Wednesday, June 9, 2021
Last week, the Wall Street Journal reported that Amazon quietly dropped its mandatory arbitration clause from its Conditions of Use. In fact, the Conditions of Use were updated May 3, 2021. The provision marked “DISPUTES” now states:
Any dispute or claim relating in any way to your use of any Amazon Service will be adjudicated in the state or Federal courts in King County, Washington, and you consent to exclusive jurisdiction and venue in these courts. We each waive any right to a jury trial.
Unfortunately, Amazon doesn’t have prior versions of its Conditions of Use on its website for the sake of comparison, but thanks to the amazing Wayback Machine (the Internet archive), the DISPUTES provision (at least the one updated May 2018) used to say:
Any dispute or claim relating in any way to your use of any Amazon Service, or to any products or services sold or distributed by Amazon or through Amazon.com will be resolved by binding arbitration, rather than in court, except that you may assert claims in small claims court if your claims qualify. The Federal Arbitration Act and federal arbitration law apply to this agreement.
There is no judge or jury in arbitration, and court review of an arbitration award is limited. However, an arbitrator can award on an individual basis the same damages and relief as a court (including injunctive and declaratory relief or statutory damages), and must follow the terms of these Conditions of Use as a court would.
To begin an arbitration proceeding, you must send a letter requesting arbitration and describing your claim to our registered agent Corporation Service Company, 300 Deschutes Way SW, Suite 208 MC-CSC1, Tumwater, WA 98501. The arbitration will be conducted by the American Arbitration Association (AAA) under its rules, including the AAA's Supplementary Procedures for Consumer-Related Disputes. The AAA's rules are available at www.adr.org or by calling 1-800-778-7879. Payment of all filing, administration and arbitrator fees will be governed by the AAA's rules. We will reimburse those fees for claims totaling less than $10,000 unless the arbitrator determines the claims are frivolous. Likewise, Amazon will not seek attorneys' fees and costs in arbitration unless the arbitrator determines the claims are frivolous. You may choose to have the arbitration conducted by telephone, based on written submissions, or in person in the county where you live or at another mutually agreed location.
We each agree that any dispute resolution proceedings will be conducted only on an individual basis and not in a class, consolidated or representative action. If for any reason a claim proceeds in court rather than in arbitration we each waive any right to a jury trial. We also both agree that you or we may bring suit in court to enjoin infringement or other misuse of intellectual property rights.
Quite a difference!
So what caused this change of mega-corporate heart? The WSJ article says that Amazon made the change after plaintiffs’ lawyers “flooded” the company with “more than 75,000 individual arbitration demands” on behalf of Echo users that were suing over privacy claims.
This is just the latest example of how law firms with the resources to do so are leveraging the tools of efficiency to level the playing field made even more lopsided by wrap contracts. This mass-arbitration filing tactic was first discussed on this blog with respect to Door Dash. The big question is, will other companies follow Amazon’s lead?
Wednesday, April 7, 2021
Amazon as a Seller of Marketplace Goods Under Article 2: Part II
Amazon has sought to avoid liability for dangerous and defective third party goods sold on its platform on the basis that it does not hold title to the goods in question. In yesterday’s blog post, I pushed back on Amazon’s title argument. Here, I want to make the following super-legal observation: “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” Amazon looks like a seller, acts like a seller, and convinces buyers it is a seller. Amazon probably is a seller and should be estopped from arguing otherwise.
At the outset, it bears mentioning that many (if not most) people do not realize that Amazon is both a seller and an online marketplace for third party sellers. Its very interface makes it exceedingly difficult for a user to understand that Amazon is sometimes a seller and sometimes not a seller. As one professor notes, “You’d have to be a genius to figure out what’s going on.” When someone buys goods on Amazon, they probably think they are buying from Amazon.
Not so, says Amazon. After all, Amazon “discloses” to buyers that it is sometimes not the seller of goods on its platform. Amazon does this through the use of two words: “Sold by.” These two words, which appear only after a buyer has already clicked on a product, are supposed to impart to a buyer the knowledge that they are not buying goods from Amazon—but instead buying directly from a third party seller. Many buyers, of course, don’t see or pay attention to the miniscule “Sold by” text which appears below the “Add to Cart” and “Buy Now” buttons. In fact, except for these two words, goods sold by Amazon look identical on the website to goods sold by a third party vendor, as illustrated below:
Let’s assume, however, that I am a savvy buyer and notice the “Sold by” line. Will I understand its meaning, or its legal significance? Will I know that if I buy goods “Sold by” Amazon, I will enjoy some form of consumer protection, but if I buy goods “Sold by” a third party seller on Amazon, I will not? A lot of good it does to “disclose” to a buyer something the significance of which they cannot comprehend. Unless you have a PhD in Amazonomics, it is difficult to understand what “Ships from Amazon,” “Sold by X” and “Prime Free Delivery and Free Returns” means as a factual matter, much less as a legal matter.
Amazon also claims that its Conditions of Use disclose to buyers that they may be purchasing directly goods from a third party seller. Buried in the middle of a 3,400-word, densely-written document, Amazon lets buyers know that “Parties other than Amazon operate stores, provide services or software, or sell product lines through the Amazon Services. In addition, we provide links to the sites of affiliated companies and certain other businesses. If you purchase any of the products or services offered by these businesses or individuals, you are purchasing directly from those third parties, not from Amazon.” I suppose we must ignore the fact that no rational human being would ever read the Conditions of Use—assuming they could even find them tucked away at the very bottom of the Amazon home page, next to the hyperlinks for “Privacy Notice” and “Internet Based Ads.”
The reality is that Amazon does everything it can to convince buyers that they are buying from Amazon and not just through Amazon. Most glaringly, Amazon commingles the listings where it is the seller and listings where third parties are the sellers. Goods sold by Amazon do not show up with a different background than third party goods. Goods sold by Amazon do not appear on a different section of webpage from goods sold by third parties. A buyer does not even have the ability to search only for goods sold only by Amazon, without pulling up third party vendor goods. And after a buyer has conducted a search, there is no way for a buyer to filter the results so that a buyer only sees goods sold by Amazon. Make no mistake: these choices by Amazon are deliberate. Amazon could easily operate two different websites—one website where it sells goods and one website where it operates as a marketplace for third party goods (much like Ebay or Etsy). Or, it could even operate one website and clearly delineate between goods that it is selling and goods that third parties are selling. This would not be difficult to do. Instead, Amazon purposely blurs the lines between which products it sells, and which products third parties sell. This is designed to capitalize on the trust and confidence that buyers have in the Amazon name.
