New Internet Technologies To Remedy The Unfairness of Clickwrap Contracts

“Courts do not enforce consumer-proffered online terms as enforceable contractual terms, but they also do not admit that this is what they are doing. Courts instead exclude the consumer preference from the four corners of the online agreement. What the company wrote is “the contract,” and the expression of consumer preference is simply not part of that contract. Courts manipulate the contours of the contractual agreement to exclude expressions of consumer preference in online agreements. If, however, consumers were able to somehow express their preferences unmistakably within the contours of what courts consider to be the online agreement, then courts would have no choice but to recognize consumer-proffered online contract terms. Instead of just clicking “I Agree,” consumers could actually contract again [1].”

– Joshua Fairfield

Consumer Terms Wanting Online

Fairfield’s statement above, asserting that consumer preference is excluded from online agreements, with courts refusing to enforce or consider consumer-proffered terms, appears to be well-supported by the facts. Rote acceptance of standardized contracts and terms-of-service offered by online businesses is the de facto, present-day practice, confirmed by my personal experience as an online consumer, commonly acknowledged in the academic literature, and justified by pro-business interests as a requirement to streamline operations [2]. Empirical evidence from asking a random sample of my friends confirms no one I queried has ever successfully proposed a viable counter-offer while shopping online. It is no secret: “Clickwrap contracts have been accepted as valid by United States courts virtually every time they have been challenged [3].” The options are: accept the terms given, or move on. The advent of the Internet and subsequent development of e-commerce, which relies on the widespread practice of clickwrap and browsewrap contracts, has, in my opinion, tipped the scales of power too far in favor of businesses, slighting the ability of consumers to negotiate favorable terms.

Innovations To Improve Online Rights For Consumers

The recent invention of Bitcoin and other crypto-currencies that act as cash-like digital bearer instruments, opens an opportunity to reform online contract law, more aligned to its historical roots of cash-on-the-counter terms, bargained face-to- face in dialogue between consumer and proprietor. Furthermore, and perhaps more importantly, the promise of smart contracts, enabled by crypto 2.0 platforms such as Ethereum and Rootstock, greatly extends the utility of the Internet, allowing programmable features to be implemented with a vast array of applications, including those that could significantly benefit online shoppers.

This paper explores a model that can employ the emerging technologies of blockchains — immutable, distributed ledgers — and smart contracts, automated computer code stored on blockchains, to put consumers back in the equation of negotiating terms. I argue, in agreement with Fairfield’s thesis, that with a properly designed product, utilizing a smart contract to perform the function of an online purchasing agent, consumer-proffered terms will eventually be acknowledged by the courts, tipping the power of bargaining back to a more equitable balance, and giving customers greater flexibility when doing business via the ever more ubiquitous Internet [1].

Traditional vs. Online Legal Contracts

The fundamental components for contract formation include: 1) mutual assent, objectively signaled through offer and acceptance, 2) consideration, 3) capacity, and 4) legality [4]. The focus will be on the first components because this discussion is limited to transactions involving legal purposes, and the issue of capacity will be addressed later in this essay.

Historically, advertising sponsored by brick-and-mortar retailers is regarded as a step prior to contract formation, known as invitation to treat. The buyer of goods or services makes the offer at the time of payment, and the seller, receiving payment and turning over the purchased item to the customer, accepts the buyer’s terms. Online commerce reverses these traditional roles, relegating the function of offer to the e-tailer, through the presentation of mandatory-for-purchase, non-negotiable terms. Acceptance, acknowledging these terms, is then signaled by the online consumer, usually by marking a simple check box and completing the purchase.

The consideration for online contract formation is straightforward, because the buying party brings the promise of money to the table while the selling party provides the promise of a valuable good or service in exchange.

Turning The Terms Tables With Shop-Bot:* Your personal, programmable, automated, online, shopping e-agent!

I propose creating an electronic agent, or e-agent, to shop online on behalf of consumers. Agency in contract law is well-defined, where an agent is authorized to act as a representative of a principal. Interestingly, Nevada statutes recently acknowledged the existence of electronic agents that can interact as proxies for the authorizing parties [5]. The Uniform Commercial Code in the US has recognized electronic agents since 2003 [6].

