ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

A Member of the Law Professor Blogs Network

Thursday, November 21, 2013

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 (kching@regent.edu).

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)

Monday, September 30, 2013

Internet Contracting Mayhem

Modelmayhem.com (“Modelmayhem”) is a nationwide modeling industry website.  Shana Edme (“Edme”) joined the site to further her modeling career.  After several photographs of Edme modeling lingerie were disseminated and viewed without her permission, Edme commenced an action in the Federal District Court for the Eastern District of New York (“EDNY”) against Modelmayhem (among others).  Edme claimed that the site violated her right to privacy under New York State statutes.

Modelmayhem moved to dismiss, arguing that Edme agreed to resolve any and all disputes in California. Specifically, Modelmayhem claimed that the "Terms of Use" found on its website contains a forum selection clause.  The EDNY (Judge Hurley) denied Modelmayhem’s motion because it failed to explain how Edme bound herself to the Terms of Use, including how users of its website were advised of the terms.

The court began with a discussion of contracting and the Internets:

The conclusory statement by Modelmayhem that "New York law specifically recognizes 'Terms and Conditions' posted on a website as a binding contract" (Modelmayhem's Mem. at 6) completely ignores the developing discussion within this Circuit (and courts nationwide) regarding what actions by an internet user manifests one's asset to contractual terms found on a website. "While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract." Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). "Mutual manifestation of assent, whether by written or spoken word or by conduct" is one such principle. Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 29 (2d Cir. 2002). As Judge Johnson of this District previously explained:

On the internet, the primary means of forming a contract are the so-called "clickwrap" (or "click-through") agreements, in which website users typically click an "I agree" box after being presented with a list of terms and conditions of use, and the "browsewrap" agreements, where website terms and conditions of use are posted on the website typically as a hyperlink at the bottom of the screen.  Hines v. Overstock.com, Inc., 668 F. Supp. 2d 362, 366 (E.D.N.Y. 2009). A browsewrap agreement "usually involves a disclaimer that by visiting the website — something that the user has already done — the user agrees to the Terms of Use not listed on the site itself but available only be clicking a hyperlink." Fteja v. Facebook, Inc., 841 F. Supp. 2d 829, 837 (S.D.N.Y. 2012). Thus, in deciding the validity of browsewrap agreements, "courts consider primarily whether a website user has actual or constructive knowledge of a site's terms and conditions prior to using the site." Hines, 668 F. Supp. 2d at 367 (internal quotation marks and citation omitted).

The Court then discussed Modelmayhem’s failure to explain how Edme became bound to the terms on the website.  Modelmayhem could have presented Edme with the terms in a number of ways:

For example, (1) a user could have agreed to the Terms of Use by clicking an "I agree" box before creating an account and gaining access to the website's services; (2) the Terms of Use could have
appeared on the website's homepage; (3) the Terms of Use could have been accessible from a hyperlink located on the homepage; (4) the Terms of Use could have been buried somewhere else on the website; or (5) some other combination or scenario not otherwise contemplated by the Court.

Modelmayhem did not, however, provide any evidence of how the Terms of Use were made available to users of the site:

The only evidence presented on this issue is a screenshot of the Terms of Use. The Court, however, cannot glean solely from this screenshot how the Terms of Use were presented to users of the Modelmayhem website.