Additionally, Amazon takes on almost all of the functions of a traditional seller with respect to third party goods, thus furthering the impression that buyers already have that they are buying from Amazon. This is particularly true with respect to goods sold through the Fulfillment by Amazon program. Under the Fulfillment by Amazon program, third parties ship goods to Amazon for Amazon to store in its warehouses. When a customer places an order, an Amazon employee will take the goods from its warehouse, put them in an Amazon box, pack them up with Amazon-branded tape, and ship them out to the customer. In many cases, Amazon packages its own goods together with third party goods in the same Amazon box. Amazon now even has its own delivery service, so there is a good chance that the goods will be delivered in an Amazon truck by an Amazon employee. When a customer places an order, Amazon processes the buyer’s payment, sends an email confirmation, and provides shipping information. The receipt inside the box will be from Amazon. The buyer’s credit card statement will show a charge from Amazon. If a customer wishes to return a product, he must return it to Amazon; he is not able to contact the “true seller” directly. Amazon handles all complaints, returns, replacements, exchanges and refunds. And, of course, for all of this, Amazon receives a hefty fee. It is hard to imagine a “non-seller” (Amazon) being more involved in a sales transaction and a “true seller” (the third party vendor) being less involved in a sales transaction. Under any reasonable construction, Amazon is the true seller of third party goods.
As the court stated in State Farm Fire & Cas. Co. v. Amazon.com Servs., Inc., “Amazon seeks to have all the benefits of the traditional brick and mortar storefront without any of the responsibilities.” Amazon wants to be a seller, but not take any on any of the responsibilities associated with being a seller. Fortunately, courts are beginning to see through this shell game. Amazon’s days of getting off “on a technicality” may be numbered.
Tuesday, April 6, 2021
Amazon as a Seller of Marketplace Goods Under Article 2: Part I
Last fall, a student in my Sales class sent me the following email, “I hope you are having a wonderful weekend. I came across this article this morning and found it pretty interesting. I thought you may find it interesting as well.” The article dealt with Amazon’s liability for defective goods sold on its website. I was horrified to learn that goods sold on Amazon had caused serious personal injury, including blindness, severe burns, and death, and that Amazon was trying to escape liability. In one case, Amazon oh-so-generously offered a $12.30 refund to a customer after a laptop battery exploded, causing her to be hospitalized for several weeks with third degree burns.
I replied, “Very interesting, thanks for sending. Got me thinking about why there are not more UCC lawsuits against Amazon. Apparently, at least in some cases, Amazon is not considered a ‘seller’ because they never receive title to the goods. I’ll send you a case I found.” Over the next couple of months, I kept coming back to the idea that it was crazy that Amazon could avoid liability in products liability suits just by refraining from taking title to the goods it sells on its website, especially considering that a large number of these third party goods are warehoused in Amazon facilities. It seemed that Amazon was avoiding liability on what most people would consider “a technicality.” So was the genesis of my current article, Amazon as a Seller of Marketplace Goods Under Article 2, forthcoming in Cornell Law Review. In this post, I will briefly present the title arguments I explore in the Article. In a subsequent post, I will explore the argument made in the latter half of my paper: that Amazon should be estopped from claiming that it is not the seller of third party goods on its platform.
Amazon’s business model is unique in that it sells goods directly to buyers, and it provides a “marketplace” where other sellers can sell their goods on Amazon—all through the same online platform. In other words, Amazon wears two hats, even though it operates only one online interface. It wears a “seller” hat in some cases, and it wears (or claims to wear) a “service provider” hat in other cases. One publication refers to this unusual business set-up as “half-platform, half-store.” Interestingly, even in cases where Amazon is selling third-party goods, it often plays an outsized role in getting those goods into the hands of customers. Under its Fulfillment by Amazon program, third party sellers send their goods to be warehoused in Amazon facilities, and Amazon takes over from there. Amazon stores those goods, packages those goods, ships those goods, receives payment for those goods and provides all customer assistance for those goods. The third party seller never has any contact with “their” goods again.
When Amazon functions as the seller of goods in its own right, it is prima facie liable for selling unmerchantable goods under Article 2 (leaving aside any disclaimer issues). When Amazon provides a marketplace for third party sellers to sell their goods, however, Amazon has largely escaped liability. This is because Amazon purports to avoid taking title to third party goods in its Amazon Services Business Solutions Agreement, which governs its relationship with third party sellers. If Amazon does not have title, so the argument goes, it cannot be a “seller” under Article 2. Courts have largely bought Amazon’s title argument, hook, line and sinker. In my Article, I make two separate title-based arguments: one legal, one factual. First, I argue that Article 2 does not necessarily require a party to hold title to goods in order to be considered a seller. Second, I argue that who actually has title to goods sold on Amazon is less than clear.
Let’s start with the legal argument. Title may not be an absolute pre-requisite to “seller” status under Article 2. Amazon may be liable regardless of whether it technically held title to the third party goods sold on and through its platform. For instance, § 2-314 imposes a warranty of merchantability on a “seller” who is “a merchant with respect to goods of that kind.” The term “seller” is defined in § 2-103 as “a person who sells or contracts to sell goods.” Notably absent from this definition of “seller” is the mention of title. That is, § 2-103 does not define a “seller” as one who transfers or contacts to transfer title to goods to a buyer. Instead, the section refers generically to a “seller” as one who “sells.” The word “sells” is not defined. Without doing a deep dive on statutory interpretation, suffice it to say that there is some wiggle room for ascribing “seller” status to those who sell, but do not necessarily hold title to goods. This is particularly true given the comment to § 2-101 which makes it clear that Article 2 seeks to “avoid making practical issues between practical men turn upon the location of an intangible something [title], the passing of which no man can prove by evidence . . .” Or, as so eloquently stated by Karl Llewellyn: “Nobody ever saw a chattel’s Title. Its location in Sales cases is not discovered, but created, often ad hoc.”
