Wednesday, March 30, 2016
Have you ever been frustrated with seeming endless and practically unreadable scroll-down window that accompany many internet contracts? Or maybe you don't even think about them enough to be frustrated. The dozens of pages of scroll text typically end with a checkbox stating, "I have read and understood the foregoing agreement." All but the most unusually focused among users will check the box without having read the verbose digital boilerplate, and both sides surely recognize the untruth of the "read and understood" certification.
A court has recently refused to enforce an arbitration provision because it was buried at the bottom of the lengthy scroll able window. And the decision came from not just any court, but from the United States Court of Appeals for the Seventh Circuit--known for present purposes as the founder of the ProCD and Hill v. Gateway 2000 line of shrinkwrap arbitration-clause cases.
Over at the National Law Review, attorney Eric G. Pearson describes the facts of in Sgouros v. TransUnion Corp., No. 15-1371 (7th Cir. March 25, 2016), an opinion by Chief Judge Diane Wood applying Illinois law:
Sgouros purchased a “credit score” package from TransUnion, and he later brought suit, alleging that TransUnion had provided him with a number that was erroneously high and thus useless to him in his negotiations with a car dealer. TransUnion filed a motion to compel arbitration, which the district court denied.
The crux of the dispute concerned the webpage for “Step 2” in Sgouros’s purchase, which asked him for an account username and password and for his credit-card information. See slip op. at 4. Below these fields were two bubbles to answer whether a user’s home address was the same as the user’s billing address (“yes” or “no”), and below that was a scrollable window in which only the first two-and-a-half lines of a “Service Agreement” were visible. Had he read to page 8 of the 10-page agreement, Sgouros would have found the arbitration clause. Below the scrollable window was a hyperlink to a printable version of the agreement and a bold-faced paragraph memorializing an “authorization” to obtain credit information. Rounding out the bottom of the page was a button labeled “I Accept & Continue to Step 3.”
Judge Wood's opinion itself begins, for those of us who admire persuasive storytelling, with an excellent example of framing the story around the ultimate result:
Hoping to learn about his creditworthiness, Gary Sgouros purchased a "credit score" package from the defendant, TransUnion. Armed with the number TransUnion gave him, he went to a car dealership and tried to use it to negotiate a favorable loan. It turned out, however, that the score he had bought was useless: it was 100 points higher than the score pulled by the dealership.Believing that he had been duped into paying money for a worthless number, Sgouros filed this lawsuit against TransUnion. In it, he asserts that the defendant violated various state and federal consumer protection laws. Rather than responding on the merits, however, TransUnion countered with a motion to compel arbitration. It asserted that the website through which Sgouros purchased his product included (if one searched long enough) an agreement to arbitrate all disputes relating to the deal.
- The arbitration clause was not visible in the window.
- The site did not call the user’s attention to the arbitration provision in any other way.
- The site did not require the user to scroll to the bottom of the window or to first click on the scroll box.
- It was not clear that the purchase “was subject to any terms and conditions of sale.”
- The term “Service Agreement” said nothing “about what the agreement regulated.”
- The bold-faced paragraph was merely an authorization, and the button labeled “I Accept” actually misled the consumer to thinking that this was an acceptance of only the authorization’s terms. “No reasonable person would think that hidden within that disclosure was also the message that the same click constituted acceptance of the Service Agreement.”
All in all, an interesting turn of events from an important court on issues of clickwrap terms and arbitration.
Thursday, March 24, 2016
Clipping coupons and bringing them to retail stores is passé, but online “couponing” is considered cool by consumers. 23% of consumers report that they use more coupons now than earlier because technology makes it easier to find and use them. 51% of the consumers who do use coupons say that they use them more than they did five years ago. Part of this may be a reflection of declining personal incomes, and part may be because the recession has demonstrated the value of savings to many people.
Former CEO of J.C. Penney Ron Johnson was famously ousted when he decided to eliminate the chain’s coupons and no less than 590 annual sale events (yes, almost twice per day!). JCP has now settled a lawsuit that alleged that the company falsely inflated its prices (showing “regular” and “original” prices that had never been in effect) in order to be able to have such sales. http://www.usatoday.com/story/money/2015/11/11/jcpenney-settles-lawsuit/75567958/
Where does a reasonable store draw the line between these two ends of the spectrum? With the truth, of course, and letting the chips fall where they may in a fiercely competitive marketplace. Needless to say, that is tough to do with shareholder expectations of endless growth and earnings. One thought might be for retailers to offer more items for sale that are actually appealing, unique and well fitting (when it comes to clothes) rather than the same boring outfits everyone else offers. Just a thought in times when vendors such as the Gap and Banana Republic, for example, are suffering from immense “product acceptance challenges” (read: boring stuff no one wants to buy).
Sunday, March 20, 2016
A recent California appellate court case, Long v. Provide Commerce, Inc., found that a browsewrap agreement containing an arbitration clause failed to provide notice sufficient for assent. The case is likely to be significant in shaping wrap contract doctrine because it is the first California appellate court decision which addresses “what sort of website design elements would be necessary or sufficient to deem a browsewrap agreement valid in the absence of actual notice.”
This case is another in a line of cases coming out of California and the Ninth Circuit which is making a long overdue correction to contract law doctrine -- doctrine which veered dangerously off course with ProCD and its ilk. As I’ve previously noted, the law in this area is still working itself out, and my guess is that other jurisdictions will start reevaluating the meaning of “assent” when it comes to wrap contracts (and start following the Ninth Circuit’s more reasonable understanding of reasonableness).
(Disclosure and fun fact: I am the recipient of a chair funded from a class action settlement involving ProFlowers).
Thursday, March 17, 2016
As more and more retail shopping seems to be shifting from brick-and-mortar stores to both well-known and perhaps more shady online retailers, the need to read the online terms and conditions very carefully is obvious. As we have discussed here before, this is hard enough to do when these are phrased in legally and linguistically challenging ways. But what to do when a company seemingly tries to come across in a lighthearted and funny way, but is still dead serious about the underlying legal messages? Some people have found out that this can present almost insurmountable obstacles.
