The New Institutionalism in Contract Scholarship

Matthew Jennejohn, The Private Order of Innovation Networks, 68 Stan. L. Rev. 281 (2016), available at SSRN.

Relational contract scholarship is at a pivot point. On the one hand, the relationalist revival that has dominated contracts scholarship for almost half a century may be on the wane. Relational contract scholarship has evolved during this period into separate, and often dueling, intellectual traditions. One camp consists of scholars who are typically associated with the “law and economics” movement; in the other camp are scholars who more readily identify with the “law and society” tradition.1 While relationalists have been quarreling with each other, a younger cohort of law and economics scholars, armed with impressive technical skills, have abandoned relational questions in favor of projects that are capable of being analyzed through formal models or sophisticated empirical techniques. In turn, many other of the brightest stars in contract are formally trained in analytic philosophy and focus their energies on classical contract doctrine and the extent to which it adheres to deontological principles grounded in Kantian notions of autonomy. At its best, this new contracts scholarship is analytically elegant and generates counter-intuitive insights. But its analytical rigor requires strong simplifying assumptions. As a consequence, the bulk of this work is a far remove from the complex environment of relational contracting.

This pessimistic view of the legacy of relational scholarship is tempered, however, by the rise of a new institutionalist school of contract scholarship that offers the promise of an accommodation between the dueling branches of relational theory and a counterweight to the elegant but abstract analysis of the philosophers and economists.2 The new institutionalists reflect the older relationalists in their commitment to the belief that the institution of contract can only be understood by observing the law “in action,” but they go beyond relational theory to explore both the potential and the limitations of contract design in a world of uncertainty: how can we understand the circumstances in which different contractual patterns are used to organize different kinds and speeds of innovative activity? A particularly noteworthy example of this new institutionalist school is a recent article by Matthew Jennejohn, The Private Order of Innovation Networks, published recently in the Stanford Law Review.

Jennehohn’s project is to deepen our understanding of the “collaborative methods of innovation that have become a centerpiece of modern economic organization.” (P. 281.) In a number of industries characterized by rapid technological development, conditions of high uncertainty have led to collaborations where both parties’ skills and commitment to cooperate are necessary to achieve success.3 In settings as diverse as the pharmaceutical industry and manufacturing supply chains, parties have come to realize that the feasibility of many projects can only be determined by joint investment in the production of information to evaluate whether a project is profitable to pursue. A particularly salient example is the research collaboration between a large pharmaceutical company with expertise in bringing new drugs to market and a smaller biotech firm with innovative technology. The collaborative agreement seeks to discover, design and develop a novel pharmaceutical product, and then take that product through the FDA approval process and through commercialization. The common feature of all these regimes is a commitment to joint exploration without imposing legal consequences on the outcome of the parties’ collaborative activity other than in conditions of “bare-faced cheating.”4 Thus, neither party has a right to demand the performance that the parties imagine may result from a successful collaboration. If the parties cannot ultimately agree on a final objective, they may abandon the collaboration.

Jennejohn’s starting point is a critique of the “braiding theory” developed by me and my co-authors, Ron Gilson and Chuck Sabel, that offers an explanation for the peculiar features of these collaborations. Braiding theory argues that the collaboration rests on a governance structure that, over time, creates confidence in the capabilities and trust in the character of the counterparty. Viewed through this lens the governance of these commercial collaborations shares several common elements. The first is a commitment to an ongoing mutual exchange of private information designed to determine if a project is feasible, and if so, how best to implement the parties’ joint objectives. The second is a procedure for resolving disputes. Its key feature is a requirement that the collaborators reach unanimous agreement on crucial decisions, with persistent disagreement resolved by unanimous agreement at higher levels of management from each firm.5 Together, my co-authors and I argue, these two mechanisms make each party’s character traits and substantive capabilities observable and forestall misunderstandings. Working under conditions of uncertainty, the parties can expect to encounter unanticipated problems that can only be solved jointly and that may generate occasions of disagreement. Their increasing knowledge of each other’s capacities and willingness to share private information in service of their collective goals facilitates the resolution of problems and constrains opportunistic behavior.6

Jennejohn’s principal critique is that braiding theory’s exclusive focus on opportunism is too narrow. Rather, he argues, these collaborations must also respond to two other problems that can cause these alliances to fail. The first is the risk of “spillovers”: the costs that arise when property rights in these innovative activities are not sufficiently defined and thus can bleed out of the effective control of the relevant commercial actors. The second problem is “entropy”: the need to coordinate the routines that translate inputs into the successful team production of outputs. Collaborators under this framework must trade off the governance mechanisms that constrain opportunism with mechanisms that limit spillovers and reduce entropy. His analysis of prototypical collaborations together with the preliminary results of an ongoing empirical project suggests that this multivalent approach better explains observed variations in design strategies in many alliance agreements. The result is a richer but more complex (and thus less clean) conception of the factors that undergird the design of collaborative contracts.

