Online Reputation and its Implications for Online User Agreements

By Eric Goldman

Shmuel Becher and Tal Zarsky, E-Contract Doctrine 2.0: Standard Form Contracting in the Age of Online User Participation

Right now, the rules applicable to online user agreements are a doctrinal mess. We want to encourage businesses and consumers to strike private bargains, but the reality is that non-negotiable user agreements may restrict freedom of contract more than they promote it. As a result, courts have fractured in their interpretation of online user agreements (and particularly mandatory arbitration clauses); some courts have no problems with them because they are part of a private exchange, other courts are ripping them up because they aren’t really negotiated.

Becher and Zarsky approach this issue with a powerful insight. Consumers may not have the ability to negotiate online user agreements, but they can blog about the ridiculous terms in them, and collectively the noisy reactions of bloggers will give some power back to consumers that will hold companies accountable for their choice of contractual terms and force companies to moderate the terms accordingly. I have my own work-in-progress on the implications of online word-of-mouth on trademark law, so I instantly agreed with their assumptions. However, I’m not sure consumer behavior will work as they describe. It remains unclear to me just how much users really care about the substance of their user agreements, so even if the bloggers gang-tackle a company for offering bum boilerplate, I wonder how many companies will actually be affected by market forces accordingly? Perhaps, as we saw with the search engines’ recent movements on privacy policies, the watchdog effect of the blogosphere can reverse a race-to-the-bottom and turn it into a race-to-the-top. More likely, I suspect there will still be more of a lottery effect: a few companies will get tagged for bad press (as they do today) and the rest of the scrutiny won’t change anyone’s practices.

Even though I’m suspicious about its conclusion, this paper is provocative and raises important issues, so I thought this was a very good paper. The abstract:

The growing popularity of e-commerce transactions revives the perennial question of consumer contract law: should non-salient provisions of consumer standard form contracts be enforced? With the focus presently on an ex-ante analysis, scholars debate whether consumers can and should read standardized terms at the time of contracting.

In today’s information age, such a focus might be misguided. The online realm furnishes various tools, so-called Web 2.0 applications, which encourage the flow of information from experienced to prospective consumers. The article, therefore, reframes the analysis of online consumer contracts while taking into account this new flow of information. In doing so, we draw out several typical ways in which such information flows in the online realm, while addressing the role of search engines, blogs, message boards and social networks. The article also accounts for the major challenges to the success of such information flow: the motivations of both information providers and receivers, and the accreditation of the data which might be compromised both unintentionally and maliciously.

After applying the key law and economics and behavioral law and economics insights pertaining to consumer contracts to the new dynamic created by the online environment, we conclude that this online information flow will strengthen market forces’ ability to generate a fair and balanced contractual equilibrium. We accordingly provide new policy recommendations that are better tailored to deal with online consumer contracts and thus limit the need for legal intervention in the market for consumer contract terms.

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