Take, for example, outdoor clothing and gear provider 123Mountain in Colorado. (H/t to Professor Miriam Cherry of the Saint Louis University Law School for bringing this story to the attention of the Contracts Listserv.) Its linguistically very poorly drafted terms and conditions contains statements such as “[w]e love all of our Users, especially those that buy lots of stuff from us,” “[y]ou understand that 123mountain is good, but not perfect. Therefore, we cannot and do not guarantee that the Site will be free of [sic] infection from viruses or other mean computer stuff…,” “[y]ou acknowledge and agree that there are mean people in the internet world…,” “[y]ou are not allowed to resale [sic] our product as commercial activity 9 mean [sic] your Canada Goose, Nobis, Moose knuckle and Parajumper is for you not to resale at your Russian cousin) [sic],” and “[a]fter all, nobody, except my friend's cat Misse is perfect, and even she sometimes has an accident … 123mountain shall have the right to refuse or cancel any orders placed for that product(s)[sic] listed at the incorrect price. Sorry.” Or how about this one: “ We will accept pre-orders for Canada Goose, Nobis, Moose knuckle and Parajumper. Please keep in mind that it can take up to 24 months to fulfill a preorder for Canada Goose, Nobis, Moose knuckle and Parajumper.” See the complete terms and conditions here.
Two years for an item of clothing? I would personally not be sufficiently interested in waiting two years for any kind of clothing, and certainly not a mere sports jacket. Many other products are available that will do just fine, thank you.
As reported in detail here, a 123Mountain customer came to the same conclusion the hard way himself. In early November 2015, he placed an order for a jacket with “two-day shipping.” When he still had not received the jacket a week later, he contacted the company and was told that he could expect the jacket within slightly less than three weeks. When inquiring about the impression that he had gotten from the website that the item was in stock, he was told that the item was “available for order” rather than actually “in stock.” A full month later, he was told that the item would still ship no later than at the end of November …. 2017. Yes, you read that right: two years later. When not paying for the invoiced amount, 123Mountain sent a collection agent after the customer!
For good reason, it seems, 123Mountain only has one star on Yelp.com, the lowest possible ranking. The Lakewood, Colorado, Police Department, has apparently received nine other complaints against 123Mountain since 2013, but “the knotty terms and conditions that customers agreed to when making purchases online made it impossible to charge the couple with a crime.”
So, not only can some companies often get away with contractual arguments for years, but prosecutors also find it “impossible” to charge companies with crimes, even in cases such as the above. That’s a very sad state of affairs for online contracting, business ethics, and customer service. Greed and selfishness seem to be the order of the day in many cases.
Thankfully, major credit card companies seem more willing than before to help their customers in cases like this. The “fault” is not as readily placed on the buyer as before, at least judging from anecdotal evidence and personal experience. This, of course, does not guarantee an ultimately positive outcome for defrauded customers. Online review sites such as Yelp are also somewhat helpful in this context, but in times when online review websites are also known to suffer from their own credibility problems due to allegedly fake reviews, the situation is factually and legally troublesome for online buyers. This is even more so in times when people often resort to buying even such things as cat litter and kitchen towels online to, among other things, save the hassle of carrying bulky items home themselves. Online shopping is here to stay. Amazon has even announced plans to deliver packages by drones minutes after ordering. It seems that the law needs to rapidly develop to address the many legal issues that have arisen and continue to arise in the online contracting context.
Ideas on how to do so? Comment below!
Tuesday, March 8, 2016
Outsourcing work to locations where employees earn even less than many in the United States do has already become commonplace. Now comes the corporate idea of “taskifying” work to people eager to obtain some work, even if just in bits and pieces. “Crowdwork,” as it is known, lets companies use online platforms such as Amazon Mechanical Turk or www.fiverr.com to find people willing to do routine tasks such as drafting standardized reports, filing forms, coordinating events and debugging websites, but also much more complex ones such as designing logos, ghostwriting, etc. Many of today’s work tasks can be broken up into bits and farmed out online, and many employers are already doing so. Could this also come to encompass routine lawyerly work? Quite possibly so. Researchers at Oxford Univesity’s Martin Programme estimate that nearly 30% of jobs in the U.S. could be organized in a crowdwork format within just twenty years.
In this context where few regulations or laws yet govern the contracts, workers would no longer be either “employees” or “contractors,” (which has already proved to be troublesome enough for companies such as Uber), but rather “users” or “customers” of the websites that enable, well, workers and companies (“providers”) to find each other. These transactions would not be governed by employment contracts, but by online “user agreements” and “terms of service” that currently resemble software licenses more than employment contracts. There are few, if any, legal obligations towards employees in the current legal landscape that also offers employees very few means for obtaining and enforcing something so basic pay for the work performed.
Employers today require a flexible and eager workforce that is constantly on the ready and that can maybe even work 24 hours a day. Crowdworkers provide just such availability and demand very low salaries because the name of the game seems to be to compete on prices. The problem is that workers, to have a decent life, need the opposite: stability, higher salaries than what is often currently the case, retirement, salary, and medical benefits. Do these come with crowdwork tasks? Sadly, no.
What could go wrong? Consider this case: Mr. Khan, an Indian man living in India, was eager to make some money. He decided to try Amazon’s Mechanical Turk. On good days, he would make $40 in ten hours; more than 100 times what his neighbors made as farmers. He even outsourced some of his own work to a team that he supervised. This must have violated Amazon’s Participation Agreement as all of a sudden, Mr. Khan received the message that his account was closed and “could not be reopened.”Amazingly, Mr. Khan was also notified that “[a]ny funds that were remaining on the account are forfeited, and we will not be able to provide any additional insight or action.” Talk about lopsided contracts! Using a “Contact Us” link, Mr. Khan was eventually able to get through to Amazon, which simply referred him to a contractual clause stating that Amazon had the “right to terminate or suspend any Payment Account … for any reason in our sole discretion.”