Now for the factual argument: who has title to goods sold on Amazon is actually not so clear. Thus, even if title is required to ground “seller” status under Article 2, it may be that Amazon has title to some goods sold by third party sellers. Amazon claims that it avoids taking title to third party goods through the Amazon Services Business Solutions Agreement it forces upon its sellers. This document is over 17,000 words in length. To get more of a reference point, this amounts to approximately 34 single-spaced or 68 double-spaced pages. The word “title” appears a mere eight times in this agreement, only five of which are relevant for our purposes. It is never clearly laid out anywhere in this document that the third party seller retains title at all times and/or that Amazon does not take title to the goods in question. One would think that the biggest company in the world would be able to draft a clear and unambiguous title provision in its contract with third party sellers.
Be that as it may, Amazon’s title argument really falls apart when one considers a wholly under-the-radar clause in the Amazon Services Business Solutions Agreement. Per Section F-4 of this agreement, Amazon is permitted to “commingle” goods as long as they have the same SKU. If ten different sellers sell the same item, say a coffee machine, all those coffee machines can be stored together without distinguishing one seller’s coffee machine from the next. In other words, hundreds or thousands of coffee machines from multiple sellers will be stored together with no way to tell which coffee machine came from which seller. Importantly, since Amazon also sells goods in its own right, Amazon’s coffee machines are also lumped into the mix. The impact of this provision is huge. It means that even though I think I am purchasing a coffee machine from Amazon (the seller), I could in fact be getting a coffee machine from a third party seller from China. Conversely, I could think I am purchasing a coffee machine from a third party seller, but actually am getting a coffee machine owned by Amazon.
Amazon steadfastly holds to the argument that because it does not take title to third party goods, it cannot be a “seller” of those goods. But given the commingling provision, truly, who even knows what goods Amazon is sending to buyers? Goods, real and fake, Amazon-owned and third party-owned, are all lumped together in one large bin (literally and figuratively). It is hard to argue that you do not have title to goods when you have—by your own design—lost track of which goods belong to which seller.
Amazon’s title argument is a disingenuous attempt to avoid liability for goods it chooses to sell, and profit from, on its platform. And zooming out from the minutia of title, it is clear that Amazon casts itself in the role of seller with respect to all of its transactions. From a customer’s perspective, everything about the Amazon experience suggests that Amazon is the seller of the goods being purchased.
I will delve into this aspect of the Article in tomorrow's post.
Monday, February 15, 2021
Should We Stop Worrying and Learn to Love Smart Readers? Contracts in the Age of Real-Life Babel Fish
Famously, the Hitchhiker’s Guide to the Galaxy features a Babel fish, which is a fictional “small, bright yellow fish, which can be placed in someone's ear in order for them to be able to hear any language translated into their first language.”
Much of consumer contract law rests on the assumptions that consumer form contracts are unreadable, that consumers in fact do not read such contracts, and that consumers are unable to properly assess the content of these complex forms. This reality facilitates a market failure in the form of information asymmetry, which allows sellers to offer low-quality non-salient contract terms.
Interestingly, however, this troubling equilibrium is now facing disruption. Advances in language models, a branch of artificial intelligence, have given rise to a new type of technology – one we dub “Smart Readers.” As we note in Contracts in the Age of Smart Readers, smart readers are a real-life version of Babel fish. In essence, they are capable of no less than simplifying, personalizing, constructing, and even benchmarking contracts.
Smart readers can effectively read contracts and explain their content to ordinary people, employing plain language. Using a Smart Reader, a prospective consumer can pull out her phone, scan any contractual clause, and click ‘explain.’ The smart reader will respond by providing a summary that is succinct, personalized, and direct.
In our article, we consider a few interesting illustrations. One of them is the following standardized clause, which is packed with legalese:
- Controlling Law and Severability. This License will be governed by and construed in accordance with the laws of the State of California, excluding its conflict of law principles. This License shall not be governed by the United Nations Convention on Contracts for the International Sale of Goods, the application of which is expressly excluded. If you are a consumer based in the United Kingdom, this License will be governed by the laws of the jurisdiction of your residence. If for any reason a court of competent jurisdiction finds any provision, or portion thereof, to be unenforceable, the remainder of this License shall continue in full force and effect.
By clicking ‘explain’, the smart readers produces the following:
[The clause] means that if there are any disputes about the contract, the courts will rely on the law of the state of California to make their decision.
If the reader is young, the smart reader will tailor its explanation to the reader’s age, by clarifying that:
The parties want the law that will apply to this contract to be California law. This is where the company is located. If there is a problem with the contract, the judge will look to California law to solve it.
At the same time, for users who think better in terms of examples, tapping on the ‘example’ function of the smart reader produces the following illustration:
Lets [sic] say you and the record company disagree about something to do with this contract . . . So the judge will rely on California state law when deciding what the contract means.
We did not write these examples. It is GPT-3, a recently released version of a language model, that produced these outputs. Remarkably, we used a weak version of this model, and we did not use any fine-tuning.
Some readers may nevertheless think that consumers would be unwilling to read even such simplified terms or able to understand them. Here comes handy the capability of smart readers to benchmark; that is, to mark the contract at stake and compare with other contracts offered in the market. Smart readers can even suggest specific alternative contracts that have a better overall score.
An app’s ability to respond intelligently to queries about an unfamiliar legal text, score it and suggest seemingly superior alternatives, represents a technological breakthrough. What would such innovation entail for the law of consumer contracts?
Ideally, smart readers would be affordable (if not free of charge) and accessible. Used by many consumers, these readers will make consumers more aware of their contracts and the risks in accepting them. Smart readers will also empower consumers to compare various contracts, so to choose the ones that best suit their preferences. This, in turn, will pressure firms to compete over contract terms and offer contracts that better serve consumers.
But if this optimistic scenario materializes, what remains from the case for pro-consumer regulation? If consumers can easily read, understand, compare, and shop among contracts, the fundamental market failure of information asymmetry will cease to exist. If consumers are well-informed about their contracts, consumer protection tools and justifications ought to be revisited and refined.