Jennejohn’s substantive critiques and his careful consideration of spillovers and entropy add importantly to our understanding of how collaborative alliances function. But more significant is the way his work melds the formerly disparate strains of relational scholarship. While his analytical techniques are clearly in the law and economics tradition, his methodology borrows importantly from the work of Ian Macneil.7 Like Macneil, Jennejohn offers a rich and complex story of contracting practices that is not amenable (at least not yet) to an elegant theory. Like Macneil (and others working in the law and society tradition) his methodology is “bottom up” empiricism, using both qualitative and quantitative techniques to build understanding over time. This stands in opposition to the economic relationalist approach of “top down” theorizing—using a widely accepted theory to isolate the salient elements that influence commercial parties’ behavior. Thus, like others working in this new institutionalist tradition, Jennejohn uses the analytic tools of law and economics to offer a rich descriptive account in the spirit of the law and society approach in order to describe how collaborative contractual arrangements function in a complex economic environment.

The accommodation between the law and economics and law and society methodologies reflected in Jennejohn’s work offers hope that we might free the relational enterprise from its current peril: those who believe that contract law scholarship requires attention to the ‘law in action’ need to concentrate their energies on developing unifying themes that will permit the relational project to be as vibrant and influential in this new century as it has been in the last one. Jennejohn’s work looks to just such a unification. What we need now are the voices of other “institutionalists” who will continue to examine the complex environment of contracting and propose principles that best explain how real world institutions maintain and support the ideal of human engagement through cooperative endeavor.



  1. For discussion, see Robert E. Scott, The Promise and the Peril of Relational Contract Theory in Revisiting the Contracts Scholarship of Stewart Macaulay: On the empirical and the Lyrical 105 (J. Braucher et al. eds. 2013). []
  2. For examples of work in the new institutionalist school, see Stephen J. Choi, Mitu Gulati & Robert E. Scott, Contractual Arbitrage, Oxford Handbook of Global Governance (forthcoming 2016); Robert Anderson & Jeffrey Manns, The Inefficient Evolution of Merger Agreements, Geo. Wash, L. Rev. (forthcoming 2016); Christopher C. French, The Illusion of Insurance Contracts, 89 Temp. L. Rev. (forthcoming 2016); Lisa Bernstein, Private Ordering, Social Capital, and Network Governance in Procurement Contracts: A Preliminary Exploration, (mimeo 2015); Ronald J. Gilson, Charles F. Sabel & Robert E. Scott, Braiding: The Interaction of Formal and Informal Contracting in Theory, Practice and Doctrine, 110 Colum. L. Rev. 1377 (2010); Ronald G. Gilson, Charles F. Sabel & Robert E. Scott, Contracting for Innovation: Vertical Disintegration and Interfirm Collaboration,108 Colum. L. Rev. 431 (2009). []
  3. In previous work, my co-authors and I have identified what is loosely called “the information revolution” as the exogenous shock that marked the emergence of collaborative contracting. Gilson, Sabel & Scott, Contracting for Innovation, supra note 2 at 441-2. []
  4. See, e.g., Eli Lilly & Co. v. Emisphere Technologies Inc., 408 F. Supp. 2d 668, 696–97 (S.D. Ind. 2006) (holding that the contractual remedy for breach of a collaborative agreement is limited to the right to terminate and retain accrued scientific information). []
  5. See, e.g., Research, Development, and License Agreement by and between Warner Lambart Co. and Ligand Pharmaceuticals Inc. (Sept. 1, 1999), which provides that all decisions are by unanimous vote (Art. 3.1.4) and disagreements are resolved by the CEO of Ligand and the President of Warner-Lambert’s Pharmaceutical division (or their designees). Requiring unanimity for project decisions makes it easy for reasonable skeptics to require more information from enthusiasts; bumping disagreements up to impatient superiors discourages obstinacy. Gilson, Sabel & Scott, Contracting for Innovation, supra note 2 at 479-81. []
  6. The information regime characteristic of these collaborative agreements is designed to make it easy for each party to request clarification from the other. Thus, the regime allows for the joint interpretation of ambiguity, and makes observable to the parties’ actions that would be opaque in an unstructured, informal exchange. This heightened, mutual observability allows the parties to learn about their respective capabilities as well as their disposition to cooperate. Under these conditions, continuing cooperation builds trust and protects each party’s reliance on that trust in its substantive performance by increasing the costs of finding an alternative partner capable of reliably doing, and learning, as much as the current one. Id. at 1476-88. []
  7. Ian R. Macneil, The Many Futures of Contracts, 47 S. Cal. L. Rev. 1018 (1974); Ian R. Macneil, Restatement (Second) of Contracts and Presentiation, 60 Va. L. Rev. 589 (1974); Ian R. Macneil, Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law, 72 Nw. U. L. Rev. 85 (1978). []
Cite as: Robert Scott, The New Institutionalism in Contract Scholarship, JOTWELL (March 21, 2017) (reviewing Matthew Jennejohn, The Private Order of Innovation Networks, 68 Stan. L. Rev. 281 (2016), available at SSRN), https://contracts.jotwell.com/the-new-institutionalism-in-contract-scholarship/.
 
 

Smart Rules for Smart Contracts

Lauren Henry Scholz, Algorithmic Contracts, Stan. Tech. L. Rev. (forthcoming 2017), available at SSRN.