The circumstances surrounding how Modelmayhem's Terms of Use were exhibited to its users is determinative on the issue of whether Edme had actual or constructive notice of the terms and condition, including whether the forum selection clause was reasonably communicated to her. Compare Specht, 306 F.3d at 32 (concluding that a provision that a website user would not encounter until he scrolled down multiple screens was not enforceable because "a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms") and Hines, 668 F. Supp. 2d at 368 (holding that forum selection clause was not reasonably communicated where "Defendant failed to explain how Plaintiff and its other customers were 'advised' of the Terms and Conditions, or to cite a single case that suggests that merely posting such terms on a different part of a website constitutes reasonable communication of a forum selection clause") with Zaltz v. JDate, --- F. Supp. 2d ----, 2013 WL 3369073, at *7-8 (E.D.N.Y. 2013) (finding that "plaintiff assented to Jdate.com's Terms and Conditions of Service, meaning that the forum selection clause contained therein was, in fact, reasonably communicated to her since plaintiff "did not need to scroll or change screens in order to be advised of the Terms and Conditions; the existence of, and need to accept and consent to, the Terms and Conditions of Service was readily visible") and Fteja, 841 F. Supp. 2d at 840-41 (concluding that because plaintiff was "informed of the consequences of his assenting click and he was shown, immediately below, where to click to understand those consequences," defendant's Terms of Use were "reasonably communicated"). Without such information and evidence, the Court is unable to conclude that the Terms of Use were binding on plaintiff and that the forum selection clause — contained within the Terms of Use — were reasonably communicated to plaintiff. Accordingly, the Court denies Modelmayhem's motion to dismiss on the basis that the forum selection clause contained in its Terms of Use is enforceable.

Internet companies, it is not enough to go into court and point to a forum selection clause in your terms of use.  To enforce that clause, you also have to establish where that clause is on your site and how you pointed users to that clause… and better yet, how you obtained the user's assent to the terms.

Edme v. Internet Brands, 12 CV 3306 (E.D.N.Y. Sept. 23, 2013)(Hurley, J.).

[Meredith R. Miller]

September 30, 2013 in E-commerce, Recent Cases, Web/Tech | Permalink | TrackBack (0)

Wednesday, September 18, 2013

New Member of the LPBN: Gender and the Law Prof Blog

LPBNAs announced here on the TaxProf Blog, the Mother Ship of the Law Professor Blog Network, of which this blog is a proud member,  John Kang and Tracy Thomas have just launched the Gender and the Law Prof Blog.  Here's the intro:

Welcome to the new Gender and the Law Blog.  Your coeditors are John Kang and Tracy Thomas.  John is Professor of Law at St. Thomas and he offers his perspective on masculinities and constitutional analysis.  He is presently finishing a book called Manliness and the Constitution. In his spare time, he runs, reads nonfiction and argues with his children.  Tracy is the Aileen McMurray Professor of Law at Akron and brings her feminist and litigator perspectives.  Her work includes the annual edition of West’s Women and the Lawthe book Feminist Legal History (with T.J. Boisseau), and her recent article on the misuse of women’s history in the pro-life movement.  She spends her spare time chauffeuring. Let the blogging begin.

[JT]

 

September 18, 2013 in About this Blog, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Friday, September 13, 2013

Happy Groundhog Day, Facebook!

Groundhog_day

Last week, Facebook announced that it planned to enact changes to its privacy policies.  Its announcement elicited the by now, all too-familiar flurry of protests from users and privacy advocacy groups.  Six privacy groups wrote to the Federal Trade Commission (FTC) that the proposed changes violated the 2011 settlement that Facebook reached with the FTC over its Sponsored Stories advertising program. 

The letter states that the proposed changes “will allow Facebook to routinely use the images and names of Facebook users for commercial advertising without consent.” While the current policy permits users to “use your privacy settings to limit how your name and profile picture may be associated with commercial, sponsored, or related content ,” the proposed policy brazenly states:

“(y)ou give us permission to use your name, profile, picture, content and information in connection with commercial, sponsored or related content…This means, for example, that you permit a business or other entity to pay us to display your name and/or profile picture with your content or information, without any compensation to you.”

As the letter points out, the images of Facebook’s users “could even be used by Facebook to endorse products that the user does not like or even use.”

Facebook’s proposed policy changes also contain this provision:

“If you are under the age of eighteen (18), or under any other applicable age of majority, you represent that at least one of your parents or legal guardians has also agreed to the terms of this section (and the use of your name, profile picture, content, and information) on your behalf.”

In other words, Facebook is forcing kids to lie.  As I explain in my new book, nobody reads wrap contracts, such as online terms of use  (and with good reason).  Given our habituation to online agreements, we probably don’t even notice them anymore – we click reflexively, out of habit.  But even though we suffer from click amnesia, courts construe our click as consent.  Facebook’s proposed new policy not only claims constructive consent, it also forces kids to constructively claim their parents consented.  It’s a fiction wrapped inside another fiction.  The result, as the letter to the FTC notes, is an evisceration of  “any meaningful limits over the commercial exploitation of the images and names of young Facebook users.”