With these types of ad-hoc online agreements, people who should arguably at least have been classified contractors if not, as in some current cases, employees. Of course, this only pertains to U.S. law, but it is important to note that not all jobs are “taskified” to foreign workers. Thus, employees risk being “stiffed” twice: once for losing their jobs to cheaper folks willing to be crowdworkers and, if they chose to work under such contracts and don’t do exactly as the “provider” requires in their apparent almost exclusive discretion, not being paid and not having any effective means of enforcing their contracts. An undisputedly troublesome development both in this nation and beyond.
How could at least the issue with medical and other employee benefits be solved? It might via universal payment systems such as those typical in EU nations. There, when employees change jobs, their vacation time, medical and other benefits travel remain in a centrally administered pool (whether government administered or privately so with tough regulations in place), they do not become discontinued with the employment only to have to be restarted under other plans as typical in this country. This system could potentially be transferred to the crowdwork arena. A percentage of each job (sometimes even called “gigs”) could be centra lly administered in a more employee-centric version than the still American employer-centric solutions. Such systems are, of course, largely seen here in the U.S. as “socialist” and thus somehow inherently negative.
As if the employment situation for workers around the world is not already bad enough, add this new development, called “a tsunami of change for anyone whose routine work can be broken into bits and farmed out online.” Our students’ future work tasks may, at least in the beginning of their careers, constitute just such work. This is a worrying development as workers in our industry and in this country in general are not seeing improved working conditions in general. Crowdworking could add to that slippery slope.
Tuesday, February 23, 2016
American Airlines has nonsuited (i.e., dismissed without prejudice to refilling the lawsuit) its declaratory judgment claim against Gogo. American had recently asked a Texas state court to determine whether the provision of the availability of "better service" (or some similar term) in its 2012 contract had been triggered such that American could force Gogo to submit a competitive bid to retain its service.
As discussed in a previous post, American's negotiating leverage arose as much from the publicity surrounding it filing of a lawsuit as it did from the actual contract term. The term was apparently vague enough that Gogo could (and did) take the position that its rights as American's exclusive in-flight service provider had not been called into question by American's request for a new proposal. Upon American's filing of a declaratory judgment lawsuit in Texas state court, however, Gogo's stock price dropped 27 percent.
Today, the word is out that Gogo has changed its position and accepted American's interpretation of the contract. The Fort Worth Star-Telegram reports:
[American Airlines had said] that its contract with Gogo allowed it to renegotiate or terminate its agreement if another company offered a better service. Gogo had disputed that clause in the contract, but Friday agreed to the contract provision and said it would provide a competitive bid within 45 days.
“American is a valued customer of Gogo, and Gogo looks forward to presenting a proposal to install 2Ku, our latest satellite technology, on the aircraft that are the subject of the AA Letter,” Gogo said in a government filing Friday. “We acknowledge the adequacy of the AA Letter and that our receipt of the AA Letter triggered the 45 day deadline under the agreement for submission of our competitive proposal.”
* * *
Once American reviews Gogo’s proposal, if it does not beat out a competitor’s proposal, American can terminate Gogo’s contract with 60 days’ notice.
Shares of Gogo [ticker: GOGO] jumped on the news of the dropped lawsuit, up almost 10 percent....
The swift manner in which this episode had played out emphasizes the extent to which contract doctrine and interpretation it frequently not the principal driver of business relationships. Gogo could have marshalled a team of lawyers and stood on its interpretation of the contract up to final judgment--likely a summary judgment based on a question of law. But what would be the reputational and business cost? Eventually, the marketplace won't allow contract rights to serve as a substitute for proof of the quality of a product.
A challenge I find in teaching future transactional lawyers is to ensure that they do not become enamored with legal rights as being the be-all and end-all of deal making. Law is important, but a business lawyer must employ practical wisdom, as well. That wisdom includes the fact that law itself is only one part of practicing law... and it sometimes isn't even the most important part.
Sunday, February 21, 2016
Recently, I had the good fortune to interact with Lauren Henry Scholz, currently Resident Fellow and Knight Law and Media Scholar at the Information Society Project at Yale Law School. Scholz’s in-progress article, Algorithmic Contracts, addresses topics that will be of great interest to many readers of this blog. She not only tackles the fiscally important development of technological automation of contracting processes, but she also wades into the significant implications of computer-facilitated formation for traditional contract doctrine. The draft is not yet available on SSRN, but Lauren graciously granted me permission to share her current abstract:
Algorithmic contracts are an important part of today's society. Areas where algorithmic contracts are already common are high speed trading of financial products and dynamic pricing. However, contract law doctrine does not currently have an approach to evaluating and enforcing algorithmic contracts. This Article fills this significant gap in doctrinal law and legal literature.
There are two types of algorithmic contracts. Agent algorithmic contracts are contracts in which one or both parties use an algorithm as an agent to determine terms in a contract, that is, to choose which terms to offer or accept. Term algorithmic contract are contracts in which all parties agree to the results of an algorithm as a contractual term, prior to knowing exactly what the algorithm will yield.
The classical interpretation of contract doctrine, which justifies contract as an expression of human will, finds that some algorithmic contracts are not properly formed at law and thus cannot be enforced in contract. This is because where algorithms serve as quasi-agents to principals in making decisions the principals have not manifested the intent to be bound at the level of specificity that contract law requires. Algorithms are not persons, and so cannot consent beyond the scope of the principal’s manifested objectives, as true agents can. Furthermore, policy considerations of efficiency and fairness in light of technological trends also supports relaxing the contract law’s presumption against considering evidence of intent outside the contract in the interpretation of and provision of remedies for algorithmic contracts.
I propose that approaching algorithmic contracts as implied-in-fact contracts in contract law, supported by restitution law and tort law where a contract cannot be implied in fact, offers a predictable approach to the enforcement of algorithmic contracts at law while promoting efficiency and fairness concerns in a manner traditional contract law cannot.
Common law courts and state legislatures should update their approach to algorithmic contracts accordingly. The American Law Institute and other groups that seek to promote best practices in state private law should update tort, contract, and commercial law statements to expressly address algorithmic contracts. Businesses should strengthen their positions in negotiations as well as in court by clarifying their objectives in using algorithms. Giving businesses the incentive to make their objectives clear will aid in ascribing liability in all areas of law and promote responsible use of algorithms.