Most law students are digital natives who have been using computers since grade school, while I, a baby boomer, remain an immigrant to the world of e-communication. Yet the old and new worlds may not be as different as they sometimes seem. Five years ago, publishers expected to replace hard copies with electronic casebooks, but it turns out that millennial students seem to learn best with a hybrid of electronic and hard copy materials that allow for interactive elements like on-line multiple choice quizzes.

With exceptions like the Uniform Electronic Transactions Act, digital immigrants have left to the natives the task of figuring out how doctrine should treat computer-generated communications. If electronic communications enable transactions that have never occurred before in the hard copy world, lawyers, scholars and judges must figure out whether those transactions require new and special rules or fit within the old common law rules. Lauren Henry Scholz’s article Algorithmic Contracts, forthcoming in the Stanford Technology Law Review and available in draft form on SSRN, substantially contributes to this conversation by suggesting that old-fashioned agency principles can be repurposed to govern algorithmic contracts.

Scholz, a fellow at Yale’s Information Society Project, provides a taxonomy of algorithmic contracts, reviews their dangers, considers possible regulatory responses, and concludes that agency principles work best. Her core contention is that algorithms are not mere tools like calculators, nor the equivalent of form contracts, but instead quasi-animate actors that legal doctrine should treat like robots or human servants of the people and entities that put them into action.

Readers learn that proprietary algorithmic contracts generally determine price and other terms in high frequency securities trading, and increasing facilitate dynamic pricing in consumer transactions such as the purchase of airline tickets. Much of this sounded familiar until I got to the section on Ethereum or smart contracts that take automation to a new level. In this world of Bitcoin and other virtual methods of transacting, Scholz explains,

Blockchain technology, which can roughly be described as a decentralized database, enables “trustless” transactions: value exchanges over computer networks that can be verified, monitored, and enforced without centralized institutions. (P. 29.)

A “public leger . . . records every transaction that has ever been made and will ever be made on the Bitcoin network” and distributes copies to users, who all agree to comply with the Bitcoin protocol. Apparently these agreements are “self-enforcing” via a “contract [that] is defined by the code and is also automatically being enforced by the code that defines it.” (P. 30.) Setting aside whether this Bitcoin protocol itself is a contract, Scholz’s analysis makes clear that contract theory and doctrine must ready tools to understand and regulate transactions that purport to be self-enforcing. (P. 30.)

Not surprisingly, these opaque mechanisms are vulnerable to mistakes and fraud. Scholz suggests that algorithmic contracting may cause flash stock market crashes that yield losses in the millions, and the algorithms’ very opaqueness allows the banks and others who put the algorithm into operation to evade liability for losses they cause by asserting a defense along the lines of “the code made me do it.” That view, Scholz contends, mistakenly treats algorithms as mere tools. If instead algorithms are akin to servants—as she convincingly argues—then principles of respondeat superior bind those principal and create incentives for them to both monitor the algorithmic contracts and also to refrain from mischief.

Moreover, Scholz argues, algorithmic agreements may not even be binding contracts because the participants lack the knowledge of the substance of the transaction to form the requisite mutual assent. In addition, the agreements lack consideration if they parties do not know the content of their offers or acceptances, because those promises can hardly induce each other. As a matter of law on the ground, she explains that the Commodity Futures Trading Commission

cannot pursue a successful case against companies that use algorithms to make the trades because the laws require either specific intent or outright recklessness. The algorithms are considered to be too attenuated from the intent of the companies who use them to rise to that level of intent. (P. 59.)

Algorithmic Contract’s analysis helps regulated communities—consumers and businesses alike—make sure that the banks and other activators of the algorithms cannot treat the agreements as legally binding contracts or mysterious communications out of their control as they find convenient.

Scholz joins other scholars who apply common law—including agency principles—to electronic transactions, including Danielle Citron’s Hate Crimes in Cyberspace (2014), Frank Pasquale’s The Black Box Society (2015), and William Reynolds & Juliet Moringiello’s The New Territorialism, 99 Cornell L. Rev. 1415 (2014). By providing specific ways forward for a variety of stakeholders, she both sounds the alarm and shows the way to an exit from the dangers of algorithmic contracting.

Cite as: Martha Ertman, Smart Rules for Smart Contracts, JOTWELL (February 17, 2017) (reviewing Lauren Henry Scholz, Algorithmic Contracts, Stan. Tech. L. Rev. (forthcoming 2017), available at SSRN), https://contracts.jotwell.com/smart-rules-for-smart-contracts/.
 
 

Contract Theory: A View From the Other Side of the Atlantic

Martijn W. Hesselink, Contract Theory and EU Contract Law, in Research Handbook on EU Consumer & Contract Law (Christian W. Twigg-Flesner ed., forthcoming), available at SSRN.

Some analyses are particularly suitable for novices, while others suit experts. Few analyses may be of interest to both. Martijn Hesselink’s contribution to a forthcoming handbook on EU Consumer and Contract Law belongs to the latter category. In this chapter, Hesselink discusses the “mismatch between much of the existing contract theory, on the one hand, and EU contract law on the other.” Ostensibly, this discussion is only relevant to a narrow audience—namely, the rather few (especially in the United States) who are interested in both contract theory and EU contract law. In fact, however, this chapter would benefit anyone interested in contract theory even if they have little interest in EU law—or conversely, anyone interested in EU contract law who may not care much about contract theory. Indeed, reading this chapter may persuade U.S. contract professionals that they should take interest in EU law, and convince EU contract people that contract theory is important to understanding their field in a broader context.