That said, smart readers are not a panacea and it would be imprudent to adopt Dr. Strangelove’s advice and stop worrying. For starters, there are also less optimistic scenarios that require attention. For instance, what if consumers are reluctant to adopt such apps, even if they are cheap, quick, and user-friendly? Surely, low consumer uptake will undermine the potential to improve the market for contract terms. But would that also entail that, contrary to what many consumer protection proponents believe, consumers truly don’t care about their contracts? And if consumers are not concerned about their contracts, to what extent should the law nevertheless strive to protect them?
There are also various risks involved in the emergence of smart readers. One risk is that courts and policymakers will over-rely on such apps, hastily relaxing consumer protection principles. Some consumers may not be able to afford smartphones, or not use such app for other legitimate reasons. Furthermore, these apps are black boxes that can be attacked by sophisticated parties. Smart readers may as well make innocent mistakes, or just oversimplify legal text and thus mislead users.
Either way, smart readers can have broad implications on the law of contracts, and they should get us all thinking about the future of contract law. As the cliché goes, the future is already here.
This post is based on Yonathan Arbel & Shmuel I. Becher, Contracts in the Age of Smart Readers, available here. Comments and criticism are most welcome; please email Samuel.email@example.com or firstname.lastname@example.org.
Friday, January 22, 2021
Nancy Kim posted last week about Parler's lawsuit against Amazon Web Services (AWS) for, among other things, breach of contract. Nancy's prediction was that Parler's chance of winning on its breach of contract claim didn't look good. Yesterday, U.S. District Court Judge Barbara Jacobs Rothstein agreed, denying Parler's motion for a temporary restraining order.
On the breach of contract claim, Judge Rothstein pretty much stuck to the Nancy Kim playbook. Parler alleged that AWS had breached its Customer Service Agreement (CSA) with Parler by failing to accord Parler thirty days to cure any alleged breaches of the CSA. Parler contends that it was given only a few hours' notice of breach before AWS suspended its web-hosting services. However, the CSA clearly gives AWS the right to suspend or terminate its services for material breach of the CSA's conditions, and Parler does not dispute that it did terminate those conditions by violating AWS's Acceptable Use Policy. AWS provided multiple examples of content posted on Parler that violated that Policy, which proscribes “'activities that are illegal, that violate the rights of others, or that may be harmful to others, our operations or reputation'” and "'content that is defamatory, obscene, abusive, invasive of privacy, or otherwise objectionable.'”
Nancy Kim's post specifically noted Sections 4, 6, & 7 of the CSA. Here is Judge Rothstein's conclusion on the breach of contract claim:
Parler has not denied that at the time AWS invoked its termination or suspension rights under Sections 4, 6 and 7, Parler was in violation of the Agreement and the AUP. It has therefore failed, at this stage in the proceedings, to demonstrate a likelihood of success on its breach of contract claim.
Good call, Nancy!
Thursday, December 17, 2020
In order to purchase his tickets, Hansen had to sign in to his account. Hansen argued that he did not have actual knowledge of the arbitration agreement and that constructive knowledge could not be reasonably inferred. Judge Edward Chen of the Northern District of California, disagreed, referencing an earlier case, Lee v. Ticketmaster L.L.C., No. 18-cv-05987 (N.D. Cal.), which was subsequently affirmed by the Ninth Circuit.
The first page of the TOU contained two bolded headers. The second bolded header stated the following:
NOTICE REGARDING ARBITRATION AND CLASS ACTION WAIVER:
These terms contain an arbitration agreement and class action waiver, whereby you agree that any dispute or claim relating in any way to your use of the Site, or to products or services sold, distributed, issued, or serviced by us or through us will be resolved by binding, individual arbitration, rather than in court, and you waive your right to participate in a class action lawsuit or class-wide arbitration. We explain this agreement and waiver, along with some limited exceptions, in Section 17, below.
In concluding that there was “sufficient notice for constructive assent,” Judge Chen cited the following factors:
-a “relatively uncluttered” sign-in page
- express language of agreement right above the “Sign in” button
Friday, November 20, 2020
Now we are not your typical website that will believe whatever palaver the company serves up about its motivation for including the cake recipe. So we will not endorse the idea that the aim was to get consumers to more carefully scrutinize the ToS. If you want that fairy tale, you can read it here. But the real reason for the recipe is more obvious from stories you can read here and here. The rollout of NBC's streaming service was delayed. It had to do something to get people to notice the rollout and to distract from the ugliness that delayed it. So, some clever marketing person came up with the cake dealy, and they threw it into the ToS. Cute.
Make no mistake, the chocolate cake recipe may be original to "Grandma," but the ToS are pure, nasty, corporate boilerplate, including:
- terms that can be modified by updating the ToS online and that online modification counts as "notice";
- provision that a consumer's continued use of services after a modification will be treated as assent to modified terms;
- expansive claims to licenses to make use of uploaded user content, including an express renunciation of any expectation of privacy or confidentiality with respect to such content;
- warranty disclaimers;
- limitations of liability;
- an arbitration clause;
- a class action/class relief waiver;
- a provision that consumers will not disclose of facts relating to arbitration
Bake that for 30-40 minutes at 325 degrees, and Grandma will no doubt box your ears for bargaining away your legal rights so that you can stream Supernatural.
Thursday, October 22, 2020
In what promises to one of the biggest fights of the decade, the Justice Department has accused Google of engaging in illegal, monopolistic practices. At stake are billions of dollars, a battle over what consumers want and -- contracts! Despite what some of our colleagues might think, it’s not all about constitutional law. As contracts profs have always known, in a free market capitalist society, it’s all about contracts and contracts are everywhere. The sure-to-be expensive and lengthy lawsuit claims that Google entered into business contracts with partners, namely makers of mobile phones, which hindered competition. These “anticompetitive and exclusionary” agreements, according to the Justice Department complaint, make Google the default search engine on Android phones and iPhones in exchange for a share of the advertising revenue that it derives from search queries on those devices. The amounts are nothing to sneeze at according to the complaint– Google’s payments to Apple accounted for “roughly 15 to 20 percent of Apple’s profits.” Given that Apple’s gross profit last year was something around $100 billion dollars, that’s a lot of $$$. (I had to check that ginormous profit number from a few different sources to make sure I was reading that correctly). In other words, Google thinks the value of being the default search engine on iPhones is worth approximately $15-20 billion dollars (the Justice Dept. filing says public estimates are a bit lower, $8-$12 billion dollars). Apparently, Google thought losing its status as the default search engine on iPhones would be a “Code Red” situation. We’ll be hearing more about the terms of these agreements as the case heats up.
