Sneak in Contracts

• Publication year: 2021

Sneak in Contracts

Shmuel I. Becher
Victoria University of Wellington

Uri Benoliel
College of Law & Business UC Berkeley

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SNEAK IN CONTRACTS

Shmuel I. Becher^* & Uri Benoliel^†

Consumer contracts are a pervasive legal tool that govern many of our daily activities. Yet, consumer contracts are routinely modified by businesses after customers accept them. Common modifications include, for example, a change in fees, alteration of a dispute resolution clause, or revision to the firm's privacy policy. In fact, unilateral modifications can affect virtually every aspect of a contract.

While the literature widely discusses the problem of ex ante consent to consumer contracts, it does not adequately address the problem of ex post consent to unilateral modifications. But the practice of unilateral changes to consumer form contracts comes with significant detriments and social costs. Despite these costs, there are no systematic empirical studies exploring this phenomenon. This Article aims to fill this gap by empirically examining the frequency, mechanics, and degree of transparency of unilateral change mechanisms in consumer contracts.

This Article examines 500 sign-in-wrap contracts of the most popular websites in the United States that use such agreements. We find that the vast majority of consumer contracts in our sample are "sneak in" contracts—that is, they allow firms

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unilateral and broad discretion to covertly change consumers' rights and obligations after consumers accept them. This study's findings raise concerns as to whether sneak in contracts are aligned with prominent core values and principles of contract law, such as consent, promise, reliance, consideration, freedom, choice, empowerment, and community. The study thus calls for greater transparency in the law that governs the modification of consumer contracts.

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Table of Contents

I. Introduction....................................................................660

II. The Sneak in Contract Concept..................................666

III. The Empirical Test.......................................................670

A. Data........................................................................670
B. Methodology.........................................................674

1. Frequency of Sneak in Contracts.....................674
2. Statistical Relationship....................................679

C. Results...................................................................681

1. Frequency of Sneak in Contracts.....................681
2. Statistical Relationship....................................685

IV. Discussion and Normative Implications...................687

A. The Legal Status of Sneak in Contracts...........688
B. The Social Costs of Sneak in Contracts............692
C. Policy Recommendations: Scrutinizing Sneak in Contracts..............................................................700
D. The Devil Is in The Details: A Tentative Guideline For Regulators.....................................................707

V. Limitations and Criticisms...........................................718

A. The Futility Argument.........................................718
B. The Anti-Intervention Argument.......................722
C. The "Contract Deal" Vs. The "Real Deal" Argument...............................................................723
D. The Partial Data Argument.................................726

VI. Conclusion....................................................................727

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I. Introduction

Consumer contracts are a pervasive legal tool that governs many of our daily activities.¹ Whether we connect with friends on Facebook, post an experience on Instagram, open a bank account with Bank of America, get a mortgage from Wells Fargo, order food via Uber Eats, share a thought on Twitter, insure a car with State Farm, purchase a book on Amazon, join an Anytime Fitness gym, or search for a product on Google, consumer contracts frame our rights and obligations. Indeed, consumer contracts are omnipresent.

Nevertheless, businesses routinely modify consumer contracts after consumers accept them.² Take, for instance, some of the most popular firms and online platforms.³ While we drafted this Article, YouTube, Airbnb, Lyft, PayPal, Quora, Meetup, Yelp, Dropbox, LinkedIn, Spotify, and Microsoft have all changed their consumer agreements after consumers entered into the contracts.⁴ Common modifications include changes in fees,⁵ modifications of dispute

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resolution clauses,⁶ and revisions to the firm's privacy policy.⁷ In fact, unilateral modifications can change any aspect of a contract.