Hesselink’s chapter consists of three parts. The first part provides a highly useful typology of contemporary theories of contract law. The second delineates EU contract law and describes its basic features. The third part points to the mismatch between most contract theories and EU contract law, and explores its ramifications.

In recent decades, the terrain of contract theory has become increasingly large and complex. Hesselink provides a concise, lucid map of this terrain, based on a series of distinctions. Inter alia, these include the distinction between contract theories and contract law theories (the latter are the sort that jurists are usually interested in), and between positive, explanatory theories and normative ones (pointing to the existence of hybrid theories that set out to both explain existing law and assess it normatively). Another important distinction, within the categories of normative and hybrid theories, is between those derived from more general, moral or political theories, and separatist theories, which view contract law (and private law more generally) as being founded on principles of its own. The former include welfare economics (the normative part of economic analysis), various brands of liberal and libertarian theories, as well as communitarian and discourse theories of contract law. The latter category, i.e., that of separatist theories, is epitomized by corrective justice theories of private law. Cutting across these distinctions is the division between monist and pluralist theories of contract law, which has attracted considerable attention in recent years. Hesselink briefly describes and situates several hybrid or ambiguous theories within this typology—including functional theories, sociological system theories of law, interpretative theories, critical theories, and constitutionalism.

While some of these distinctions are familiar to anyone engaged in contract theory, others are articulated in a new, insightful fashion. Moreover, while some of the theories Hesselink mentions are well-known in the English-speaking world of legal scholarship, some are less so—thus triggering an interest in ideas developed by civil law and EU scholars.

The second part of the chapter provides a bird’s-eye view of EU contract law. This term does not refer to the entirety of contract law norms in European countries, but only to those contained in EU law—namely, to directives, regulations, EU treaties, and general principles recognized by the Court of Justice of the European Union. The directives instruct member states to adapt their local laws to comply with the standards set by the directives—often leading to legislative reforms in national laws. The directives do not deal with contracts between individuals, but mostly with specific issues in particular types of consumer, and some commercial, transactions—such as unfair contract terms, unfair commercial practices, package travel, late payment in commercial transactions, and consumer credit. In each sphere, the directives do not comprehensively regulate all aspects of the contract, as do national laws. The consumer law directives place special emphasis on elaborate disclosure duties, and on the right to unilaterally withdraw from the contract. Since these directives do not directly confer rights to contracting parties, analytically they are part of public law. However, since their content refers to the relationships between the contracting parties, they concern typical contract issues.

In the third part of the chapter, Hesselink examines the extent to which the fragmented, multi-layered, and incomplete body of EU contract law may be explained and normatively assessed by the familiar theories of contract law. He finds that leading theories (especially the monist ones), such as contract as promise and corrective justice, cannot explain or justify EU contract law, and other perspectives, such as economic efficiency, would more likely criticize it on many counts, than endorse it. Hesselink examines the possible implications of this mismatch, including the possibilities that: (1) EU contract law should be abolished; (2) EU contract law is not “contract law” at all; and (3) existing contract theories are deficient. Ultimately, he endorses a pluralistic, democratic theory of contract law. Such a theory would rest on “political principles of justice, including private law justice, that can be accepted by citizens adhering to different faiths, philosophies, values and principles.” He concedes that such principles, “if they can be found at all, will inevitably be of a much higher level of abstraction and generality than familiar contract law rules and doctrines,” and “will leave much room for interpretation and concretization through legitimate political institutions.”

Hesselink does not elaborate on his theory of contract law in the present chapter (he does so in his Democratic Contract Law, 11 Eur. Rev. Contract L. 81 (2015), available at SSRN)—nor will I. Personally, I am less skeptical about the contribution of extant theories to explaining and normatively assessing EU contract law, and more skeptical of the promise of a more procedural and “thinner” theory of the kind proposed by Hesselink. Nevertheless, I find the discussion extremely valuable. The intriguing attempt to apply contract theory to the unique body of EU contract law should prompt one to rethink those theories, to pay greater attention to theories developed by civil law and EU scholars, and to take interest in EU contract law as a source of inspiration.

Cite as: Eyal Zamir, Contract Theory: A View From the Other Side of the Atlantic, JOTWELL (January 24, 2017) (reviewing Martijn W. Hesselink, Contract Theory and EU Contract Law, in Research Handbook on EU Consumer & Contract Law (Christian W. Twigg-Flesner ed., forthcoming), available at SSRN), https://contracts.jotwell.com/contract-theory-a-view-from-the-other-side-of-the-altantic/.
 
 

Is Contract Law Ready for the Internet of Things?