Personally, I’m very sympathetic to the suggestion that the computer-enhanced contracts addressed by Scholz are ripe for their own variations on standard interpretive rules. Traditional doctrine did not contemplate and is not necessarily adaptable to the technological possibilities that are now upon us. This looks to be an exciting and relevant topic, so I look forward to seeing the final product. Although Algorithmic Contracts is itself still in development, you can in the meantime view Lauren Scholz’s other scholarship here.
Saturday, February 20, 2016
Speaking of contract law and Bitcoin, my colleague William Byrnes over at our sister blog, International Financial Law Prof Blog, reports on recent activity by the Federal Trade Commission in this area:
Butterfly Labs and two of its operators have agreed to settle Federal Trade Commission charges that they deceived thousands of consumers about the availability, profitability, and newness of machines designed to mine the virtual currency known as Bitcoin, and that they unfairly kept consumers’ up-front payments despite failing to deliver the machines as promised.
* * *
“Even in the fast-moving world of virtual currencies like Bitcoin, companies can’t deceive people about their products,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “These settlements will prevent the defendants from misleading consumers.”
Read the entire post here. While the federal interest in regulating in the virtual currency space has most prominently been in the area of financial crimes, consumer protection is certainly not off the table as agencies like the FTC and (potentially more prominently) the Consumer Financial Protection Bureau explore their reach.
Friday, February 19, 2016
At any given time, the Uniform Law Commission/NCCUSL is engaged in many important and useful state-law drafting projects, but one of the more interesting ones for me is its current work in drafting a proposed Regulation of Virtual Currency Businesses Act. I have had the fantastic opportunity to act as an observer to the drafting committee and watch the stakeholders and commissioners navigate disparate policy perspectives and try find as-common-as-possible ground, while Chair Fred Miller keeps the group on task and Reporter Sarah Jane Hughes assimilates an incredible amount of debate into a rapidly evolving draft. The experience is a wonder that I would recommend to anyone with a serious interest in legislative policymaking. It also, for present purposes, helps illustrate both the benefits and limits of contract law in a nascent market-space.
The current drafting project arose out of the phenomenon of Bitcoin, the first technologically viable means of electronically transmitting value without the possibility of double spending or the need for a financial intermediary, like a bank. While the use cases for virtual currency technology are still in their relative infancy, states began to consider and enact disparate regulatory schemes, with New York's BitLicense regulatory framework being the most prominent example. While federal regulators and law enforcement have understandably focused on preventing the use of pseudonymous cryptocurrency to advance criminal enterprises and finance international terrorism, the state concerns have tended more toward protection of consumers and other users engaged in perfectly legal transactions. While Bitcoin does not require an intermediary any more than paper cash requires use of a bank, intermediaries--like digital wallet services--have arisen to fill the convenience role analogous to bank accounts. These virtual currency intermediaries are, for the most part, the principal target of state-law regulation and current work of the Uniform Law Commission.
What is the contract law angle here? It's this: In the absence of specially-crafted law of the sort now under consideration, the common law of contracts fills the void to enable some degree of enforceable private ordering. The flexibility of contract law is such that it can allow for the birth of business models no one contemplated as recently as the eve of Bitcoin's creation in 2008. The flexibility of such a legal regime is amazing. Contract law can, nonetheless, only facilitate business so far. Public-protective regulation is necessary to achieve widespread market acceptance beyond the universe of early-adopters and risk takers. Regulation carries its own risks, however, as a heavy-handed approach can stifle innovation and create anti-competitive barriers to market entry.
That--in many different flavors--is the policy question being grappled with in the Regulation of Virtual Currency Businesses Act, and the question is relevant in any other space where rapidly developing technology exceeds the capacity of existing law. Where do we apply protective public law, and what do we keep within the realm of private contracts?
Thursday, February 18, 2016
Monday, February 15, 2016
Forward-thinking deal lawyers draft contracts addressing contingencies that clients might not perceive or address if left to their own devices. Amazon has, however, now taken contingency planning--if I may borrow from esteemed legal scholar Buzz Lightyear---to infinity and beyond.
One of Amazon's many businesses is Amazon Web Services, and one of the available services from AWS is Lumberyard, a game development system which, according to Amazon, "consists of an engine, integrated development environment, and related assets and tools we make available at aws.amazon.com/lumberyard/downloads or otherwise designate as Lumberyard materials (collectively, 'Lumberyard Materials')." See AWS Service Term 57.1.
So far so good. But then, perhaps recognizing the possibility of dire emergencies requiring use of a video-game development engine, we reach section 57.10 (with emphasis added):
57.10 Acceptable Use; Safety-Critical Systems. Your use of the Lumberyard Materials must comply with the AWS Acceptable Use Policy. The Lumberyard Materials are not intended for use with life-critical or safety-critical systems, such as use in operation of medical equipment, automated transportation systems, autonomous vehicles, aircraft or air traffic control, nuclear facilities, manned spacecraft, or military use in connection with live combat. However, this restriction will not apply in the event of the occurrence (certified by the United States Centers for Disease Control or successor body) of a widespread viral infection transmitted via bites or contact with bodily fluids that causes human corpses to reanimate and seek to consume living human flesh, blood, brain or nerve tissue and is likely to result in the fall of organized civilization.
Here at Texas A&M, my colleague (and Blog Editor Emeritus) Frank Snyder raised some quibbles with this provision's drafting: "First, why does it apply only to a viral infection and not to bacterial infections, mutation-causing chemicals, or (as in Night of the Comet) weird alien space rays? And is the last clause ('likely to result in the fall of organized civilization') modified by the clause that requires CDC certification, or is that an independent determination that can be made by the judge?"
All good questions. I'll also note that the answer to whether a zombie outbreak would constitute commercial impracticability in a sale-of-goods case has just edged a closer to "no." Apparently, this is precisely the sort of contingency that parties can foresee and should contract around with appropriate force majeure clauses.
What are your thoughts on this significant outbreak of zombie-contingency contracting? Leave your answer in the comments below. H/T to Henry Gabriel via Bill Henning for highlighting this provision.