This week, the Federal Trade Commission announced that it would investigate whether Facebook's announced policy would violate a 2011 agreement that the company had reached with the agency.  Facebook's position is that the proposed changes were prompted by its settlement in a case involving its Sponsored Stories advertising program. 

Facebook’s proposed changes seemed eerily familiar and then I realized why –I’d already written about this issue back in December.  Back in December, Instagram, a company acquired by Facebook, proposed changes to its terms of service that stated:

“you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you taken, in connection with paid or sponsored content or promotions, without any compensation to you.  If you are under the age of eighteen (18), or under any other applicable age of majority, you represent that at least one of your parents or legal guardians has also agreed to this provision (and the use of your name, likeness, username, and/or photos (along with any associated metadata)) on your behalf.” 

Do the terms sound familiar?

Instagram’s proposed changes to its terms of use made its users rally in alarm and threaten to defect.  But Instagram backed off in response and the company promised it would respect their wishes. 

And now this, again.  It's like the 1993 movie, Groundhog Day, starring Bill Murray and Andie MacDowell.  In that film, Murray's character, a T.V. weatherman, is made to report on Groundhog Day activities.  Murray's character, who doesn't like the assignment, finds that he keeps waking up to relive Feb. 2nd over and over again.

Facebook just doesn’t understand that no, means no.  It pleads forgiveness, wants us back, and then the same behavior starts up all over again.  We want to believe you.  We really do.

We feel your pain, Huma Abedin.

There are long term consequences to what Facebook is doing.  Each time it pushes, it pushes hard, and in response to pushback from consumers, it appears to retreat – but not as far back as it pushed.  Then it does it again and each time, Facebook manages to loosen our privacy norms just a bit more.  It wins through increments, through persistence.  It didn’t get to a billion users overnight and it isn’t going to strip us of all our privacy without a good fight from us. 

But big changes are made in increments.  Policy changes that nobody reads because they are hidden in wrap contracts, slowly but surely, change our expectations of privacy.  The erosion of consent, justifiable perhaps at one time to limit business risks, led us to where we are now –an online contract clause that purports to extract consent from someone who never even received notice of its existence.   To make matters worse, the clause is directed at children who don’t even have legal capacity to contract. 

Really, this time you’ve gone too far, Facebook.  This time, let’s make it the last time, Facebook.  Promise?

Of course you do.

 

[Nancy Kim]

September 13, 2013 in In the News, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Friday, August 23, 2013

Our Re-Design

PaulIf you are reading this post, and if it is not the first post you have ever read on the ContractsProf Blog, then you have noticed that we have a new look.  All of this is thanks to a global re-design at the Law Professor Blog Network (LPBN), headed up by Paul Caron (pictured).

This is our third day with the new look, and the impact on our readership has been dramatic!  Of course, the uptick in our readership is also explained in part by the advent of a new semester, always a good time for people to check in, and by the very exciting symposium on the contracts scholarship of Stewart Macaulay, which ought to be attracting some new readers.  Still, our daily readership has tripled since the re-design, and we have never had results like that either at the beginning of a new academic year or in connection with one of our virtual symposia.  So, we think a great deal of the credit has to go to the re-design.

The re-design includes a bunch of new features with which we ourselves are not yet fully aware.  We will tell you more about them as we play around with the platform and discover its nuances.  Paul Caron has himself explained the purposes behind the redesign in this piece that is availabe on SSRN.  Here is an excerpt from the abstract:

The re-design will (1) optimize each blog for viewing across a variety of platforms (desktop, laptop, tablet, and smart phone); (2) better integrate social media; (3) provide more robust analytics with richer and more accurate readership data; and (4) strengthen our partnership with Wolters Kluwer/Aspen Publishers and provide additional avenues for monetization

We here at the ContractsProf Blog cannot equal the expertise of the TaxProfs in money matters, but our interpretation of the last line of Paul's abstract is that the re-design is going to make us all rich!