When Amazon announced that it was expanding its Dash Button Program, its stock went up 2.3%. Amazon’s Dash button refers to a wi-fi enabled device that can be attached to a cupboard or refrigerator and allows a customer to order a specific item, such as more laundry detergent, simply by pressing the button. While some wondered whether consumers really needed this, others wondered whether the law was ready for this. As recent events reveal (such as the tragedy of Tesla’s self-driving automobile accident), technology is raising legal questions more quickly than lawmakers can anticipate or respond to them. In her article, Contracting in the Age of the Internet of Things: Article 2 of the UCC and Beyond, Stacy-Ann Elvy considers whether contract law is ready for the Internet of Things, and concludes that the answer is a regretful but resounding No. Contract law is woefully behind the times when it comes to dealing with issues raised by the Internet of Things (“IOT”). Elvy does a frightfully good job of identifying some of the potential problems—are such devices agents? (Probably yes). How should courts assess consumer assent when contracts are entered into through IOT devices? (It’s complicated). Perhaps most frightening of all—won’t the “legion of data” generated by the IOT worsen the preexisting information asymmetry in favor of companies? (Certainly).

Elvy’s article makes three primary arguments. First, where IOT devices enter into contracts on behalf of consumers, existing laws regulating e-commerce may not adequately protect consumers. Second, Article 2 of the UCC and contract law generally are ill-equipped to deal with the IOT. Finally, information asymmetries, exacerbated by the data generated by the IOT, will shift the power balance even more in favor of companies. Elvy makes certain proposals to recognize and respond to these changes in the contracting environment brought about by the IOT. Her proposed changes to Article 2 include prohibiting post-contract formation disclosure of terms in consumer IOT contracts, prohibiting the use of unilateral amendments and defining unconscionability to include high levels of information asymmetry. Elvy also recommends that courts consider the extent to which consumers can access and control the data which they generate. Her proposals are exhaustive and thoughtful and well-worth a read. A short review does not do them justice.

In making her arguments, Elvy responds to anticipated critiques, including the stale and timeworn arguments that consumers have a duty to read and that form contracts lower transactions costs. She also counters the more recent argument that the IOT will increase consumer bargaining power and decrease information asymmetry.

Assent to mass consumer contracts, of course, was a problem even before the IOT. It became a bigger problem with wrap contracts—where clicking, swiping and tapping were viewed as sufficient to trigger a duty to read. But, as Elvy notes, the Internet of Things threatens to make online contractual assent even more fantastical with the introduction of electronic contracting agents. Elvy refers to the growing distance between consumers and contracts as “contract distancing” and argues that the “notice and opportunity to read” test creates even more problems when it comes to the IOT. Of course, she’s right. The more removed the consumer is from the act of contracting and the harder it is to access the actual terms, the less real the consequences of that contract seem. If you can even call it a contract.

Elvy’s final recommendation is that the Uniform Law Commission and the American Law Institute (which is currently working on a Restatement of Consumer Contracts) consider the changes to the contracting environment brought about by the IOT. The UCC and the Restatement (Second) of Contracts recognized how changes in the marketplace created changes in contracting behavior. In order to stay true to the underlying objective of contract law (which after all, is the fulfillment of the reasonable expectations of the parties, not maximizing efficiency or eliminating transaction costs), the ULC and the ALI shifted doctrinal rules to fit the marketplace. The commercial landscape has shifted once again. It is high time for contract law to respond.

Cite as: Nancy Kim, Is Contract Law Ready for the Internet of Things?, JOTWELL (December 5, 2016) (reviewing Stacy-Ann Elvy, Contracting in the Age of the Internet of Things: Article 2 of the UCC and Beyond, 44 Hofstra L. Rev. 839 (2016)), https://contracts.jotwell.com/is-contract-law-ready-for-the-internet-of-things/.
 
 

Is the CISG Irrelevant?

John F. Coyle, The Role of the CISG in U.S. Contract Practice: An Empirical Study, U. Penn. J. Int'l L. (forthcoming 2016), available at SSRN.

Very few American contract courses cover the CISG. (My book gestures at coverage; my course doesn’t.) That was true before the recent lamented trend toward a one-semester course, and it is increasingly the rule today. Why? Contract professors I’ve talked to on this subject typically justify themselves by asserting that the CISG is rarely relevant in domestic practice. But such casual empiricism, when asserted in a company mixed with comparativists, can seem irresponsible. What if we’re wrong?

Now comes John Coyle to test that conventional account. Of course, there’s nothing easier to publish than a surprising empirical finding. (That such findings are rarely replicable is an embarrassment.) Articles confirming instead of rebutting our priors are thus especially important to celebrate. Coyle tells teachers of contract law that we’ve gotten it basically right: the CISG is less popular than the Congress. He does so in a mixed-methods paper notable for its carefulness and restraint. I like it lots.

Coyle’s approach starts by noting recent surveys finding that most domestic practitioners urge their clients to opt out of the CISG when otherwise applicable. But, as Coyle notes, such surveys are bedeviled by various methodological problems. He thus starts afresh by looking at the CISG’s use in material contracts on EDGAR. He finds ~5,000 contracts from 1988 to 2014 which include the term “international sale of goods.” That’s 0.7% of a population of approximately 700,000 filed agreements. As Coyle notes, his identification strategy has limits: (1) EDGAR’s material contract database is not representative of all corporate contracts, and (2) since the CISG is a default rule, identifying contracts which specifically address it may offer a distorted lens. That is, parties wishing the CISG to apply can simply be silent. Perhaps a large number of the 695,000 contracts that he did not identify intended to adopt the CISG by default. Similarly, parties that chose the law of a particular state may have intended for the Convention to apply under the treaty power. Thus, Coyle’s 5,000 contract sample, however large, may be unrepresentative if used as a proxy for parties’ attitudes toward the CISG.

