LAND OF THE FREE MARKET: U.S. COMPANIES CONTINUE TO ENJOY GREATER LEGAL PROTECTION THAN CONSUMERS.

Author:LeBlanc, Christopher
 
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"The value of all things contracted for, is measured by the Appetite of the Contractors: and therefore the just value, is that which they be contented to give."--Thomas Hobbes

  1. INTRODUCTION

    The proliferation of internet-based companies, and the increasingly one-sided terms of service to which users must "consent" before using services or making online purchases, have led to a clash between U.S.-based corporations and European Union ("E.U.") governing bodies, like the European Commission ("E.C."). (1) As the internet further blurs the borders between two of the world's largest economic powers, web-based heavy hitters like Facebook, Google, Apple, and Amazon have run afoul of E.U. consumer protection regulations in recent years and cast light on the disparate approaches to consumer protection in business-to-consumer ("B1C") contracts between the U.S. and the E.U. (2)

    Although the E.U.'s Directive on Unfair Contract Terms-colloquially referred to as the "Unfair Contract Terms Directive" ("UCTD")--and other jurisdiction-specific consumer protection statutes represent continued progress in the interest of economic justice and fairness for European consumers, the U.S. remains a recalcitrant holdout in the West, doubling down on a conservative tradition of contract jurisprudence. (3)

    Through an empirical look at the terms of service of five of the largest U.S.-based internet-based companies, this Note highlights the disparity between the E.U.'s explicit prohibition on unfairness in offending terms of service clauses, while distinguishing those practices from withering domestic consumer protection doctrine. (4)

    American and European consumer protection directives are primarily outgrowths of the doctrines of good faith and unconscionability, and formalize the notion that fundamentally "unfair" agreements should not be binding. (5) Given the philosophical nature of "unfairness" at the core of the doctrine, and the relative lack of statutory or judicial guidance, the U.S. iteration of unconscionability has historically been notoriously difficult to define. (6) The broad, indefinite nature of the concept has unfortunately led to judicial caution domestically, giving way to fact-intensive, ad hoc determinations of "unconscionability." (7) However, to adequately track the origins of the concept, a clear and unambiguous definition, although broad, is necessary. (8)

    For purposes of this Note, I follow the definitional guidance of the Restatement (Second) of Contracts [section] 208, which defines an unconscionable contract as one in which there exists "gross inequality of bargaining power, together with terms unreasonably favorable to the stronger party." (9) There must also be a showing "that the weaker party had no meaningful choice, no real alternative, or no assent or appear to assent to the unfair terms." (10)

    In the foregoing sections, this Note outlines the substantive history of the concept of unconscionability from its origins in Europe to its incorporation into U.S. common law and its outgrowth and codification in E.U. consumer protection statutes. (11) Further, by applying prevailing E.U. consumer protection directives to the terms of service of five of the top U.S.-based internet companies, this Note highlights the growing disparity between U.S. and E.U. internet B2C contract practices. (12) In the interest of navigating jurisdictional nuances regarding consumer protection, the ensuing analysis provides an illustrative, non-exhaustive list of the types of terms in B2C service contracts which, although standard practice domestically, would lead to sanction and litigation abroad. (13) Finally, this Note examines whether the U.S. "market-driven" consumer protection regulatory model is sufficiently responsive to meet the changing needs of domestic consumers in a global economy. (14)

  2. HISTORY

    The earliest origins of consumer protection doctrine were rooted primarily in the "freedom to contract." (15) A seventeenth century principle that parties to an agreement are free to agree to, alter, or decline any legal terms, "freedom to contract" is rooted in the most fundamental tenet of contract and treaty law--"pacta sunt servanda": agreements must be kept. (16)

    1. Tracking Unconscionability and Consumer Protection: The European Union

      As the pan-European economy strengthened thanks in part to the "laissez faire" spirit of the era, the emerging middle class likely looked favorably upon principles of economic freedom. (17) With an emphasis on the "freedom" aspect of "freedom to contract," European nations began to codify the first seeds of consumer protection doctrine. (18)

      i. The United Kingdom Approach

      By the time it found favor elsewhere in the continent, the "sanctity of contract" was already well established by English common law. (19) Contemporary English cases showing deference to the principle that parties to an agreement should have equal freedom to agree or to alter the terms of an agreement also served as the first iterations of unconscionability doctrine. (20)