Sunday, February 14, 2016
Change is coming to the energy field, finally. As the realization is broadening that fossil fuels have to be left in the ground, solar and wind energy are becoming more popular to investors and private households alike.
The problem is still the types of contracts and financing options available. An average solar system costs $14,700. If paying that in cash, homeowners would typically save around $50 a month on their electric bills. However, most people cannot afford to pay that in cash. Financing options will reduce the monthly savings to about $20-30 a month. “Net metering,” which allows homeowners to sell electricity back to the utilities, may result in bigger savings.
Problems still loom on the horizon with contracts in this area. A new financing program known as the “Property Assessed Clean Energy” financing program (“PACE”) allows solar panel buyers to finance the system and add the loan to the property as a tax assessment. Some are criticizing that for making it difficult or sell the homes or refinance mortgages.
More importantly, utility companies are complaining that the electric grids were designed to send electricity to consumers, but not receive it back. The utility industry is even referring to individually owned power systems as “disruptive technologies.” This new interaction will force changes in the market and infrastructure. But so what? Utilities have had a chance to make quite a lot of money for years on end, often in pure or monopoly-like situations. Now the market is changing. Utilities must adapt to necessary societal changes. This is clearly one of them. The resentment towards new technological change by parties in an industry that is per se technological is inexpedient and childish. Yes, utilities have invested much money in the existing electricity infrastructure, but they have surely never been promised that the market wouldn’t change and that users won’t demand other product sources than what has been the case for, now, more than a hundred years. Time has come to innovate.
The industry is also complaining that in the future, new rules are going to force the industry to provide more services, which will cost more money and thus result in fewer savings via alternative energy sources. Yeah, let’s see about that one. That still sounds like a contrarian, outmoded argument against inevitable progress.
What could be more troublesome is the expected erosion of benefits such as solar credits. For example, the existing 30% federal solar tax credit will end in 2019 unless, of course, Congress renews it. Hopefully under the new Paris Agreement on climate change and with the looming risks, financial and otherwise, on continually rising global temperatures (2015 was yet another hottest year on record), such and other benefits will be increased, not decreased.
For anyone wishing to buy a solar system, the best deal on the market still seems to be buying outright, even if via a property tax assessment. Many of the still-typical 20-year lease contracts are still too lengthy in nature. Too many things could change in this marketplace to make them seem like a viable option.
It is too bad that with as many hours of sunshine as many parts of this nation has, there still is not a really good, viable option for solar energy contracts for middle- or low-income private homeowners.
Sunday, February 7, 2016
In a case that is a sad testament to today’s apparently increasing loneliness in the Western world despite much technological progress that could have alleviated some of that, but instead only seems to have made it worse, a woman created a YouTube channel bearing the rather uncharming name “bulbheadmyass.” On it, she posted 24 music videos of her band. These videos gathered almost half a million views and many favorable comments. There was no commercial component to the videos. The woman was not trying to sell video or audio versions of the band’s music. Instead, her “sole reward was the acclaim that she received from the YouTube community and the opportunity to make new friends.” (The case is Lewis v. YouTube, H041127, California Court of Appeal .)
Claiming that this woman had breached the company’s Terms of Service, YouTube removed the videos from its website. The woman filed suit claiming breach of contract and seeking specific performance. She alleged that YouTube breached the contract with her when it removed her videos from the website against her will and without notice. The trial court sustained YouTube’s demurrer on the basis that the Terms of Service contained a liability limitation stating that “[i]n no event shall YouTube … be liable … for any … errors or omissions in any content.” Plaintiff had argued that the case was not one of errors or omissions in any content, but rather a deletion of content without prior notice. The appellate court, however, held that the liability limitation governed the issue and that the trial court had correctly sustained the demurrer.
YouTube did, though, agree to restore plaintiff’s video content. YouTube, of course, does not charge for featuring anyone’s videos. Rather, it makes money off the advertising it can generate because of the many hits it receives. (Its revenue is several billion dollars a year.) However, YouTube did not restore the videos to their pre-deletion status, i.e. with comments, URLs from other users who had linked to it, and view counts. (Compare this to SSRN resetting your scholarship records: you’ll lose your view count and all other tracking data should that happen). The court contrasted the case with another where the contract had set forth exactly how to grant specific performance in case of a breach (also a technology case). But in the YouTube case, said the court, “no provision in the Terms of Service can serve as the basis for the relief that [plaintiff] seeks.”
Really? Does it take all that much technological savvy by a court to simply ask YouTube to restore plaintiff’s accounts to their “as were” condition? YouTube may actually not simply have deleted the accounts altogether. If they had, they would undoubtedly have backups. Instead, various technological accounts are simply “turned off” and are thus not accessible to the general public, but they still exist. What really seems to have been at issue here was an annoying plaintiff who was unlikeable to both the court and YouTube. It seems that the court was too eager to dismiss plaintiff’s specific performance claim and chose the too-easy way out by claiming lack of technological knowledge. In 2016, it does not seem to strain the imagination too much to expect billion-dollar IT companies to have ways of doing just what plaintiff sought here. Then again: with a name such as “bulbheadmyass,” maybe it was a case of “you got what you asked for.”
Monday, February 1, 2016
Okay, there's actual contract stuff to talk about in this case, but mostly I was fascinated to learn that IMAX theaters rent the movie-showing equipment from IMAX and, in 2004 at least, the cost was $41,400 in annual maintenance fees plus the greater of $75,000 or 7% of the box office receipts in annual rent. So, if you win the lottery and want an IMAX theater in your house, there's a rough idea of the kind of costs you're looking at.
And now that we've learned that fascinating tidbit of information, what happens when you get into a fight with IMAX about whether the equipment it's leased you is capable of playing "Hollywood" movies?
That's what happened in a recent case out of the Middle District of Pennsylvania, IMAX Corp. v. The Capital Center, Civ. No. 1:15-CV-0378. In that dispute, Capital Center alleged that it told IMAX it wanted to rent its equipment so it would be able to show "Hollywood" movies. In 2004, it entered into a fifteen-year lease of IMAX's movie-showing equipment/software/etc. Apparently around 2014, IMAX announced that it had developed new technology that rendered the equipment Capital Center had rented obsolete, interfering with Capital Center's ability to play "Hollywood" movies. (I keep putting "Hollywood" in quotation marks because it's in quotation marks in the opinion. Clearly Capital Center considered it a direct quote and an important characterization.)