But the contracts do tell us something. Coyle uncovers a number of curious facts. First, 69% of the contracts in the sample excluded the CISG unnecessarily—i.e., the contract was not a sale of goods, or the CISG was not ratified in the counterparty’s home country, or the contract was between wholly domestic parties. This either reflects an overweening fear of the CISG or boilerplate error. Second, the absolute number of contracts affirmatively choosing the CISG was negligible: 61 out of 5092, and the trend is against adoption. Coyle contacted the firms opting in, and found that a striking number now routinely opt out, or claimed that the instance of opting in was a one time concession to a counterparty. As Coyle summarizes: “Whatever the intrinsic merits of the CISG, and notwithstanding the broad support that it enjoys within the academic community, the treaty has made scant little headway in gaining adherents among lawyers in the United States in the twenty-eight years since it entered into force.” (P. 24.)

These data would be themselves quite illuminating, but Coyle adds to our understanding by compiling a secondary dataset of supply contracts filed with the SEC between 2011 and 2015. Identifying a universe of 5549 contracts, he reviewed each to see whether one party was international and thus subject to the CISG. From the 248 international supply contracts that remained, he focused on 44 contracts where the CISG applied but the parties had been silent—i.e., the parties appeared to have chosen the CISG by default. He then wrote each of the companies involved and asked, in essence, what were you thinking?

The responses offered powerful evidence that the CISG isn’t an intentionally chosen, thoughtful, default norm—none of the contacted firms appeared to have intentionally been silent. Attorneys’ excuses for their (resulting) mistaken choice of the CISG ranged from puzzled to rueful to apologetic. (As Gulati and his co-authors have found in another context, attorneys’ bad choices can always be rationalized, but rarely explained.) In any event, this extra research provides some comfort to those worried about Coyle’s identification strategy (discussed above) but little to comparativists who thought that the silent majority was with them.

Coyle concludes by arguing that the CISG “has no real constituency among public companies in the United States.” Indeed, as he points out, it is rarely applied in litigated cases, and only then when the parties have failed to adopt the normal practice of excluding it. Coyle argues that the result is an interpretive jurisprudence developed on the backs of suckers, whose lawyers aren’t thoughtful, or well-trained, enough to exclude the convention from their agreements. The CISG ends up looking less like a majoritarian, and more like a penalty, default.

This leads, of course, back to a pedagogical question. Given that domestic firms apparently do not want the CISG to apply, should we, as contracts teachers, be in the business of drilling students on the convention solely so that it can be routinely excluded? This seems a bit like teaching students all about the life cycle of e. coli so they can avoid a restaurant with a bad health grade. Perhaps courts ought to adopt a different default rule, at least when parties chose the law of a particular state.

Cite as: David Hoffman, Is the CISG Irrelevant?, JOTWELL (November 4, 2016) (reviewing John F. Coyle, The Role of the CISG in U.S. Contract Practice: An Empirical Study, U. Penn. J. Int'l L. (forthcoming 2016), available at SSRN), https://contracts.jotwell.com/is-the-cisg-irrelevant/.
 
 

What Does “Buy Now” Really Mean?

Aaron Perzanowski & Chris Jay Hoofnagle, What We Buy When We Buy Now, 165 U. Pa. L. Rev. (forthcoming 2017), available at SSRN.

In their forthcoming article, What We Buy When We Buy Now, Aaron Perzanowski and Chris Jay Hoofnagle richly capture today’s digital media marketplace and rightly raise concerns about consumers’ understanding of their legal rights upon licensing a book, movie, or song. They focus upon vendors’ use of the language “buy now” on their websites and test consumer comprehension of this language empirically. The results, showing, for example, that 83 percent of respondents believed they “owned” their media, certainly raise alarms. The article proposes a sensible and inexpensive solution, supported by the authors’ empirical evidence, that would help clear up the “buy now” confusion, namely “adding a short notice to a digital product page that outlines consumer rights.” I enthusiastically recommend this article for anyone interested in twenty-first century digital commerce.

As with any excellent article, perplexing issues remain. For example, is “buy now” less misleading than the article suggests? As mentioned, 83 percent of respondents believed they “owned” their media, but as the authors concede, the concept of ownership is inherently ambiguous, and perhaps doesn’t preclude in consumers’ minds the limitations that licensing entails. In addition, although more than 80 percent of respondents believed they could use their digital media on any of their devices, the reality is not so starkly different according to the authors, with some vendors allowing such usage and others not. Fewer than 50 percent of respondents thought incorrectly that they held the right in turn to lend, gift, resell, or copy their product, or leave their product in a will. In fact, fewer than 25 percent thought mistakenly that they had the right to resell or copy their media. On the other hand, 86 percent of respondents thought they could keep their digital product indefinitely, and Perzanowski and Hoofnagle set forth several counterexamples demonstrating that this misperception may be a real problem. In addition, the authors note that the FTC labels an advertising practice as deceptive even if only 10 or 15 percent of people are misled by the practice.