Consumer form contracts raise a myriad of thorny issues, and extensive scholarship exists on the problem of information asymmetry and ex ante consent to such contracts.⁸ Yet policymakers, courts, and scholars do not adequately recognize the scope of the problem of ex post consent to unilateral contract modification. This is particularly troubling since an important difference exists between the ex ante and ex post stages. When a consumer accepts a form contract ex ante, the consumer must deal with a lengthy and complex contract, which the consumer often cannot read or understand.⁹ The consumer also must consider other important aspects of the product or service (such as price, delivery, design, etc.), which may distract the consumer from the contract.¹⁰ When facing ex post modifications, however, a consumer only needs to consider the specific aspects of the contract that are being changed. That is, a consumer's attention is directed to the relevant clauses that are being modified. This suggests that, at least when a

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consumer is not locked into a contract,¹¹ the consumer is more likely to read, review, and evaluate a provision incorporated by ex post modification than to read the same provision ex ante, so long as the ex post modification is properly communicated.

Unfortunately, however, this potential promise of the ex post stage has largely been overlooked. Some commentators have examined the phenomenon of ex post unilateral change,¹² but the literature primarily relies on common sense, assumptions, and anecdotal evidence. In other words, there is a paucity of systematic empirical studies that explore the contractual mechanisms that support, allow, and facilitate these unilateral modifications.¹³ This

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Article aims to fill this gap by empirically examining the nature and frequency of change-of-terms mechanisms in consumer contracts.¹⁴

Our analysis is based on a sample of the 500 most popular websites in the United States that use sign-in-wrap contracts.¹⁵ Sign-in-wrap contracts are an important and prevalent type of consumer agreement in which the user agrees to the terms and conditions as part of the sign-up process.¹⁶ Such contracts are routinely accepted by billions of users when signing up on popular websites such as Facebook, Amazon, Instagram, and Uber.¹⁷ Unilateral modifications of these contracts have triggered intense public debate and criticism.¹⁸

As this Article demonstrates, unilateral, broad, and hidden changes to consumer form contracts harm consumers and impose considerable social costs.¹⁹ Among other costs, this practice creates

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the risk that hidden unilateral changes that harm consumers will fly under consumers' radars and remain unnoticed.²⁰ It also forces consumer watchdogs—which aim to reduce information asymmetry between consumers and firms—to wastefully invest resources in constantly trying to uncover hidden and harmful contract modifications.²¹

In light of the social costs of unilateral modifications, this Article employs the term "sneak in contracts" to refer to agreements that include three cumulative characteristics. First, sneak in contracts grant firms the right to unilaterally modify the agreements without consumers' explicit consent to the change. Second, sneak in contracts use broad unilateral change provisions, giving firms wide discretion to modify the contract at any time and for any reason. Third, sneak in contracts facilitate non-transparent modifications; they do not require firms to inform consumers personally (e.g., by e-mail), publicly (e.g., via these firms' websites), or in advance about the occurrence and substance of the change.

We studied the nature of sneak in contracts via a content analysis of the contractual modification mechanisms—namely, the change-of-terms provisions—employed by 500 highly popular websites.²² Specifically, we examined how firms design unilateral modification clauses. Are these mechanisms fair, transparent, and efficient? Do they properly balance the interests of businesses and consumers? Do they provide consumers with clear and effective notice of proposed changes?

This Article makes three contributions. First, the results of our empirical study indicate that the vast majority of consumer

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contracts—for the most popular websites, at least—are sneak in contracts.²³ Thus, the Article sheds important light on the need to scrutinize the ex post stage of consumer contracts. While focusing on consumers' consent and the need to protect them during the period of contract formation is natural and intuitive, this Article illustrates that such concerns should remain paramount after the parties have entered into the contract, too. Accordingly, the results of our study encourage a more nuanced conversation about whether modification terms are aligned with the core values and principles of contract law—such as consent, promise, reliance, consideration, freedom, choice, empowerment, and community.

Second, this Article enriches the discourse regarding the regulation of the content and mechanics of consumer contracts.²⁴ Commentators generally agree that courts should prevent parties from unfairly using unilateral modification provisions.²⁵ However, this approach might be too vague and imprecise—one which does not provide enough...