Of course, I couldn't help wondering about the political motivations of this filing given the timing and recent complaints from conservatives about Big Tech bias. Especially noticeable was the line-up of Attorney Generals who were all from red states and the total absence of any blue state AGs. It's ironic given the way that conservatives/progressives traditionally line up when it comes to antitrust and consumer protection issues. In any event, I think it would be a mistake to think that this is a partisan issue (even if politics affected the timing of the filing) - concerns have been raised by both sides for years about the increasing power of Big Tech companies over our lives. It will be interesting to see how all of this plays out.
Thursday, May 28, 2020
Nancy Kim, our Nancy Kim, has posted "Ideology, Coercion, and the Proposed Restatement of the Law of Consumer Contracts" on SSRN. Her essay focuses on Sections 2 and 3 of the proposed Restatement (RLCC), which adopt the standard of notice and manifestation of assent and permit modifications under that standard. According to Nancy, these provisions entail two significant shifts from what the case law establishes. First, the RLCC assumes a coherence and stability with respect to the law of electronic contracts that is without support in the case law. Second, it ignores the different ways that courts have dealt with different categories of wrap contracts. As a result of these two moves, the RLCC ignores the purpose of a law of consumer contracts. By prioritizing efficiency over fairness, the RLCC dismisses the value of consent and sanctions coercive contracting.
Nancy begins by explaining why people are generally bound by contracts they sign under the so-called "duty to read." She then notes that the duty to read makes less sense in the context of consumer contracts that are often contracts of adhesion. Legislatures responded to the harsh terms in such contracts of adhesion by creating defenses, such as unconscionability, and by creating implied warranties in the Uniform Commercial Code. In addition, courts will enforce the reasonable expectations of the consumer. So, for example, if an insurance contract creates a reasonable expectation of coverage, courts will require the insurer to pay the claim. In some jurisdictions, courts require that the contract terms be communicated to the consumer in a manner that is clear and understandable (the "reasonable communicativeness test").
According to Nancy, the two-pronged test adopted by the RLCC, reasonable notice and manifestation of assent, derives from Judge Easterbook's opinions in ProCD v. Zeidenberg & Hill v. Gateway, the latter of which we have previously discussed (in passing) on the blog. Those cases gave rise to the "rolling contract theory" in which a vendor can offer terms after the contract has been formed, which the consumer accepts by retaining and using the goods. But Easterbrook's reasoning is not universally adopted, as the then-Judge Gorsuch noted, and as Klocek v. Gateway illustrates.
Determinations of reasonable notice and a manifestation of assent must be sensitive to the various forms of wrap contracts now in use. Easterbrook was addressing shrink-wrap contracts, but there are now "click-wraps," involving clicking a box on a web-based form, and "browse-wraps," which involve links to terms and conditions that most consumers never open. Courts have not adopted a uniform approach to determining what constitutes meaningful assent to contractual terms in these contexts. Rather, the analysis tends to be context-specific. In recent cases, courts have been more attuned to the different technologies of electronic contracting and have adjusted their standards for establishing consent accordingly.
In Nancy's view, the RLCC errs in adopting the rolling contract theory, which transforms the notice and manifestation standard into an "if/then safe-harbor rule." Sanctioning such a standard, Nancy argues, "would impede the development of the common law in a particularly unhelpful manner." Courts are working out ways to contextualize the questions of assent relevant to contract formation. We need to give them time to arrive at consensus rather than force consensus through premature efforts at standardization. The RLCC's § 3 goes farther still, construing rolling contracts so broadly as to eliminate the requirement of consideration in connection with contract modification. In the context of ubiquitous mandatory arbitration clauses and class action waivers, combined with form contracts, the RLCC's approach undermines the fundamental principle that contractual obligations are based on disclosure of terms and voluntary consent.
Sunday, November 3, 2019
Can you get your money back from a contract for dating services if the matchmaking service either does not produce enough dates or enough quality dates?
That was discussed recently in connection with a business model by a Colorado matchmaking company that might not be that unusual in the industry (I wouldn’t know and it’s irrelevant anyway as the issue is, at the end of the day, one between the client and the service provider):
The company explains to clients that the company will only match clients when the company feels that it has a good match for someone. That might take some time. However, clients are often impatient…. says the company.
Clients say that, in one case, instead of the promised active, rough, Kris Kristofferson type, a retired and injured police officer notified the female who contacted him that he could not meet for at least another couple of months because he could neither drive nor sit up. In another case, a man showed up wearing a pair of super tight sweatpants with a black, badly stained shirt tucked in. The man’s personal hygiene also seemed to be subpar…
The company responds that they are not responsible for the clothes people wear on dates and that the police offer was injured after signing up for the service. The company was sued a few times in small claims court and lost. It defends itself as follows:
"Small claims court judges don't have to rule by the letter of the law," he said. "They don't have to rule by the contract. I've been to small claims court a handful of times. Small claims court judges rule based on the emotion in the courtroom. When a damsel in distress or a guy who is emotional goes in front of a judge versus a matchmaker, sometimes small claims court judges buy into the emotions of the story. We tell our clients that matchmaking takes time."
What remains important in this and all consumer transactions is to be sure that you don’t sign any contracts unless you have read and understood all terms. Courts may hold you to have done so even if you did not. Make sure that all important contractual aspects are in writing and that you retain a copy. If you do not understand any terms, make sure you ask for clarification before you sign. Make sure you understand all charges. You should probably also not sign up for anything as uncertain as a dating service if you cannot afford the fee if you do not meet the man or woman of your dreams. It becomes really difficult from a legal point of view that a company has not fulfilled its promise if it did, for example, give you a chance to go on several dates. Having to argue that the person you met was not who you had hoped for may be impossibly difficult in most cases.