[JT]

August 23, 2013 in About this Blog, Web/Tech, Weblogs | Permalink | Comments (0) | TrackBack (0)

Monday, August 12, 2013

Ninth Circuit Leaves Determination of Arbitrability to the Arbiter in Oracle America v. Myrida Group

9th CircuitThe facts of this case are complex and require an understanding of computing that I Iack, but what it seems to come down to is that Myriad Group (Myriad) had some licenses to use Java trademarks and the Java programming language developed by Oracle America (Oracle).  The parties dispute the terms of the licenses and as a result Oracle alleges that Myriad had been using the trademarks and the programming language without paying for them, thus infringing upon Oracle's intellectual property rights.   Oracle sued in the Northern District of California alleging breach of contract and violation of intellectual property rights, while Myriad sued Oracle in Delaware alleging breach of contract. 

Myriad moved to compel arbitration in the Northern District of California pursuant to an arbitration clause that provided for arbitration of any claim relating to intellectual property rights "in accordance with the rules of the United Nations Commission on International Trade Law (UNCITRAL) (the 'Rules') in effect at the time of the arbitration as modified herein . . . "  The District Court granted Myriad's motion with respect to Oracle's breach of contract claim only, finding that the UNCITRAL Rules do not provide the arbitrator with exclusive jurisdiction to determine the scope of its own jurisdiction.

On July 26, 2013, the Ninth Circuit issued its opinion in Oracle America, Inc. v. Myriad Group A.G. and reversed the District Court’s partial grant of Myriad’s motion to compel arbitration.

The Ninth Circuit began by noting that, while public policy favors arbitration agreements, there is a presumption that courts should decide which issues are arbitrable.  Nonetheless, a court should grant a motion to compel arbitration to decide issues of arbitrability if the parties’ arbitration provision “constitutes clear and unmistakable evidence that the parties intended to arbitrate arbitrability.”  While the Ninth Circuit had never decided whether UNCITRAL’s Rules constitute such evidence, both the Second Circuit and the D.C. Circuit had concluded that the 1976 version of the UNCITRAL Rules constitutes clear and unmistakable evidence that the parties to an agreement governed by the Rules intended to arbitrate questions of arbitrability.  Although the 2010 version of UNCITRAL’s Rules might have been at issue in this case, the Ninth Circuit ruled the differences betwee the 1976 and 2010 versions do not affect the outcome on this issue. 

The Court remanded the case to the District Court for proceedings consistent with its opinon.

[JT] 

August 12, 2013 in Recent Cases, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 7, 2013

Response to Jeremy Telman's Post about Op-Ed on Wrap Contracts

This post responds to the thoughtful comments offered by my co-blogger Jeremy Telman in his post about my op-ed.  As he hinted, an op-ed provides a great forum for raising issues to a larger, non-academic audience but it is hardly the place to be thorough. Jeremy’s post gives me an opportunity to briefly touch upon the issues that I address in my forthcoming book.  (Note:  If you use the promotion code 31998 and click here you get a 20% discount).

Danger signJeremy raised the issue of the inadequacy of doctrinal solutions.  In fact, all of my proposed solutions are doctrinal.  There are undoubtedly more effective way to achieve societal changes, but doctrine obviously matters and right now, the law of wrap contracts is a mess.  It’s in a mess in a lot of different ways, yet the courts seem to be in denial, repeating the refrain that wrap contracts are “just like” other contracts. This is simply not so.  Much of my scholarship looks at how technology shapes behavior and argues that courts should consider the role of technology when they interpret and apply the law.  With respect to wrap contracts, courts ignore the ways that digital form affects both user perception and drafter behavior (i.e. overuse).  My proposed solutions seek to make the effects of the digital form part of the court’s analysis. 

