Exploitation by Wrap Contracts—click "agree"

• Jurisdiction: United States,Federal
• Author: Nancy S. Kim
• Publication year: 2014
• Citation: Vol. 39 No. 2

Exploitation by Wrap Contracts—Click "Agree"

Nancy S. Kim

California Western School of Law

INTRODUCTION

A spate of news articles involving online agreements has made headlines recently. In July 2013, the Fourth Circuit held that copyright could be assigned via an online agreement.¹ In September, Facebook announced changes to its privacy policy that inflamed privacy advocates and prompted an FTC investigation.² These changes came after the settlement of a lawsuit involving its personal recommendation advertisements, known as "Sponsored Stories."³ A letter to the FTC from six privacy organizations protested that the changes would give Facebook the ability to exploit users' personal information (including information about minors) in far-reaching and objectionable ways.⁴ Another online company, Yelp, recently sued a law firm for breach of contract, claiming that the law firm posted fake positive reviews.⁵ Interestingly, Yelp filed its lawsuit after the firm won a judgment against it in a case, which claimed that the online review company coerced the law firm into an advertising contract.⁶

Google recently announced plans to use its users' information in paid advertisements.⁷ When users of one of Google's services endorse or even follow a company, that endorsement may show up on another one of Google's sites or on one of the two million sites in Google's display advertising network.⁸ For example, a user following a store may find her name, photo and endorsement in that store's ads. Google claims consent to this practice in its updated Terms of Service.⁹ But users who have been using its service for years may fail to understand the implications of this change in terms until they see their faces being used to advertise a product they had no intention of promoting to a broad audience. Google's new advertising program resembles Facebook's Sponsored Stories and both Google's and Facebook's advertising programs purport to operate with users' consent to online terms of use and privacy policies.

These contracting scenarios exemplify the brave new world of wrap contracts where unwitting users can be exploited simply by clicking "agree." Wrap contracts—particularly digital ones such as clickwraps and browsewraps—govern most online activity, setting rules and giving companies broad enforcement discretion.¹⁰ Despite their ubiquity on the Internet and their increasing importance in online interactions, consumers discount or ignore how wrap contracts affect their rights and leave them vulnerable. This essay explains why these recent examples mark a turning point in the role of wrap contracts in Internet governance—and why consumers should be very wary of clicking "agree."

THE PURPOSE OF WRAP CONTRACT CLAUSES

When it comes to online agreements or wrap contracts, some people take the view that they are annoying, but harmless. We click "agree" without reading¹¹ because we don't really have another option if we want to interact with a website. Those in favor of standard form contracts generally argue that they reduce transaction costs and create cost savings that benefit consumers.¹² This view is not overly concerned with the issue of consent or lack thereof, believing that if consumers read the terms, they would prefer them to higher prices.¹³

Consumers' feelings about standard form clauses may depend upon what those clauses do. Companies often use standard form contracts defensively, as a shield to protect themselves from lawsuits and to limit their liability. These clauses may favor the company, but most consumers probably understand that in today's society, companies need to limit their risks. Furthermore, companies may not actually need to obtain consent from consumers in order to impose some types of provisions. For example, the Uniform Commercial Code permits warranty disclaimers, provided they meet certain requirements, such as specific wording.¹⁴ Similarly, copyright owners have the right to establish the scope of use of licenses they grant—or may refuse to grant them altogether. Their power to unilaterally impose these restrictions derives from their ownership or proprietorship of the underlying subject matter.

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There are other provisions that consumers may like less because they act like a sword, rather than a shield, to destroy consumers' rights. These provisions include mandatory arbitration clauses, class action waivers, and choice of law and venue provisions. These provisions affect rights that a company cannot unilaterally wrest away from consumers because they do not derive from the company's proprietorship of the underlying subject matter. The choice of law, for example, has nothing to do with how a product should be used.