Tuesday, September 3, 2019
U.S. District Judge William Orrick (ND CA) has just held that companies must still provide online customers with adequate notice of arbitration and other provisions. This is so in at least the Ninth Circuit after Nguyen v. Barnes & Noble(763 F.3d 1171 (Ninth Cir. Ct. of App.)). (I proudly note that Kevin Nguyen was a student in one of my 1L Contracts classes years ago!)
As reported by Reuters, it’s become standard operating procedure for companies to require online or mobile customers to agree to mandatory arbitration by clicking their assent to terms of service. But there’s still a roaring debate about exactly howcompanies can bind their customers (and employees, for that matter) to arbitration in other contexts. Do customers assent to arbitration merely by visiting a website or downloading a mobile app that provides a link to service terms mandating arbitration? Or must consumers specifically acknowledge that they’ve surrendered their right to litigate?
Courts have had to scrutinize websites and apps to decide whether they provide consumers with enough information to allow informed assent. Judges have come to be generally skeptical of so-called browse-wrap agreements, in which companies merely post mandatory arbitration conditions and contend that customers have consented by continuing to use their services. Click-wrap agreements – in which companies present consumers with their terms of service and specifically require assent – are generally deemed to be enforceable. In the case just resolved by J. Orrick, the arbitration provision fell into an in-between category known as a “sign-in wrap.” Beginning in February 2018, when customers registered at the company’s website, they were required to click their assent to Juul’s terms of service, which prominently mentioned mandatory arbitration. But to see those terms of service, consumers had to click on a separate link.
Juul did not prominently highlight the hyperlink to its terms of service. The link, said J. Orrick, was virtually indistinguishable from the surrounding text – no color change, underlining, capitalization or italicization signaled to consumers that they could click to read Juul’s specific terms and conditions. One of the plaintiffs registered via a subsequent log-in iteration in which Juul underlined the hyperlink to its service terms, but J. Orrick found even that notice to be inadequate.
The case is Bradley Colgate, et al. v. Juul Labs, Inc., et al.,2019 WL 3997459.
Wednesday, August 29, 2018
A recent case out of the Western District of Texas, May v. Expedia, Inc., No. A-16-CV-1211-RP (behind paywall), examines the enforceability of HomeAway.com's online contract. HomeAway is a website that offers vacation rental properties. Property owners can buy one-year subscriptions to HomeAway to list their properties for rent on the website. May was a property owner who had purchased successive annual subscriptions to HomeAway, and who now sues based on several breach of contract and fraud allegations, together with related state claims. HomeAway moved to compel arbitration, pointing to its terms and conditions. Specifically, in July 2016 HomeAway amended its Terms and Conditions to include a mandatory arbitration clause. May allegedly agreed to this clause when he renewed his HomeAway subscription in September 2016, and again when he booked his property through the website in October 2016.
May argued that he did not agree to the terms and conditions when he renewed his annual subscription because he changed the name on the account to his wife's name in an effort to avoid being bound by the new terms, but the court found that had no effect on the effectiveness of the terms and conditions and that May bound himself when he renewed his subscription, regardless of changing the name on the account. May was trying to take advantage of the benefits of the subscription without binding himself to the terms, and the court found that to be inequitable.
The court already found May to be bound but for the sake of completeness also analyzed May's argument that he was not bound when the property was booked because he did not receive sufficient notice of the terms and conditions, which gives us further precedent on how to make an enforceable online contract. The HomeAway site required the clicking of a "continue" button, and wrote above the button that the user was agreeing to the terms and conditions if they clicked the button, with a hyperlink to the terms and conditions. The court found this to be sufficient notice of the terms and conditions.
Friday, May 25, 2018
As widely reported in, for example, the Washington Post, whose owner founded Amazon, President Trump has pushed Postmaster General Megan Brennan to double the rate that the post office charges Amazon.com and some, but not all, similar online retailers.
The contracts between the Postal Service and Amazon are secret out of concerns for the company's delivery systems. They must additionally be reviewed by a regulatory commission before being changed. That, perhaps unsurprisingly, does not seem to phase President Trump who appears to be upset at both Amazon and the Washington Post. The dislike of the latter needs no explanation, but why Amazon? Trump has accused it of pushing brick-and-mortar stores out of business. Others point out that if it weren't for Amazon, it is the post office which may be out of business.
Aside from the political aspects of this, does Trump have a point? Is Amazon to blame for regular stores going out of business? I am no business historian, but it seems that Amazon and others are taking advantage of what the marketplace wants: easy online shopping. Yes, it is very sad that smaller, "regular" stores are closing down, most of us probably agree on that. But retail shopping and other types of business contracting will evolve over time as it has in this context. That's hardly because Amazon was founded; surely, the situation is vice versa. Such delivery services are fulfilling a need that arose because of other developments.
From an environmental point of view, less private vehicle driving (for shopping, etc.) is better. Concentrating the driving among fewer vehicles (FedEx, UPS, USPS, etc.) is probably better, although I have done researched this statement very recently. One fear may be the additional and perhaps nonexistent/overly urgent need for stuff that is created when it becomes very easy to buy, e.g., toilet paper and cat litter online even though that may in and of itself create more driving rather than just shopping for these items when one is out and about anyway, but that is another discussion.
Suffice it to say that Trump should respect the federal laws governing the Postal Service _and_ existing contracts. What a concept! If the pricing structure should be changed, it clearly should not be done almost single-handedly by a president.
Meanwhile, the rest of us could consider if it is really necessary to, for example, get Saturday snail mail deliveries and to pay only about 42 cents to send a letter when the price of such service is easily quadruple that in other Western nations (Denmark, for example, where national postal service has been cut back to twice a week only and where virtually all post offices have been closed). Fairly simple changes could help the post office towards better financial health. This, in turn, would help both businesses and private parties.
Wednesday, May 2, 2018
I never spend a lot of time on minors and contracts, because I teach a one-semester Contracts course and it just has to keep moving, but this is an interesting case delving into the issue in much more detail than I can get around to, recently out of the Northern District of California, T.K. v. Adobe Systems Inc., Case No. 17-CV-04595-LHK (behind paywall).
