Standard-Form Contracting in the Electronic Age

Abstract:     
The Internet is turning the process of contracting on its head. With increasing alacrity, people are mouse-clicking their way into enforceable standard-form contracts on the Internet ("browsewrap" contracts) while installing software ("clickwrap" contracts). The emergence of this new contracting medium has produced numerous claims of the inadequacy of existing contract law to govern standard-form contracts made at the speed of light. Consumer advocates worry that the electronic media presents new methods for businesses to take advantage of consumers. By contrast, businesses engaged in e-commerce insist that courts must relax existing legal protections so as to nourish this new form of business. We contend that existing contract law provides an appropriate regime in which to assess electronic contracts.

We support our conclusion by reviewing the underlying factors that shape the law of standard-form contracting in the paper world and by determining whether the new dynamics of e-commerce create a fundamentally different environment. In the paper world, business use of standard forms creates efficiencies and saves costs for both businesses and consumers, but it also can lead to business' exploitation of consumers. We assess the rational, social, and cognitive factors, as well as other business practices, that affect consumers' abilities to protect themselves from exploitation. We conclude that the current judicial approach appropriately presumes consumer assent to negotiated terms and, so long as the consumer has had a reasonable opportunity to read the standard terms, to conscionable standard terms. Courts also properly remain vigilant in policing unreasonable boilerplate.

A switch to electronic commerce does not change this analysis. To be sure, the electronic environment has provided consumers with new research tools, thereby suggesting that rational consumers will be better able to protect themselves, and the electronic environment has eliminated the social pressures that businesses can use to induce consumers to enter into exploitationist contractual terms. However, the new electronic environment has not changed the overly optimistic manner in which consumers think about these contracts, namely that nothing will go wrong and that boilerplate terms do not matter. In addition, the electronic environment has created new opportunities to exploit consumers. We therefore assert that courts should adopt a strategy similar to their approach in the paper world. Courts should presume the enforceability of both browsewrap and shrinkwrap contracts, but should also focus on the potential for procedural and substantive exploitation by businesses.

Number of Pages in PDF File: 70

Keywords: Contracts, Cyberspace

JEL Classification: K12

working papers series