Another issue concerns the so-called duty to read. After all, the licensing agreement makes the rights of the licensee clearer, if not clear, if the consumer bothered to read the form. And “buy now” is not the most precise guarantee of consumer rights. Of course, for good reason, consumers give digital licenses (as well as paper ones) short shrift (if any “shrift” at all!). And my coauthor and I have shown that vendors of software on the Internet make important quality claims on their websites only to withdraw them through warranty disclaimers on their digital standard forms. (Robert A. Hillman & Ibrahim Barakat, Warranties and Disclaimers in the Electronic Age, 11 Yale J.L. & Tech. 1 (2009).) We therefore concluded that in the digital age, bait-and-switch is a real problem in the area of software product warranties. So I am the last to say that the duty-to-read idea should trump any concern in the licensing-of-media context. But, playing devil’s advocate for the moment, perhaps the arguably ambiguous meaning of “buy now” combined with the elaboration of rights in the digital standard form, if clear, should give pause as to whether consumers need additional protection.

To the extent that there is a serious problem, the authors’ solution, a box on the digital product page explaining rights, “You may not resell this ebook,” etc., is a good solution as far as it goes. However, what about consumers’ confusion over the extent of warranty coverage, access to courts, the right of the vendor to modify the terms, etc.? In short, if consumers are to be protected and the license itself cannot do the job, the box may itself grow too large and unwieldy to do much good. Further, the task of determining what rights are sufficiently important to require box treatment will challenge the lawmaker.

In the end, I believe much can be said for an alternative, albeit modest, solution suggested by the American Law Institute’s Principles of the Law of Software Contracts. Despite some rather farfetched claims in the literature about the failure of disclosure as a general remedy for consumer (and others’) ignorance, the software project took the position that early disclosure of terms on the Internet, even before a consumer took the leap and decided to “buy,” in conjunction with adequate judicial policing of “dangerous terms,” was likely the only realistic contribution to greater consumer protection. The expectation was not that consumers would likely increase reading their standard forms and shop around for better terms, but that watchdog groups would access the openly available forms, and spread the word about their meaning and ramifications. This would create the incentive on the part of vendors to write reasonable terms. An example of the success of such a strategy was the furor over Facebook’s privacy terms that caused it to reverse its approach.

I hope it is clear from this brief discussion that I believe What We Buy When We Buy Now is an important contribution to the literature on digital contracts and that the authors deserve kudos for bringing the “buy now” problem to our attention.

Cite as: Robert Hillman, What Does “Buy Now” Really Mean?, JOTWELL (October 10, 2016) (reviewing Aaron Perzanowski & Chris Jay Hoofnagle, What We Buy When We Buy Now, 165 U. Pa. L. Rev. (forthcoming 2017), available at SSRN), https://contracts.jotwell.com/what-does-buy-now-really-mean/.
 
 

Meet the Editors

CONTRACTS Section Editors

The Section Editors choose the Contributing Editors and exercise editorial control over their section. In addition, each Section Editor will write at least one contribution (”jot”) per year. Questions about contributing to a section ought usually to be addressed to the section editors.

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Professor David A. Hoffman
Murray H. Shusterman Professor of Transactional and Business Law
Temple University Beasley School of Law

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Professor Nancy S. Kim
ProFlowers Distnguished Professor Internet Studies & Professor of Law
California Western School of Law

Contributing Editors

Contributing Editors agree to write at least one jot for Jotwell each year.

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Professor Aditi Bagchi
Professor of Law
Fordham University School of Law

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Professor Daniel D. Barnhizer
Professor of Law & The Bradford Stone Faculty Scholar
Michigan State University College of Law

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Professor Shawn Bayern
Larry & Joyce Beltz Professor of Torts
Florida State University College of Law

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Professor Omri Ben-Shahar
Leo & Eileen Herzel Professor of Law
The University of Chicago Law School

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Professor Martha Ertman
Carole & Hanan Sibel Research Professor of Law
University of Maryland Francis King Carey School of Law

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Professor Robert A. Hillman
Edwin H. Woodruff Professor of Law
Cornell Law School

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Professor Hila Keren
Professor of Law
Southwestern Law School

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Professor Florencia Marotta-Wurgler
Professor of Law
New York University School of Law

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Professor Eboni S. Nelson
Professor of Law
University of South Carolina School of Law

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Professor Robert E. Scott
Alfred McCormack Professor of Law
Columbia Law School

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Professor Tess Wilkinson-Ryan
Professor of Law & Psychology
University of Pennsylvania Law School

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Professor Eyal Zamir
Augusto Levi Professor of Commercial Law
The Hebrew University of Jerusalem

 
 

Call for Papers

Jotwell: The Journal of Things We Like (Lots) seeks short reviews of (very) recent scholarship related to the law that the reviewer likes and thinks deserves a wide audience. The ideal Jotwell review will not merely celebrate scholarly achievement, but situate it in the context of other scholarship in a manner that explains to both specialists and non-specialists why the work is important.

Although gentle critique is welcome, reviewers should choose the subjects they write about with an eye toward identifying and celebrating work that makes an original contribution, and that will be of interest to others. First-time contributors may wish to consult the Author Guidelines and the Jotwell Mission Statement for more information about what Jotwell seeks, and what it seeks to achieve.