One of these solutions, briefly mentioned in the op-ed and discussed in the book and elsewhere,  is a “duty to draft reasonably” which acts to counter the burden of the “duty to read.”  The duty to draft reasonably has very little to do with getting consumers to read contracts – it’s about getting companies to ask for less by making it less palatable for them to ask for more. As I explain in great length in my book, there are plenty of reasons why I am not a big fan of the duty to read –and why I think trying to get consumers to read is an inadequate solution.  Consumers shouldn’t be expected to read online contracts, at least, not as they are now drafted.  Reading wordy online contracts is not efficient and would hurt productivity. It’s also useless, since consumers can’t negotiate most terms.  Instead, we should try to get companies to present their contracts more reasonably/effectively.  We should require them to signal the information in an effective manner, the way that road signs signal dangerous conditions.  For example, I propose using icons, such as the danger icon that accompanies this post, to draw consumers’ attention to certain information.  Currently, courts construe “reasonable notice” to mean something other than “effective notice” – and this places too heavy a burden on consumers to ferret out information.  A “duty to draft reasonably” shifts the focus from the consumer's behavior to the drafting company’s behavior.  Could the company have presented the information in a better way? And if so, why didn’t it?  This is a question that courts used to ask with paper contracts of adhesion – but for some reason, they have moved away from this with wrap contracts. 

A related doctrinal adjustment that I propose in my book is specific assent.  For terms that take away user rights (which I refer to as “sword” and “crook” provisions), the user should be forced to actively assent by, for example, clicking on an icon.  The idea here is also not to get users to read, but to hassle them!  Imagine  having to click to give away each use of your data.  What a pain – and that’s the point.  The incorporation of a transactional hurdle or burden damages the relationship between the website and the user – and the more hurdles, the more annoying it becomes to complete the transaction. 

 Both proposals try to signal the type of company to the consumer.  A website full of danger icons sends a very different message than one with only one or two danger icons.  A website which requires a user to click forty times to complete a transaction won’t be around too long. 

As for better solutions, there are ways to address specific problems by using third party tools and I am all in favor of technical solutions.  For example, you can use duckduckgo or Tor to try to cover your tracks. But technical solutions have their shortcomings or limitations because they only address one part of the larger problem and it gets to be a bit like whack-a-mole as technology shifts and improves. 

Ultimately, any comprehensive solution has to be implemented by the government – either the legislature or the judiciary.  But it’s up to us, the consumers, to raise the issue as one needing a solution and we can do this through the democratic process and by marching with our feet. I agree with Jeremy that there are problems with collective action – there are coordination and resource issues as well as cognition limits, but that doesn't mean we shouldn't do anything. I don’t want to get into the thicket of that in this already too-long post, but I address this issue at great length in my book and propose that one way to deal with this is by reconceptualizing unconscionability.

Consumer advocacy groups and the websites referred to by Jeremy in his post certainly help with the collective action problem.  They inspire us to get off the couch.  Not easy when companies make it so comfortable for us to do nothing but that’s the nature of the beast here – it’s the same in other areas where consumers face the corporate marketing machinery and its expertise in manipulation.  As Kate O'Neill notes in the comments to Jeremy's post, we contracts profs have a role which is to point out the inconsistencies and contradictions in judicial application of doctrine and propose better ways to evaluate legal issues.  Some may scoff that judges don’t read law review articles --or books written by academics-- but it’s our job to keep trying.

 

[Nancy Kim]

August 7, 2013 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Sunday, August 4, 2013

Op-Ed on Wrap Contracts and Online Privacy

The Sacramento Bee published my op-ed on wrap contracts and online privacy today.  Here's the link.

 

[Nancy Kim]

 

August 4, 2013 in Contract Profs, Current Affairs, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 24, 2013

Fox Broadcasting v. Dish Network - let's hop to the contract issues

The Ninth Circuit recently decided an interesting case involving video on demand – or is the Hopper a DVR?  That was one of the questions at the heart of Fox Broadcasting Company v. Dish Network. (Jeremy Telman had previously blogged about the case when the complaint was first filed a year ago).  At issue was the Dish Network’s PrimeTime Anytime service which only works with the Hopper, a set top box with digital video recorder and video on demand functionalities.  PrimeTime Anytime records Fox (and other) network shows and stores the recordings for a certain number of days (typically eight) on the Dish customer’s Hopper.  Dish does not offer video on demand from Fox (but see discussion below).  Dish started to offer a new feature called “AutoHop” that allows users to skip commercials on shows recorded on PrimeTime Anytime (although it doesn’t delete the commercials, the user can press a button to skip them).  Fox sued Dish for copyright infringement and breach of contract and sought a preliminary injunction.  The Ninth Circuit upheld the district court’s denial of the motion.  The copyright issues are interesting, but I’m going to skip over them using this blog’s virtual AutoHop feature and get right to the contract issues, which are much more interesting to readers of this blog. 