In reaction to the new technology, Capital Center stopped paying rent on the old technology, apparently because it felt its equipment was now valueless. IMAX pointed out that Capital Center had therefore breached the contract and IMAX was entitled to the remainder due under the lease in liquidated damages (a clause in the contract). Capital Center gave the equipment back to IMAX, and IMAX sued to collect the money it claimed it was due under the contract. Capital Center raised in response defenses of mutual mistake and frustration of purpose. It also claimed IMAX had no right to demand the further rent amounts because Capital Center no longer had possession of the equipment. Finally, it claimed that IMAX had not properly disclaimed its warranty that the equipment was fit for a particular purpose, i.e., playing "Hollywood" movies. Unfortunately for Capital Center, none of these defenses succeeded.
Capital Center's mutual mistake defense centered on the "mistake" that both parties made that the equipment that was the subject of the lease would still be capable of playing "Hollywood" movies fifteen years later. However, the mutual mistake defense exists to vindicate mistakes of fact, not errors in predicting the future; this situation was the latter. There was no "fact" that IMAX thought it knew that the equipment would still be valid in fifteen years. And, in fact, the agreement itself contemplated as much, because the agreement contained a clause noting that IMAX might upgrade its equipment and setting forth the terms by which Capital Center could receive the improved equipment. Difficult for Capital Center to argue that the parties were mistaken about the future viability of the equipment in question when the agreement itself noted that the equipment in question might not be viable in the future.
The frustration of purpose defense failed for a similar reason. Here, the purpose of the contract might have been to play "Hollywood" movies but there was no unforeseen event that occurred after the signing of the contract that frustrated that purpose. The agreement itself predicted that the equipment might not continue to be viable for the showing of "Hollywood" movies. Therefore, the continued viability of the equipment could not be said to have been a basic assumption of the contract.
As for the argument that IMAX shouldn't be entitled to future rent payments because IMAX was in possession of the equipment, under Pennsylvania law, IMAX was entitled to choose either future rent payments or repossession of the equipment. However, IMAX didn't seek to repossess the equipment; Capital Center gave the equipment back to IMAX of its own volition. Therefore, IMAX wasn't seeking repossession, only the future rent payments: a choice it was allowed to make.
Finally, the contract between the parties had contained a clause in which IMAX disclaimed all of the usual warranties, including suitability to a particular use, i.e., showing "Hollywood" movies. Under Pennsylvania law, such a disclaimer is valid as long as it is "conspicuous." Capital Center tried to argue that the disclaimer in question wasn't conspicuous, but it was the only clause in the seven-page Schedule B of the agreement that was in bold font, which, according to the precedent, rendered it "sufficiently conspicuous."
Sunday, January 31, 2016
Ian Kerr of the University of Ottawa's Centre for Law, Technology and society has an interesting post from last September on a topic of that has been of occasional discussion on this blog, and which I came across only recently. In "The Arrival of Artificial Intelligence and 'The Death of Contract,'" Kerr outlines some of the foreseeable challenges facing today's students of contract law due to disruptive technology:
On the market today are a number of AI products that carry out contract review and analysis. Kira, an AI system used to review and analyze more than US$100 billion worth of corporate transactions (millions of pages), is said to reduce contract review times by up to 60%. Likewise, a Canadian product called Beagle (“We sniff out the fine print so you don’t have to”) is faster than any human, reading at .05 seconds per page. It reads your contract in seconds and understands who the parties are, their responsibilities, their liabilities, how to get out of it and more. These are amazing products that improve accuracy and eliminate a lot of the “grunt work” in commercial transactions.
But hey—my Contracts students are no dummies. They can do the math. Crunch the numbers and you have a lot of articling students and legal associates otherwise paid to carry out due diligence who now have their hands in their pockets and are looking for stuff to do in order to meet their daily billables. What will they do instead?
In some ways, such concerns are just teardrops in an ocean full of so-called smart contracts that are barely visible in the murky depths of tomorrow. Their DRM-driven protocols are likely to facilitate, verify, and enforce the negotiation and performance of contracts. In some cases, smart contracts will obviate the need for legal drafting altogether—because you don’t actually need legal documents to enforce these kinds of contracts. They are self-executing; computer code ensures their enforcement.
Kerr's concludes that smart contracts and their technological relatives are no more the death of contract than what Grant Gilmore pronounced, but that the change is worrisome, including to our relational understanding of contract doctrine and its practice:
I suspect we will face some significant changes and I am not sure that it’s all good. Self-executing contracts, like the DRM-systems upon which they are built, are specifically designed to promote the wholesale replacement of relational aspects of contract such as trust, promise, consent and enforcement. As such, they do injury to traditional contract theory and practice. While I have no doubt that an AI-infused legal landscape can to some extent accommodate these losses by creating functional equivalents where historical concepts no longer make sense (just as e-commerce has been quite successful in finding functional equivalents for the hand-written signature, etc.), I do worry that some innovations in AI-contracting could well have a negative effect on human contracting behavior and relationships.
The entire post is worth a read for anyone interested in the impact of technology on contracts.
Mobile carriers seem to have grown tired of, effectively, being in the loan business funding people’s new phones. American consumers were used to this model, which was a way for phone companies to hide the large price of a new phone into a monthly bill.
More recently, consumers want to change their phones more often than every two plus years, so many prefer paying up front for their phones to be able to change plans whenever they want to instead of having to wait out a long-term contract (or risk sanctions if breaching it).
All the major carriers – T-Mobile, Verizon, Spring and now AT&T – have now shifted away from two-year contracts. The question now is whether consumers will truly choose to pay for their phones in full at the point of purchase or, as has been mentioned, opt for installment plans that lets them upgrade more often than before remains to be seen. Given the price of phones, but also the seemingly insatiable need by many for new technology, installment contracts may be the likely end result. If so, it will be interesting to see how carriers will avoid tying people into long-term contracts, which has proved to be undesirable, but at the same time trying to do, at bottom, some of that via “installment contracts.”