T.K. was a minor who was given a license to access Adobe's Creative Cloud Platform. In order to access the platform, T.K. agreed to the terms of service. The license auto-renewed after a year, and T.K. contacted Adobe to disaffirm renewal of the license. Adobe eventually (although apparently not immediately) refunded T.K.'s money for the renewal, but T.K. sued alleging injury because she was deprived for some time of use of the funds auto-debited by Adobe. T.K. alleged that Adobe initially refused to allow T.K. to disaffirm the auto-renewal, in contravention of law. (T.K. also alleged that Adobe's terms of service implied that users still had to pay even after cancellation, also in contravention of law. I'm not going to focus on that, but the allegation did survive the motion to dismiss.)
Adobe argued that T.K. was relying on the choice of law provision in the disaffirmed contract and so should also be held to the arbitration provision of that contract, because minors cannot cherry-pick which portions of a contract they disaffirm. The court, however, said that T.K. was not cherry-picking. Rather, T.K. had disaffirmed the entire contract. The reference to the choice of law provision was only to buttress her independent choice of California law to resolve the dispute between the parties. Therefore, T.K. was not bound by the arbitration provision.
The opinion discusses lots more causes of action, if you're curious.
Sunday, April 1, 2018
Lots of people have been discussing the recent Central District of California ruling, Disney Enterprises v. Redbox Automated Retail, Case No. CV 17-08655 DDP (AGRx) (those links are a random selection), a lawsuit brought by Disney against Redbox's resale of the digital download codes sold within Disney's "combo pack" movies, which allow instant streaming and downloading of the movie. There is an obvious copyright component to the dispute, but I thought I'd highlight the breach of contract portion of the decision.
The DVD/Blu-Ray combo packs were sold with language on the box reading "Codes are not for sale or transfer," and Disney argued that Redbox's opening of the DVD box formed an enforceable contract around that term, which Redbox breached by subsequently selling the codes. However, the court found no likelihood of success on the breach of contract claim, based on the fact that the language on the box did not provide any notice that opening the box would constitute acceptance of license restrictions. The court distinguished other cases that provided much more specific notice. Redbox's silence could not be interpreted as acceptance of the restrictions. This was especially so because the box contained other language that was clearly unenforceable under copyright law (such as prohibiting further resale of the physical DVD itself). Therefore, the court characterized the language as "Disney's preference about consumers' future behavior, rather than the existence of a binding agreement."
The court ended up denying Disney's motion for preliminary injunction.
Tuesday, January 23, 2018
A recent case out of Minnesota, Oberfoell v. Kyte, A17-0575, reminds all of us that noncompete agreements need to have a justification. Kyte worked for Oberfoell's online-auction business and signed a contract that contained a noncompete clause. He later left to start his own online-auction business and Oberfoell sued.
The lower court found the noncompete agreement to be unenforceable and this appellate court agreed. Oberfoell simply couldn't justify its necessity because he failed to assert a legitimate business interest protected by the noncompete clause. Oberfoell made general allegations that Kyte had personal relationships with many of Oberfoell's customers and thus possessed goodwill belonging to Oberfoell. But Oberfoell never identified any customers who he was worried about, nor did he ever introduce any evidence that Kyte had used any of Oberfoell's customer lists improperly. The court concluded that Kyte did not seem to be the "face" of the business nor was he the exclusive contact the customers had with the business. There was no evidence that any of Oberfoell's customers were concerned about Kyte leaving and no evidence that any of them followed Kyte to his new business. Therefore, Oberfoell failed to prove that the noncompete was protecting a legitimate business interest.
Oberfoell also tried to assert that his customer lists and other materials were taken by Kyte and qualified as a violation of the noncompete. The court pointed out that the customer lists weren't secret and weren't treated as secrets by Oberfoell, and so couldn't qualify as trade secrets. The other materials suffered from the same lack of confidential protection.
Finally, the noncompete also failed on the basis of reasonableness. It prohibited Kyte from competing in a radius of 150 miles for five years. The court found the 150-mile restriction to be "arbitrary," and Oberfoell produced no evidence justifying his choice of such a large radius. The five-year restriction was also unreasonable because the evidence showed Oberfoell could have replaced Kyte easily and quickly, so there was no reason to keep Kyte from competing for so long (in fact, Oberfoell apparently never hired anyone to replace Kyte, delegating his responsibilities to already-existing employees). There was no evidence that Kyte had received any extensive training that gave him an advantage in establishing his business, which took him a few months to get started.
Thursday, January 18, 2018
Everyone is talking about HQ Trivia right now, it seems. I'll be honest, though: Last week was the first time I've ever heard of the app. "It's a live trivia show," I was told. "You play twice a day with hundreds of thousands of your closest friends and try to win money."
I downloaded the app because I was curious, and everything about it was an odd, surreal experience. I hadn't expected there to be a live host making uncomfortable one-sided banter to fill time while the start of the game was delayed. Then, when the questions started up, I...had no idea what to do, because nothing about my screen ever changed. I was just staring at the host the whole time. I couldn't figure out how to answer a question.
I found out later that the question is supposed to pop up on your screen. It didn't on my screen, an issue that I saw other people online complaining about, so I know it at least wasn't my own incompetence. I didn't really stick around for more, though. I deleted the app, thinking it was just something that didn't seem to be my kind of thing.
While I was Googling my app experience, though, I came across this pretty wild article from The Daily Beast and it made me think about a thought exercise I like to make my contracts students engage in at the very beginning of the semester: What does each party to a transaction want from the relationship they're about to enter into, and how will that translate into the contract? The article recounts an interview the Daily Beast conducted with the app's main host, and then their interactions with the app's CEO. At the end, it's revealed that the app is in a negotiation for a long-term contract with the main host. The rest of the article provides a lot of meat for speculation as to how those negotiations might go, based on the comments of both the main host and the CEO. The CEO appears to be very worried about the app's trade secrets being revealed, so one can assume that the contract would be very strict about the host's interactions with the media. Doubtless the parties will discuss a non-competition clause as well. And how much will the negotiations be impacted by the newness of the HQ app phenomenon; the uniqueness of its setup; and the fuzziness of its future plans? All interesting things to consider.