There were two agreements at issue here.  There was a 2002 license agreement and a subsequent 2010 letter agreement (there were others but these were the two relevant ones).  Pursuant to the 2002
agreement, Fox granted Dish a limited right to retransmit Fox’s broadcast signal to Dish’s subscribers.  It also contained several restrictions and conditions and prohibited video on demand.  A 2010 letter agreement, however, agreed to video on demand provided that Dish agreed to certain conditions, the primary one being that it couldn’t show the content without commercials. 

So the basic questions (overly simplified for blog purposes) were – did Dish distribute Fox video on demand content?   If so, did it comply with the terms of the 2010 letter?  (Okay, that’s not exactly how the court or the parties put it, but those were the issues stripped down to their essence).

Fox argued that Dish breached this provision of the 2002 contract:

“EchoStar acknowledges andagrees that it shall have no right to distribute all or any portion of the
programming contained in any Analog Signal on an interactive, time-delayed, video-on-demand
or similar basis; provided that Fox acknowledges that the foregoing shall not restrict EchoStar’s practice of connecting its Subscribers’ video replay equipment.”

The district court construed the word “distribute” as requiring a copyright work to “change hands” (analogous to under the Copyright Act).  Because the copies remained in users’ homes,they did not change hands and there was no distribution.  Fox challenged this construction and argued that the prohibition against distribution meant that Dish would not make Fox programming available to its subscribers on the aforementioned basis.  The Ninth Circuit found both Fox’s and the district court’s constructions plausible (yes I realize there’s a distinction between interpretation and construction but I don’t want to go there right now, although you may). 

The Ninth Circuit withheld judgment on which construction was better but stated that “in the proceedings below, the parties did not argue about the meaning of ‘distribute.’  We express no view on whether, after a fully developed record and arguments, the district court’s construction of ‘distribute’ will prove to be the correct one.”

The court did, however, express skepticism that PrimeTime Anytime was not “similar” to video-on- demand (remember, the 2002 contract prohibited “video-on-demand or similar basis”)(emphasis added by yours truly).  The “distribution” of that, therefore, would violate the 2002 contract. Dish argued that its service was not “identical” to VOD but, as the Ninth Circuit noted, did not explain why it was not “similar.”  (Note: I hope all you contracts profs are feeling ever more relevant!  And our students thought we were just making mountains out of molehills when we focused on the importance of contract language).  The addition of that word “similar” might just save Fox when the case goes to trial.  Especially since, as even the district court held, if PrimeTime Anytime is VOD, then Dish clearly breached the contract which prohibited skipping commercials. The district court, however, wasn’t convinced that it was VOD.  Rather, the district court concluded that it was a hybrid of DVR and VOD and “more akin” to DVR than VOD.

In other words, the district court’s analysis went along these lines – the 2002 contract was not breached because there was no distribution of VOD (or similar) content.  The 2010 contract was not breached because this was not VOD but DVR. In short, this was not VOD and there was no distribution of a VOD-like service.

Query if the 2010 amendment had adopted the “VOD or similar” language instead of just “VOD”; in other words, what if it permitted Dish to offer Fox’s programming as VOD or “similar” service?  My guess is that they specifically drafted it narrowly to include just “VOD” to limit the scope of the license – but that it ended up backfiring to exclude the conditions on “similar” services.  Funny how drafting rules of thumb can sometimes come back to bite you.  Note the problem was created because the definitions were not consistent in the 2002 and 2010 agreements – it created a gap regarding a service (a “VOD similar service”) which required judicial construction.  Distribution of VOD or similar services was prohibited under the 2002 contract but VOD was permitted under the 2010 provided commercials were not skipped.  And what happens to showing (not distributing) "similar services to VOD"?  Mind the gap!