Shop-Bot is a newly designed e-agent, created using interactive smart contract technology. A consumer programs Shop-Bot to search and shop on the Internet. The detailed underlying composition of Shop-Bot is beyond the scope of this discussion; however, the overall functionality is the relevant focus here. Shop-Bot can be obtained online as a free download, charging users a micro-fee (on the order of a pennies) every time a successful purchase is made using the software. The consumer specifies the item sought, maximum price willing to pay, quantity desired, warranty conditions, and optionally, any privacy stipulations regarding the use of the shopper’s personal information, e.g., billing or shipping addresses. In the near future, the widespread use of crypto-currency for payment may bypass the need to disclose credit card details and other private information attractive to cyber-hackers. Note that user-specified payment methods, e.g., bitcoin, could be a programmable feature added to future releases of Shop-Bot.

If Shop-Bot crawls the Internet and is unable to find the buyer-specified terms, then options similar to the consumer’s wishes are presented for review. Let’s look at two primary scenarios. Suppose Shop-Bot locates the desired item with all the specified conditions, except that it costs a negligible amount more, then clearly, the shopper can opt to make this purchase — likewise, for other minor deviations from the original buying specifications. In these cases, the standard online situation prevails, where the e-tailer is making the offer, and the consumer is accepting the terms.

However, at least the buyer using the e-agent has the opportunity to peruse all options thoroughly, without wasting an undo amount of time. The second scenario employs the Shop-Bot, using the contact information provided by websites, to present e-tailers with an offer to purchase based on the consumer-programmed terms. E-tailers will be given the choice to accept the terms, or reject them and lose a sale. This returns the “offer-acceptance dance” of contract formation to the more traditional roles, the buyer making the offer, having input into the terms, while the seller advertises his goods, making an invitation to treat.

Solving the Capacity Conundrum (Optional)

For a contract to be legally binding, the parties must meet certain capacity rules, e.g., minimum age requirements or unimpaired mental health. Online, verifying a party’s age is challenging, resulting in some businesses entering into voidable contracts accepted by minors posing as adults. This is a broad topic, deserving its own entire paper, and points to a problem for Internet sellers, given the potential loophole for online consumers to renege on contractual agreements [2]. However, as an aside, blockchains and smart contract applications such as Shop-Bot, have the potential to solve these online identity issues, utilizing private digital keys or biometric verifiers. Using such an e-agent, consumer privacy can be maintained while still ensuring the principal’s capacity to enter into an online contract.

Concluding Remarks

The widespread adoption of Shop-Bot technology will naturally make online retailers more competitive. As Shop-Bot consumers favor purchasing from websites with the best contractual terms, other e-tailers will have to adjust to remain competitive. Programmable, yet standardized consumer e-agents could make it relatively simple for e-tailers to adopt to this new model, eventually creating their own means to automate the review and acceptance of such offered conditions. At last, court systems would have no choice but to recognize and enforce consumer-proffered terms in online contracts.

* Shop-Bot is a hypothetical, but theoretically possible, software product.

References

  1. Joshua A.T. Fairfield, Smart Contracts, Bitcoin Bots, and Consumer Protection, 71 WASH. & LEE L. REV. ONLINE 36 (2014), Retrieved from http:// scholarlycommons.law.wlu.edu/wlulr-online/vol71/iss2/3
  2. James Change and Farnaz Alemi, Gaming The System. Retrieved from http:// www.law.uci.edu/lawreview/vol2/no2/chang_alemi.pdf
  3. Rachel S. Conklin, Be Careful What Your Click For: An Analysis of Online Contracting, Retrieved from https://pdfs.semanticscholar.org/ebfc/ 478759bea9da80a6f86a8fc3adf083f05bf4.pdf
  4. Cornell University Law School, Legal Information Institute, Retrieved from https://www.law.cornell.edu/wex/contract
  5. Nevada Revised Statutes Chapter 719 — Electronic Transactions (Uniform Act), NRS 719.310 — Automated Transmission
  6. USLegal.com, Contract Formation Under U.C.C. Retrieved from http:// contracts.uslegal.com/elements-of-a-contract/contract-formation-under-the-u-c- c/

Originally published at blog.cryptoiq.ca on April 19, 2016.

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.