Monday, December 4, 2017
If you're looking for fact patterns involving consideration, a recent case out of the Northern District of New York, West v. eBay, Inc., 1:17-cv-285 (MAD/CFH) (behind paywall), has one for you.
The following allegations appeared in the complaint: West worked as a consultant for eBay. As a consultant, West told eBay about a business plan he had which represented a "unique business model" for virtual marketplaces. West said he was cautious about sharing his business plan, and eBay promised to keep the business plan confidential. West then sent the business plan to eBay. eBay subsequently promised to compensate West if it used the business plan. eBay then developed a mobile app that West alleged used the business plan. eBay, however, stated that the app was "independently conceived" by other eBay employees. This lawsuit followed, and eBay moved to dismiss West's complaint.
One of eBay's asserted grounds for dismissal was a lack of adequate consideration for the contract alleged in West's complaint. eBay claimed that the business plan was not "novel" and so had no value and could not serve as consideration. The court noted that under New York law, a not-novel idea can be adequate consideration if it was novel to the party to whom it was being disclosed. This requires a fact-specific inquiry. At the motion to dismiss stage, West had asserted enough facts that the business plan was idea was novel to eBay, meaning that it could serve as adequate consideration for the contract.
There were other causes of action and arguments involved that I'm not going to get into here, but the complaint also contained promissory estoppel and unjust enrichment claims that also survived the motion to dismiss, if you're interested.
Tuesday, September 19, 2017
The United States Court of Appeals for the Second Circuit has held that retail stores, including online vendors, are free to advertise “before” prices that might in reality never have been used.
Although the particular plaintiff’s factual arguments are somewhat unappealing and unpersuasive, the case still shows a willingness by courts, even appellate courts, to ignore falsities just to entice a sale.
Max Gerboc bought a pair of speakers from www.wish.com for $27. A “before” price of $300 was juxtaposed and crossed out next to the “sale” price of $27. There was also a promise of a 90% markdown. However, the speakers had apparently never been sold for $300, thus leading Mr. Gerboc to argue that he was entitled to 90% back of the $27 that he actually paid for the speakers. Mr. Gerboc argued unjust enrichment and a violation of the Ohio Consumer Sales Practices Act (“OCSPA”).
The appellate court’s opinion is rife with sarcasm and gives short shrift to Mr. Gerboc’s arguments. Among other things, the court writes that although the seller was enriched by the sale, “making money is still allowed” and that the plaintiff got what he paid for, a pair of $27 speakers that worked. He thus did not unjustly enrich the seller, found the court. (Besides, as the court noted, unjust enrichment is a quasi-contractual remedy that allows for restitution in lieu of a contractual remedy, but here, the parties did have a contract with each other).
Interestingly, the court cited to “common sense” and the use of “tricks,” as the court even calls them, such as crossed out prices to entice buyers. “Deeming this tactic inequitable would change the nature of online, and even in-store, sales dramatically.”
So?! Where are we when a federal appellate court condones the use of trickery, even if a large amount of other large vendors such as Nordstrom and Amazon also use the same “tactic”? Is this acceptable simply because “shoppers get what they pay for”? This panel apparently thought so.
Of course, Mr. Gerboc would disagree. He cited to “superior equity” under both California case law and OCSPA. The court again merely cited to its argument that Mr. Gerboc had suffered no “actual damages” that were “real, substantial, and just.”
I find this line of reasoning troublesome. Sure, most of us know about this retail tactic, but does that make it warranted under contract and consumer regulatory law? If a vendor has truly never sold items at a certain “before” price, courts in effect condone outright lies, i.e. misrepresentation, in these cases just because no actual damages were suffered. This court said that Mr. Gerboc “at most … bargained for the right to have the speakers for 90% less than $300.” But if the speakers were indeed never sold at that price, is that not a false bargain? And where do we draw the lines between fairly obvious “tricks” such as this and those that may be less obvious such as anything pertaining to the quality and durability of goods, fine print rules, payment terms, etc.? Are we as a society not allowing ourselves to suffer damages from allowing this kind of business conduct? Or has this just become so commonplace that virtually everyone is on notice? Does the latter really matter?
I personally think courts should reverse their own trend of approving what at bottom is false advertising (used in the common sense of the word). Of course it is still legal to make money. But no court would allow consumer buyers to “trick” the online or department store vendors. Why should the opposite be true? The more sophisticated parties – the vendors – can and should figure out how to make a profit without resorting to cheating their customers simply because everyone else does it too. Statements about facts of a product should be true. Allowing businesses to undertake this type of conduct is, I think, a slippery slope on which we don’t need to find outselves.
The case is Max Gerboc v. Contextlogic, Inc., 867 F. 675 (2017).
Tuesday, September 12, 2017
The U.S. Court of Appeals for the Second Circuit recently reversed a district court’s decision to deny Uber’s move to compel arbitration in a contract with one of its passengers, Spencer Meyers.
The district court had found that Meyer did not have reasonably conspicuous notice of Uber’s terms of service (which contained the arbitration clause) when he registered a user, that Meyer did not unambiguously assent to the terms of service, and that Meyer was not bound by the mandatory arbitration provision contained in the terms of service.
The Second Circuit summed up the usual difference between clickwrap agreements, which require a user to affirmatively click on a button saying “I agree” and which are typically upheld by courts, and browsewrap agreements, which simply post terms via a hyperlink at the bottom of the screen and which are generally found unenforceable because no affirmative action is required to agree to the terms.
In the case, Meyer had been required to click on a radio button stating “Register,” not “I agree.” But in contrast to browsewrap agremeents, Uber also informed Meyer and other users that by creating an account, they were bound to its terms. Uber did so via a hyperlink to the terms on the payment screen.
Meyer nonetheless claimed that he had not noticed or read the terms. The Court thus analyzed whether he was at least on inquiry notice of the arbitration clause because of the hyperlink to the terms. This was the case, found the court, because the payment screen was uncluttered with only fields for the user to enter his or her payment details, buttons to register for a user account, and the warning and related hyperlink. Further, the entire screen was visible at once and the text was in dark blue print on a bright white background. Thus, the fact that the font size was small was not so important.
Mayer was bound to the arbitration clause because he had assented to that term after getting “reasonably objective notice.”