      First applied to instances in which young noblemen received "inadequate" consideration in sales of their birthrights, late seventeeth century English case law developed the principle that the court would not intervene in a contract freely entered into unless it involved "trading on a weakness of the expectant heir." (21) Likely an attempt to protect English nobility from the ill-advised actions of young heirs, by the early eighteenth century English courts showed increasing deference to principles of unconscionability in these contracts, eventually going so far as to establish that inadequacy of consideration alone was enough for a court to intervene. (22)

      Unfortunately, this broad use of unconscionability in equity, slanted heavily in favor of the landed class, led to a tepid judicial approach to expanding the doctrine to other areas of contract law. (23) In response to this judicial reticence, and in an effort to clarify unconscionability standards, Parliament enshrined its principles in the Money-Lenders Act of 1900 ("Money-Lenders Act") and later in the Consumer Credit Act of 1974 ("Consumer Credit Act"). (24) However, the narrow judicial approach to application of unconscionability in diverse areas of contract law persisted despite the courts' inclination to develop a concrete general doctrine. (25)

      Late into the twentieth century, courts continued to show reticence to expanding implementation of unconscionability beyond its statutory remit, as the English legislature cobbled together a disjointed unconscionability doctrine through various consumer protection statutes. (26)

      ii. The German Approach

      As courts in the United Kingdom were on the way to establishing the groundwork for consumer protection doctrine in the eighteenth century, their Prussian counterparts had already made substantial inroads in laying a solid foundation for those same doctrines. (27) Unlike their British counterparts, the German legislature was among the first in Europe to codify those bases while paying careful attention to the concept of "freedom" as it relates to the bargaining process. (28)

      Given that the German legislature was relatively early to the statutory consumer protection party, a galvanized general statutory framework of unconscionability spawned a collection of case law that coherently articulates the status of unconscionability and consumer protection doctrine from its origin to memorialization in modern consumer protection statutes. (29)

      The German statutory bases for the concept of unconscionability in contracts were first codified in 1896, principally in Articles 138 and 242 of the Burgerliches Gesetzbuch (BGB), the German civil code,. (30) Essentially, Article 242 established the "good faith" requirement, while Article 138 established the circumstances under which unconscionability issues occur, along with elements limiting the scope of the statute. (31) Article 138(2) further mandates:

      A legal transaction is void by which a person, by exploiting the predicament, inexperience, lack of sound judgement or considerable weakness of will of another, causes himself or a third party, in exchange for an act of performance, to be promised or granted pecuniary advantages which are clearly disproportionate to the performance. (32) Although Article 138(2) establishes a strong, clear foundation for unconscionability doctrine, it is limited, applying only to exploitative behavior in situations wherein the benefit drawn from the agreement is "clearly disproportionate." (33) However, this pared down statutory construction lends itself to clear, efficient judicial analysis and implementation of the now codified doctrine of unconscionability. (34)

      Given their inherent lack of substantive negotiation, contracts utilizing "unfair standardized terms" drew significant criticism rom German courts following the implementation of Articles 183 and 242. (35) The expansive case law that resulted was subsequently codified by the Standard Terms Act of 1976. (36)

    2. Tracking Unconscionability and Consumer Protection: The United States

      Although the doctrine of unconscionability, and the consumer protection statutes that spring from it, have received disparate legislative and judicial treatment in the U.S. than in England, the concepts share a common origin. (37) In one of the most oft-cited early U.S. cases regarding the doctrine of unconscionability, the Supreme Court quoted the then 1750 English decision, Earl of Chesterfield v. Janssen, in an attempt to define the concept of unconscionability and establish precedent upon which subsequent unconscionability analyses would rely. (38)

      Unfortunately, the hazy articulation set forth in Earl of Chesterfield is arguably the only substantive piece of the unconscionability puzzle that American jurists borrowed from their English counterparts. (39) In subsequent cases examining unconscionability, American jurists attempted to develop a...

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