Friday, January 29, 2016
The class action lawsuit against Uber for allegedly misclassifying its drivers as “independent contractors” instead of regular “employees” is growing in scope and importance. (O’Connor v. Uber Technologies Inc., 13-cv-03826, Northern District of California). It now covers more than 100,000 drivers. If Uber loses, the case could mean the end of the so far highly lucrative business ride share model that is currently valued at a whopping $60 b worldwide. http://www.bloomberg.com/news/articles/2015-12-18/uber-faulted-by-judge-for-confusing-drivers-with-new-contract
A recent contractual twist developed as follows: Judge Chen had previously found certain contractual language between Uber and its drivers to be unconscionable and unenforceable. Uber claims it tried to fix those issues in a new set of contracts prohibiting its drivers from “participating in or recovering relief under any current or future class action lawsuits against the company.” (Link behind a sign-in request). The drivers were, instead, required to resolve potential conflicts via arbitration. The new contract did, however, purport to give drivers 30 days to opt out of the arbitration provision.
Judge Edward Chen stated about this contractual language that “it is likely, frankly, to engender confusion.” The potential for confusion stems from the fact that numerous drivers have, obviously, already joined the class action lawsuit just as many still may want to do so. Hundreds of drivers are said to have called the plaintiffs’ lawyer, Shannon Liss-Riordan, to find out whether they have to opt out of the new contract to join the lawsuit. Ms. Liss-Riordan called the updated contract an attempt to “trick her clients into relinquishing their rights to participate in the class action.”
Uber, however, claimed that it was just trying to fix previous problematic contractual language and that it would “not apply the new arbitration provisions to any drivers covered by the class action.” The contractual language, though, does not say so.
Whether this is an example of deliberate strong-arming or intimidating the drivers into not joining the lawsuit or simply unusually poor contract drafting may never be known. Judge Chen did, however, order Uber to stop communicating with drivers covered by the class action suit and barred the company from imposing the new contract on those drivers.
The saga continues with trial set for June 30.
Meanwhile, Lyft settled a very similar lawsuit by its drivers in the amount of $12 million. Under that settlement, Lyft will still be able to classify its drivers “independent contractors.”
Thursday, January 21, 2016
On Thursday, the U.S. Circuit Court of Appeals for the D.C. Circuit heard arguments about whether a clothing company illegally fired three retail store employees for their Facebook posts criticizing the employer. The case involves the as-of-yet little developed area of how labor law applies to social media usage as well as other complex issues of contracts and employment law. The case is Design Technology Group v. NLRB, Case Number 20-CA-035511. The case also demonstrates the issue of poor workplace conditions and how little employees can do under contracts law or other bodies of law against this, which I have blogged about before (most recently here). I am not an employment law expert. I simply find this case very interesting from the point of view of how social media law is developing in relation to what is, after all, also an employment contract.
In the case, three employees repeatedly brought various safety concerns to the attention of the store manager. Among other things, the employees felt that the area of San Francisco where the store was located was relatively unsafe at certain times of the evening and that, perhaps, store hours could thus be changed to alleviate this problem. Homeless people would also gather in numbers outside the store to watch a burlesque video that the store played on a big TV screen right inside a window, thus potentially also attracting various (other) unsavory characters.
Allegedly, the store manager did not respond to these safety concerns and treated the employees in an immature and unprofessional way. The three employees discussed the events not at the water cooler, which is so yesteryear, but on Facebook. These posts included messages such as
- “It’s pretty obvious that my manager is as immature as a person can be and she proved that this evening even more so. I’m am unbelieveably [sic] stressed out and I can’t believe NO ONE is doing anything about it! The way she treats us in NOT okay but no one cares because everytime [sic] we try to solve conflicts NOTHING GETS DONE!!... “
- “800 miles away yet she’s still continues to make our lives miserable. phenomenal!”
- “hey dudes it’s totally cool, tomorrow I’m bringing a California Worker’s Rights book to work. My mom works for a law firm that specializes in labor laws and BOY will you be surprised by all the crap that’s going on that’s in violation 8) see you tomorrow!”
One of the employees did bring the California worker’s rights book—which covered issues such as benefits, discrimination, the right to organize, safety, health, and sanitation—to work and put it in the break room where other employees looked through it, noticing that they were entitled to water and sufficient heat.
This same employee also (naïvely) sent resumes from the company computer in spite of company rules allowing only sporadic computer access (the store manager had allegedly set a bad example by using the store computer for personal purposes herself). The company discovered this as well as the Facebook posts, and fired the three employees.
The company argues that the workers commented on Facebook only in order to create a pretext for filing a claim with the NLRB. The smoking gun, according to the company, is the following exchange of (select, but most salient) Facebook postings:
- “OMG the most AMAZING thing just happened!!!! J”
- “What … did they fire that one mean bitch for you?”
- “Nooooo they fired me and my assistant manager because “it just wasn’t working out” we both laughed and said see yaaah and hugged each other while giggling ….Muhahahahaha!!! “So they’ve fallen into my crutches [sic].”
The use of the expression “Muhahaha” is, according to the company, the smoking gun indicating the employee’s desire to get fired. It does indeed seem to indicate _some_ reveling in the turn of events, but arguably not a desire to be fired. The “top definition” of the phrase on the user-created online “Urban Dictionary” is, today, “supost [sic] to be an evil laugh when being typed in a game.” Case briefs list it as “An evil laugh. A laugh one does when they are about to do something evil. Such as when a villain has a plot to take over the world, he does this laugh right before it goes into effect. Also a noise made by people who have just gotten away with an evil deed or crime….” The “evil laughter” entry on Wikipedia describes the phrase Muhahaha as being “commonly used on internet Blogs, Bulletin board systems, and games. There, [it is] generally used when some form of victory is attained, or to indicate superiority over someone else.”
