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New article by Dave Hoffman reveals how digital companies are using innovative contracts to shape relationships with users

February 21, 2019

In an article in a recent issue of the University of Chicago Law Review, University of Pennsylvania Law School professor Dave Hoffman challenges widely-held notions about the purpose and function of digital fine print — like the iTunes Software License Agreement and social media privacy policies — by closely examining the work of companies that have decided to make their fine print into something consumers can actually understand. The conventional wisdom holds that while consumers may hurriedly click “Agree” on digital terms and conditions while on their way to using the products and websites, no one actually reads them. Why then do companies bother deploying them at all?

As Hoffman explains, the traditional answer has been that this digital fine print operates as an “option” for the firms using it: while it may not do much to police consumers’ behavior on the front end, businesses can use the fine print to enforce norms of conduct by punishing the most egregious consumer misconduct. However, Hoffman argues, the “option” theory of fine print is incomplete.

Several well-known sharing-economy digital firms, including Tumblr, Kickstarter, Etsy, Airbnb, and Bumble, have in recent years revised their fine print in ways designed to make it more easily-understood and accessible for non-lawyers, and thus more likely to be read and — potentially — complied with. Interviewing lawyers at these innovative firms, Hoffman discovered what motivated them to reconceive what is typically boilerplate contractual language, and what, if anything, has resulted from the revisions.

In the article, “Relational Contracts of Adhesion,” Hoffman proceeds through a series of case studies based upon those interviews. Those case studies yield insights into a previously-underexamined category of fine print, which firms not only use to influence consumer behavior but also to define the parameters of the relationship with consumers. In some cases, firms also sought to use the fine print to signal what kind of companies they want to be: transparent, socially-conscious, or perhaps even light-hearted. 

Both Tumblr and Kickstarter “created simple, easy-to-read summaries of each section of [their] terms of use,” and provided these translations to clarify what might otherwise have been impenetrable legal jargon. Etsy transformed its previously-generic terms of use into a more colloquial set of “house rules” that feature “a distinctive look and feel” with “[s]ection and paragraph headers … in plain and clear English: ‘Be honest with us,’ ‘Let’s be clear about our relationship,’ ‘Rights you grant Etsy,’ and ‘Don’t steal our stuff.’” In addition, Hoffman writes, “Etsy explains why it needs the rights it does, particularly the intellectual property rights it takes.”

Airbnb took a different approach, Hoffman explains, as the revision of the company’s non-discrimination policy arose from a public relations crisis when “three researchers [showed] that guest applications with distinctly African-American names were less likely to be accepted by hosts and they argued that the platform’s design facilitated that outcome.” The revised policy is “straightforward and written in a clear and accessible style,” Hoffman notes, but unlike several of the other firms’ new terms, “there are no visual cues or callouts.”

Finally, for the dating app Bumble, Hoffman notes the process of creating its terms of service prior to launching the app was intended in part to “distinguish itself from Tinder.” The terms sought to combine formal, exculpatory language required by Bumble’s lawyers with “a set of terms that felt ‘young’ and ‘cool.’”

Thus, the case studies “provide examples of commercially important platform economy firms that appear to be using mass-market contracts in novel ways,” Hoffman writes.

“At the very least, those contracts are functioning as extensions of the firm’s trade dress: they are more likely to (in Etsy’s words) ‘look and feel and reflect who we believe we are as a company.’”

However, such innovative contracts are not without risks. “Apart from Bumble, and perhaps Airbnb, each of our case study firms increased its legal exposure to suits by making it harder (on the margins) to exercise defensive clauses.” For example, many firms declined to add exculpatory clauses.  Instead, “each explicitly worked to avoid legalese and focus on simple, declarative sentences. All except Airbnb also presented the terms with some playful humor and informality, as well as some visual cues and displays.” 

Hoffman goes on to explain how these unique consumer contracts contain attributes of both traditional contracts — which are “fully negotiated … between two equally situated individuals” and are actually “intended to be read and govern behavior”— and consumer contracts of adhesion, which are the classic terms and conditions presented to consumers on a “take-it-or-leave-it basis” and which indeed serve as options to be exercised later to discipline consumers, or their lawyers.

By creating mass-market contracts that fall in between these two traditional categories, “Etsy, Tumblr, and Kickstarter (and to a lesser extent Airbnb) may illustrate a genuinely novel contracting form,” Hoffman argues. “Their end-user contracting framework is designed to build on an existing relationship and generate trust by the users toward the firm and toward each other. But it does so on a massive scale through terms of use that are embedded into the firm’s existing trade dress.” While users may be invited to participate in the terms’ creation, the terms are ultimately nonnegotiable.

Thus, Hoffman writes, “The case study contracts aren’t just accomplishing the ordinary goals of conveying information and setting up rules. They are doing that, but they are also marketing materials, demonstrating values that the firms think are useful — that is, we’re progressive, non-conformist, funny, hip, young, and above all, not evil.”

Ultimately, Hoffman concludes, mass-market contracts need not – and do not – all function similarly. Rather, “[s]ome might be changing user behavior by drawing on practices (of reciprocity, informality, and trust) traditionally sourced to individualized, negotiated, off-line deals,” he writes.

“The challenge going forward is to understand better what role the law and legal institutions play in creating innovation around such relational contracts of adhesion.”