Yet, those with an efficiency perspective are inclined to justify these provisions because they, too, assist a company in controlling and evaluating the risks of entering into a particular business or offering a particular product or service. They may guard against bad faith or "opportunistic" consumers who may try to take advantage of consumer-friendly terms.¹⁵

Furthermore, these provisions deal with situations that consumers may feel are unlikely to occur. Most consumers are myopic¹⁶ and optimistic,¹⁷ unlikely to believe that they will suffer harm from a company that will necessitate filing a lawsuit against it, and tempted by the activity that awaits them just beyond the "click to agree."¹⁸ Consequently, they may not align themselves with parties that they perceive as opportunistic and too eager to sue over petty grievances.¹⁹ They understand that companies don't want to be bothered by frivolous lawsuits from class action lawyers. While they may not like adhesive contracts,²⁰ some consumers may believe the one-sided terms won't be enforced against them.²¹

There is, however, another type of provision that has become more common in wrap contracts. These provisions, which I will refer to as "crook" provisions, grant rights to the drafter that are ancillary to the purpose of the transaction.²² These clauses do not seek to limit a company's liability. Rather, they extract a benefit from the consumer, increasing the value of the exchange for the company and diminishing its value for the consumer. These provisions do not involve scenarios that are unlikely to affect most consumers, such as class action waivers or mandatory arbitration provisions. On the contrary, these provisions affect every consumer. In many cases, consumers would not agree to these provisions. They do so only because they have not read the contracts and because courts have created a legal fiction that construes certain actions as legal consent. These actions, such as clicking on a digital icon, are construed as consent by courts, even though consumers do not intend to enter into a legally binding agreement.²³

Privacy Diminishing Policies

Facebook's proposed changes to its privacy policy, which it announced in September 2013, provide examples of crook provisions. The changes seek to appropriate the user's personal information to profit from it and not, as the user might expect, to enable the delivery of services. The current policy permits users to "use your privacy settings to limit how your name and profile picture may be associated with commercial, sponsored, or related content."²⁴ The proposed policy, however, states that, "[y]ou give us permission to use your name, profile, picture, content and information in connection with commercial, sponsored or related content... This means, for example, that you permit a business or other entity to pay us to display your name and/or profile picture with your content or information, without any compensation to you."²⁵

The proposed policy also claims consent from third parties who are not even on the site, namely the parents of users who are children. It states:

If you are under the age of eighteen (18), or under any other applicable age of majority, you represent that at least one of your parents or legal guardians has also agreed to the terms of this section (and the use of your name, profile picture, content, and information) on your behalf.²⁶

There are plenty of reasons why consumers fail to read wrap contract terms. Often consumers are unaware that the terms exist or may believe they are harmless.²⁷ Another reason may simply be that it would be irrational to do so. Given how often companies update their online terms, and how many there are, consumers assume these changes affect only the company's risk assessment.²⁸ By contrast, there are reasons to suspect that, if a consumer knew about them, they would terminate a transaction rather than accept a crook provision.²⁹ Instagram's recent attempt to insert a crook provision into its wrap contract illustrates that if an issue is important to consumers—and it is brought to their attention—they will respond.³⁰

In December 2012, Instagram proposed changes to its terms of service that were eerily similar to Facebook's proposed changes. The proposed changes stated that:

[Y]ou agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you taken, in connection with paid or sponsored content or promotions, without any compensation to you. If you are under the age of eighteen (18), or under any other applicable age of majority, you represent that at least one of your parents or legal guardians has also agreed to this provision (and the use of your name, likeness, username, and/or photos (along with any associated metadata)) on your behalf.³¹

When Instagram's users got wind of the proposed changes, they protested clamorously enough that the company repented, claiming their change of heart was based upon users' concerns.³² In a post on the company's blog, it stated that:

Because of the feedback we have heard from you, we are reverting this advertising section to the original version that has been in effect since we launched the service in October 2010.* * * You also

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