The company appeals a ruling from the National Labor Relations Board (“NRLB”) finding the terminations unlawful because the employees’ discussions of working conditions were protected concerted activities under the National Labor Relations Act. The company claims that the comments were not legally protected because they were part of a scheme to manufacture an unfair labor practice claim.
It will be interesting to see how the Court of Appeals will address the social media aspect of this case. One the one hand, it does seem exceptionally naïve to expect to be able post anything in writing on the internet – Facebook, no less – without it potentially being seen by one’s current or future employer. I’m sorry, but in 2016, that should not come as a surprise to anyone (note that the company also used email monitoring software to discover whether its employees applied for jobs with competitors, which at least one of the employees here did). Note to employees who may not have a home computer or internet access: use a library computer.
On the other hand: does it really matter what employees post to their “friends” about their jobs, absent torts or other clear violations of the law (not alleged here)? Isn’t that to be expected today just as employees previously and still also talk in person about their jobs? Isn’t the only difference in this case that the posts are in writing and thus traceable whereas “old-fashioned” gossip was not? If employees merely state the truths, as seem to have been the case in this instance perhaps apart from the last “Muhahaha” comment, isn’t it overreaching by the employer to actually _fire_ the employees if they, of course, otherwise provided good services? Even if the employees are exaggerating, boasting, or outright lying, should employers be able to fire employees merely because of private comments on Facebook posted to one’s online “friends”?
An alternative idea might be to consider whether the employees were actually on to something that (gasp!) could help improve a poor work situation for the better.
The National Federation of Independent Business’ Small Business Legal enter has filed an amicus brief in support of the company, alleging that the NLRB decision “allow[s] employees regardless of their motive or actual misconduct to become termination-proof simply by making comments relating to their employment online.”
That’s hardly what the employees are arguing here. They do, however, argue a right to discuss their employment situation online without a snooping employer terminating them just for doing so. In this case, the employees had, noticeably, tried to improve highly important workplace issues in a fruitful way. The situation did, however, escalate. In and of itself, however, the “fallen into my clutches” comment, although of admittedly debatable intent, does not seem to indicate that the employees were attempting to manufacture an unfair labor practice claim. The employees seemed to have been primarily concerned with safety issues and working conditions, but were fired in retaliation for their critical online arguments. That, to me, seems like a fair argument.
Stay tuned for the outcome of this case!
Tuesday, January 19, 2016
Do law students intending to practice in the areas of contracts and commercial law particularly need to consider the risk of being replaced by artificial intelligence? It wouldn't hurt.
At this month's AALS annual meeting, Harvard Law School Dean Martha Minnow made some headlines with her comments that the threat to the jobs of human lawyers from artificial intelligence is overhyped:
Minow said she didn’t see computers having a role in matters that require subjective legal judgment. “Assessment and critique of justice and justice mechanisms, I don’t see AI taking that on. Nor do I see AI taking on ethics,” she said. “I don’t mean to suggest there is no relation between AI and ethical suggestions, but I don’t think you’ll ever get rid of the human being. There will always be a need for human beings.”
Dean Minnow's points of optimism--that matters of justice and ethics will require a human component--seem substantially correct, but they highlight a particular problem in the contract and commercial law fields. Matters of human justice, like the administration of criminal penalties and the protection of civil rights, are a natural bulwark against the replacement of lawyers by computers in those fields. The values at stake are ones that we, as a society, would be (fortunately) fundamentally queasy about taking out of human hands. But what if the stakes are "mere" money, as is frequently the case with contracts? That is the kind of area where increased efficiencies and removal of the human element give less pause.
This sort of automation of transactional work is certainly underway, ranging from the drafting of basic transactional documents through websites like Legal Zoom to the intriguing use of smart contracts that can govern and enforce themselves, such as through application of Bitcoin-style blockchain technology. In short, teachers of Contracts are training students in a field with a high degree of risk of being automated out of existence.
Robolawyer is coming, so how do we prepare our Contracts students to become lawyers whose value-adding proposition is not susceptible to automation? This question has many answers, I suspect, but we won't reach any of them unless we start by recognizing the problem.
Monday, January 18, 2016
The plaintiff in this case had a bunch of videos on YouTube. One day, she found that YouTube had deleted them. The videos had had close to 500,000 views at the time YouTube deleted them. The plaintiff claimed that she spent a lot of time and money promoting them but there was no commercial aspect to the videos; she didn't make any money off of them.
Upon realizing YouTube had deleted her videos, she sent YouTube an e-mail asking what had happened and if her videos could be restored. She received in response what appeared to be a form e-mail informing her that she'd violated YouTube's terms and conditions but not giving any truly specific information. The best that I can discern is that YouTube thought she was a spammer.
The plaintiff replied to the e-mail from YouTube saying that she had not engaged in any behavior violating the terms and conditions. She received another response from YouTube identical to the first. She filed a formal appeal with YouTube, and received another identical response.
So that brings us to the lawsuit in question, in which the plaintiff was alleging that YouTube violated the covenant of good faith and fair dealing implicit in its terms and conditions when it deleted her videos unjustifiably and without any notice.
To be honest, I see the plaintiff's point and I'm kind of on her side. It's frustrating when you have no idea what you've done wrong and you can't get a website to explain anything to you and you just feel kind of powerless. The good news is that at some point she did get YouTube's attention enough that it did restore her videos. I don't know if that happened before or after the lawsuit was filed.
It seems, therefore, like the plaintiff got what she wanted, which was restoration of her videos. The lawsuit appears to have really been about trying to get damages, but the court pointed out that YouTube's terms and conditions (which, let's face it, none of us reads) contained a limitation of liability clause that is valid in California, so the plaintiff couldn't seek any damages.
I think this is a situation where the court just thought that plaintiff had what she wanted and was just being greedy. I would be curious to see another case challenging the limitation of liability clause where the plaintiff could prove actual damages that might sway a sympathetic judge. But, for now, YouTube's terms and conditions do act to protect YouTube from having to pay out damages. If you find yourself a victim of YouTube's apparently aggressive anti-spamming patrol, you might just have to settle in for a bit of a fight in getting YouTube's attention, without much hope of compensation for any of that time and effort.