 There was a final issue regarding a “good faith” in performance type clause.  The Ninth Circuit  concluded that there was no evidence that Dish launched PrimeTime Anytime “because it was unwilling to comply with the requirements to offer Fox’s licensed video on demand service, rather than because Dish lacked the technological capability to do so.”  Frankly, I’m not sure why this was not a bigger issue since it seems, at least to me, that Dish is trying to get around the “no commercial skipping” restriction in the 2010 agreement by using the Hopper.

 The Ninth Circuit noted a few times that it was applying a “deferential standard of review” given the request for a preliminary injunction so I don’t think Dish can rest easy just yet.  I think Fox’s case will eventually hinge upon how the contract issues are resolved.  What is the meaning of “distribute”? (I don’t know enough about how Dish technology works to determine whether distribution occurred.  Even under the district court’s definition, could it have occurred?  Does rebeaming signals constitute distribution?  Is the service analogous to a lease?  I think there’s room here).  Is the PrimeTime Anytime service VOD or not?  And isn’t that 2002 agreement relevant in determining what the meaning of VOD is under the 2010 amendment?  Finally, why did the court give the “good faith in performance of contract” such short shrift?

I didn't get to review the actual agreements, but I would look at what exactly is being licensed under the 2002 agreement.  Does it exclude the VOD-like service or include it?  The gap seems odd to me - it must be addressed in one of the agreements.  What exactly does Dish have the right to do?  That seems to me one of the keys to unlocking the "correct" interpretation of the contract - and help determine whether the obligation of good faith is being fulfilled.

The real hammer here is going to be contract renewal - if Dish pisses off Fox and the other networks then it may kiss its business goodbye if they don't renew their contracts.  (As I mentioned, I haven't seen the contracts so don't know what the terms are).

As the court notes, the parties probably didn’t contemplate a hybrid DVR and VOD (this is the old “anticipating the future and new technologies” problem that contract drafters have to which I’ve previously referred) I think the copyright issues weigh more heavily in favor of Dish whereas Fox has the better argument re the contract issues.  Of course, the much larger policy issue is how to strike the balance between contract and copyright – a recurring issue since the late eighties…Generally, it's been advantage contracts.

 [Nancy Kim]

July 24, 2013 in Current Affairs, In the News, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, July 15, 2013

Tracking and Data Collection - Coming to a Store Near You!

As Jeremy Telman noted in his post, the OUP website which sells my forthcoming book on wrap contracts contains a wrap contract that requires users to the site to accept cookies.  This type of wrap is  what I refer to as "contract as notice", and much better than what most websites do, which is implement a "notice as contract".  The OUP  website requires specific assent to a particular term which raises the salience of the term.  My guess is that OUP provides this because its parents company is based in the U.K. which has better laws about this kind of stuff.  Most US corporate websites throw a bunch of terms into a browse wrap to which the user is deemed to have given blanket assent.  Visitors to OUP's website -- which requires specific assent -- are made aware of the cookies, whereas most visitors to other sites aren't even aware that a contract governs.  This is the difference between effective notice and  ineffective notice, aka contracts that nobody reads but that courts deem are still enforceable via constructive assent. 

The real problem with not reading is the nature of the terms that go unread--if you don't read terms, what's to stop a company from piling them on, adding more intrusive privacy stripping terms and rights deleting  provisions ( to use a Radin-esque term). According to case law, not much. 

I set my browser to alert me when I visit a website with cookies and I just couldn't visit any site without having to press the "allow" icon several times.  Now I allow first party cookies, and ask for a "prompt" from third parties. I wouldn't be able to use my computer otherwise.

And now, we have the pleasure of being tracked in person.  This morning, the NYT reported that some physical stores have started testing technology that allows tracking of customers' movements by using their smart phone signals. Nordstrom tried the old "Notice as Contract" method, by posting a sign telling customers they were being tracked.  Those customers who saw the sign were creeped out.  How long before we get used to these notices - and start to ignore them?  How long before they are so ubiquitous that we have as little choice as we do online to stop a company from tracking and collecting information about us?

BTW, you can't read the NYT article unless your browser is set to allow cookies.....

 

[Nancy Kim]

July 15, 2013 in In the News, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)