when it intentionally intercepted the content of emails to create profiles of Gmail users and to provide targeted advertising.  One of Google’s contentions was that Plaintiffs consented to any interception by agreeing to its Terms of Service and Privacy Policies.  The court states:

                “Specifically, Google contends that by agreeing to its Terms of Service and Privacy Policies, all Gmail users have consented to Google reading their emails.” 

Yes, that’s right-- Google is arguing that by agreeing to its Terms of Service and Privacy Policies, you – yes YOU Gmail user – have agreed to allow Google to read your email!

Even more alarming, Google claims that non-Gmail users who have not agreed to its Terms of Services or Privacy Policies have impliedly consented to Google’s interception when they send email to or receive email from Gmail users.

Thankfully, Judge Lucy Koh is nobody’s fool.  Without stepping into the muck and goo of wrap contract doctrine, she notes that the “critical question with respect to implied consent is whether the parties whose communications were intercepted had adequate notice of the interception.”  Then she does something astounding , admirable and all-too-rare - - she interprets adequate notice in a way that actually makes sense to real  people:

“That the person communicating knows that the interception has the capacity to monitor the communication is insufficient to establish implied consent.  Moreover, consent is not an all-or-nothing proposition.”

Even with respect to Gmail users, she notes that “those policies did not explicitly notify Plaintiffs that Google would intercept users’ emails for the purposes of creating user profiles or providing targeted advertising.”

           Judge Koh’s nuanced opinion reveals an understanding of online consent that’s based on reality.  She notes that that “to the extent” that the user has consented to the Terms of Service, it is “only for the purposes of interceptions to eliminate objectionable content,” not for targeted advertisements or the creation of user profiles.   She analyzes the contract from the standpoint of a reasonable user, rather than blindly following the all-or-nothing-constructive consent model mindlessly adopted by ProCD-lemming courts.

The opinion states that “it cannot conclude that any party – Gmail users or non-Gmail users- has consented to Google’s reading of email for the purposes of creating user profiles or providing targeted advertising.”  I think most reasonable people - Gmail users and non-Gmail users alike – would agree.

 [Nancy Kim]

 

October 11, 2013 in Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, October 7, 2013

Click to Assign Copyright

I’ve been meaning to blog about a Fourth Circuit opinion that went under noticed, although it should have raised alarm bells.  That opinion, rendered in Metropolitan Regional Information Systems, Inc.  v. American Home Realty Network, Inc.,722 F.3d 591 (July 17, 2013) held that copyright could be transferred via a clickwrap. 

MRIS operates a website that offers a “multiple listing service” for a fee to real estate brokers and agents.  Subscribers to the site can upload their real estate listings, including photographs.  In order to submit their photographs they must click to indicate assent to the terms of use.  The court doesn’t specify exactly how this is done (and states in a footote that the “record is not clear as to the precise manner in which the TOU appears to subscribers). 

The TOU states:

“All images submitted to the MRIS Service become the exclusive property of (MRIS).  By submitting an image, you hereby irrevocably assign (and agree to assign) to MRIS, free and clear of any restrictions or encumbrances, all of your rights, title and interest in and to the image submitted.  This assignment includes, without limitation all worldwide copyrights in and to the image, and the right to sue for past and future infringements.”

The defendant, AHR, operates a website, NeighborCity.com which displays real estate listings using a variety of sources, including photographs taken from the MRIS website.

MRIS sued AHR for copyright infringement.  Photographs are protected under the Copyright Act.  Section 204 of the Copyright Act requires that transfers of copyright ownership require a writing that is signed by the owner.  AHR argued that  MRIS did not own the copyright to the photographs because its TOU failed to transfer those rights.   The issue then was whether a subscriber who clicks agreement to a TOU has “signed” a “written transfer” of the copyright in a way that meets the requirement of Section 204.  The Fourth Circuit found that “(t)o invalidate copyright transfer agreements solely because they were made electronically would thwart the clear congressional intent embodied in the E-Sign Act.  We therefore hold that an electronic agreement may effect a valid transfer of copyright interests under Section 204 of the Copyright Act.”

Given the reality that few read wrap contracts, holding that an author/creator can give up copyright with a click is alarming.  The opinion is a prime example of a court doing what is arguably the right thing for reasons of business competition but creating an alarming precedent in the process.  Shades of ProCD!  Online businesses will certainly benefit from this decision, but creators - not so much.  They may realize too late that when they clicked to upload content, they also assigned their rights to their work.  This is especially problematic since the primary reason creators use some of these sites is to get publicity for their work. The bargain, in other words, may be quite different from what the creator might have intended.

So - all you creators out there - BEWARE and check out those terms before you click.  They may not be as harmless as you think.

H/T to  my former student, Leslie Burns and her blog.

 

[Nancy Kim]

October 7, 2013 in E-commerce, Miscellaneous, Recent Cases, Web/Tech | Permalink | Comments (2) | TrackBack (0)