Reviews need not be written in a particularly formal manner. Contributors should feel free to write in a manner that will be understandable to scholars, practitioners, and even non-lawyers. See the Author Guidelines for more details.

Ordinarily, a Jotwell contribution will

  • be between 500-1000 words;
  • focus on one work, ideally a recent article, but a discussion of a recent book is also welcome;
  • begin with a hyperlink to the original work — in order to make the conversation as inclusive as possible, there is a strong preference for reviews to focus on scholarly works that can be found online without using a subscription service such as Westlaw or Lexis. That said, reviews of articles that are not freely available online, and also of very recent books, are also welcome.

Currently, Jotwell particularly seeks contributions relating to:

We also have a Classics section, limited to reviews of works more than 50 years old. We intend to add more sections in the coming months.

References

Authors are responsible for the content and cite-checking of their own articles. Jotwell editors and staff may make editorial suggestions, and may alter the formatting to conform to the house style, but the author remains the final authority on content appearing under his or her name.

  • Please keep citations to a minimum.
  • Please include a hyperlink, if possible, to any works referenced.
  • Textual citations are preferred. Endnotes, with hyperlinks, are allowed if your HTML skills extend that far.
  • Authors are welcome to follow The Bluebook: A Uniform System of Citation (20th ed. 2015), or the The Redbook: A Manual on Legal Style (2d Ed.) or indeed to adopt any other citation form which makes it easy to find the work cited.

Technical

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Contributors should email their article, in plain text, in HTML, or in a common wordprocessor format (Open Office, WordPerfect, or Word) to jotwell@gmail.com and we will forward the article to the appropriate Section Editors. Or you may, if you prefer, contact the Editor in Chief directly at editor@jotwell.com.

Please see our copyright policy for information about what rights we ask you to give us.

 
 

Jotwell Mission Statement

The Journal of Things We Like (Lots)–JOTWELL–invites you to join us in filling a telling gap in legal scholarship by creating a space where legal academics can go to identify, celebrate, and discuss the best new scholarship relevant to the law. Currently there are about 350 law reviews in North America, not to mention relevant journals in related disciplines, foreign publications, and new online pre-print services such as SSRN and BePress. Never in legal publishing have so many written so much, and never has it been harder to figure out what to read, both inside and especially outside one’s own specialization. Perhaps if legal academics were more given to writing (and valuing) review essays, this problem would be less serious. But that is not, in the main, our style.

We in the legal academy value originality. We celebrate the new. And, whether we admit it or not, we also value incisiveness. An essay deconstructing, distinguishing, or even dismembering another’s theory is much more likely to be published, not to mention valued, than one which focuses mainly on praising the work of others. Books may be reviewed, but articles are responded to; and any writer of a response understands that his job is to do more than simply agree.

Most of us are able to keep abreast of our fields, but it is increasingly hard to know what we should be reading in related areas. It is nearly impossible to situate oneself in other fields that may be of interest but cannot be the major focus of our attention.

A small number of major law journals once served as the gatekeepers of legitimacy and, in so doing, signaled what was important. To be published in Harvard or Yale or other comparable journals was to enjoy an imprimatur that commanded attention; to read, or at least scan, those journals was due diligence that one was keeping up with developments in legal thinking and theory. The elite journals still have importance – something in Harvard is likely to get it and its author noticed. However, a focus on those few most-cited journals alone was never enough, and it certainly is not adequate today. Great articles appear in relatively obscure places. (And odd things sometimes find their way into major journals.) Plus, legal publishing has been both fragmented and democratized: specialty journals, faculty peer reviewed journals, interdisciplinary journals, all now play important roles in the intellectual ecology.

The Michigan Law Review publishes a useful annual review of new law books, but there’s nothing comparable for legal articles, some of which are almost as long as books (or are future books). Today, new intermediaries, notably subject-oriented legal blogs, provide useful if sometimes erratic notices and observations regarding the very latest scholarship. But there’s still a gap: other than asking the right person, there’s no easy and obvious way to find out what’s new, important, and interesting in most areas of the law.

Jotwell fills that gap. We are not afraid to be laudatory, nor do we give points for scoring them. Rather, we challenge ourselves and our colleagues to share their wisdom and be generous with their praise. We will be positive without apology.

Tell us what we ought to read!

How It Works

Jotwell is organized in sections, each reflecting a subject area of legal specialization. Each section, with its own url of the form sectionname.jotwell.com, is managed by a pair of Section Editors who have independent editorial control over that section. The Section Editors selecting a team of ten or more Contributing Editors. Each of these editors commits to writing at least one Jotwell essay of 500-1000 words per year in which they identify and explain the significance of one or more significant recent works – preferably an article accessible online, but we won’t be doctrinaire about it. Our aim is to have at least one contribution appear in each section every month, although we won’t object to more. Section Editors are also responsible for approving unsolicited essays for publication. The number of sections is not fixed, and is still growing.

For the legal omnivore, the ‘front page’ at Jotwell.com contains the first part of every essay appearing elsewhere on the site. Links take you to the full version in the individual sections. There, articles are open to comments from readers.

The Details

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