Academic journal article Stanford Law Review

The No-Reading Problem in Consumer Contract Law

Academic journal article Stanford Law Review

The No-Reading Problem in Consumer Contract Law

Article excerpt

INTRODUCTION I.   PRIOR ACADEMIC THEORIES AND LEGAL RESPONSES TO THE UNREAD      CONTRACT PROBLEM II.  ANALYZING CONSUMER EXPECTATIONS      A. Efficiency and Mistakes      B. Summary of the Analysis.      C. The Benchmark Case of Correct Demand      D. Mistaken Demand.      E. The Term Optimism Problem      F. The Consumer's Search Strategy      G. An Application to the Warning Box III. THE DETAILS OF OUR PROPOSAL      A. Institutional Implications and Warning Principles      B. Expected Terms: The Carrot      C. Small Sellers      D. A Relevant Precedent IV.  A PRELIMINARY TERM-SUBSTANTIATION STUDY OF THE FACEBOOK EULA      A. Background and Methodology      B. Core Results      C. Regression Results CONCLUSION APPENDIX A: RESPONDENT CHARACTERISTICS 

INTRODUCTION

Consumers seldom read the form contracts that firms offer. This failure is said to cause two problems. First, the consumer cannot be taken actually to consent to the legal relationship the form contract creates if the consumer is ignorant of that relationship. Second, competition cannot cause firms to improve contract quality because consumers cannot shop comparatively for terms of whose existence they are unaware. We focus here on the consent aspect of the "no-reading problem."

Consumers failure to read occurs not only when consumers are understandably rushed, as at the rental car counter, but also when there is time. People rarely read the forest of trees that are harvested and mailed in the form of credit card and cell phone contracts, insurance policies, gym membership agreements, or mutual fund prospectuses. The data also suggest that people do not read important parts of one-time contracts such as home mortgage agreements. (1) More recently, evidence suggests that consumers seldom read Internet contracts, which contain many controversial provisions. Apple's iBook author end-user license agreement (EULA), for example, initially included a provision requiring any book created with its software to be sold through Apple. (2) Google Chrome's original EULA granted Google virtually all rights to display and distribute content transmitted through its browser--"a perpetual, irrevocable, worldwide, royalty-free, and nonexclusive license to reproduce, adapt, modify, translate, publish, publicly perform, publicly display and distribute any Content which you submit, post or display on or through, the Services." (3) As a dramatic example, PC Pitstop included a provision in its EULA that awarded "[a] special consideration which may include financial compensation ... to a limited number of authorize licensee [sic] to read this section of the license agreement and contact PC Pitstop." (4) Four months passed before a user noticed the clause and claimed the $ (1000) prize. (5)

Turning to data, Florencia Marotta-Wurgler has detailed across a series of empirical studies the miniscule proportion of Internet contractors who read the terms of their contracts. (6) In one study tracking the Internet browsing behavior of 45,091 households on sixty-six online software sites, Yannis Bakos, Florencia Marotta-Wurgler, and David Trossen found that "only one or two out of every thousand retail software shoppers chooses to access the license agreement, and those few that do spend too little time, on average, to have read more than a small portion of the license text." (7) Moreover, Marotta-Wurgler has found that enhanced disclosure of terms via "clickwrap" contracting (which requires buyers to click "I agree" near a hyperlink to the underlying terms) increases reading by only 0.36% more than "browsewrap" contracting (which allows buyers to purchase without seeing a prominent hyperlink to the underlying terms). (8)

Contract law addresses the no-reading problem with the duty to read doctrine. (9) Under this doctrine, parties are taken to agree to terms that they had the opportunity to read before signing. (10) The doctrine "creates a conclusive presumption, except as against fraud, that the signer read, understood, and assented to [the] terms. …

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