Management

Deciphering Digital Contracts

Just Because They Can Doesn’t Mean They Should

Each year, my students at the Kelley School of Business are required to select a contract they are a party to and read it to the last word. For most, it’s the first time they’ve ever read a contract from beginning to end. In the assignment, they are tasked with analyzing exactly what they’ve agreed to. One of the basic tenets of contract law is that people are expected to enter into contracts in good faith. That means we consider the terms carefully before we commit, so we understand what we are agreeing to. Once the agreement is in effect, all parties are expected to follow the terms of the contract and to perform as promised. As I tell my students, “A deal is a deal.”

Terms and Conditions

Let’s start with one of the popular rideshare companies many of my students use. According to Uber’s website, ev-

eryone with an Uber account agrees to follow the Uber community’s guidelines. How exactly does that agreement occur? First, to use Uber, one must download the app onto a cell phone. In setting up an Uber account, the consumer enters a phone number and credit card information, then enters their name. When advancing from that screen, it says along the bottom, “By continuing, I confirm and agree that I have read the Terms and Conditions and the Privacy Policy.” Agreeing to follow the guidelines is one of those terms. In one simple press of a forward arrow, the consumer accepts, in all, some 20,000+ words of contract terms. Provisions like: • Uber isn’t providing the consumer with a ride, rather it is helping the consumer find a ride with an independent driver. • Uber makes no promises as to the suitability, safety or ability of a driver and expressly states that consumers ride at their own risk. • Riders who request a car seat agree that neither Uber nor the driver is responsible for the safety of the seat provided. • Any disputes between Uber and consumers will be resolved by arbitration. (Add another 48 pages of arbitration rules the consumer has agreed to.) One notable dispute includes a claim against Uber arising out of an accident. This is intended to preclude consumers from suing Uber in the local court system. • And, of course, Uber can change the terms at any time. Simply said, continued use of the app constitutes the consumer’s acceptance of those changes. It’s fair to guess that few, if any, consumers took the time to read any of the Uber terms of use while standing on a street corner, downloading the app for first-time use. Likewise, fairly frequent updates to the terms go unnoticed by Uber users. Here are some other terms my students have found in their contracts: • A gym limited its liability for all claims to an amount equal to the

Blind Acceptance

Over recent years, I have seen an increasing trend in the use of extremely one-sided provisions that some companies bury within the terms and conditions of their online contracts. While the businesses are clearly looking out for their best interests, some of the terms they present to consumers (who usually agree blindly) are borderline unconscionable. Before I share some of the terms my students have found, let’s consider a few statistics on the contract literacy and buying methods of our society: • A 2017 survey by Deloitte found that 91% of consumers accept terms and conditions without reading them. • The survey found an even higher blind acceptance rate of 97% for users between ages 18 to 34. • Last year, more than 2 billion people purchased goods or services online. • This year, online retail sales are projected to top $5.4 trillion worldwide. When we buy online, we download an app or access a retail website, which asks us to first agree to terms and conditions. Think about that for a minute: Imagine being stopped at the door at Target and asked to sign a multi-page contract in order to gain access to shop in the store. But when online, we impatiently click ‘I Agree’ to get on with our important transaction. What exactly are we agreeing to?

Imagine being stopped at the door at Target and asked to sign a multi-page contract in order to gain access to shop in the store.

most recent month’s membership fee. That translates to a $30 limit for damages for anything that happens to the member at the gym. • A free credit check service promptly began charging a $50 per month fee on the student’s credit card. The small print said the first month’s credit check was free, but not the monthly checks thereafter. Luckily, the student could cancel the service but still owed fees up to that date. • A landlord required six months advance notice of intent to not renew a one-year apartment lease. Failure to give timely notice extended the term of the lease until the landlord had the six-month notice. • Facebook users can only sue the company in its home county in

California or in the nearby federal court. That’s intentionally convenient for the company and equally intentionally inconvenient for Facebook’s users. • Numerous consumer contracts contained waivers of the right to participate in a class-action lawsuit.

A consumer may be unlikely to sue a company for a $10 refund, but a class action could hold a company responsible to everyone who is entitled to the refund. • Numerous contracts (e.g., Spotify,

Instagram, Apple) were governed by the laws of the home state of the company. This, in part, appears to be an attempt to circumvent Indiana consumer protection laws. Amusingly, one student’s gaming system contract was governed by the laws of Ukraine. So did these consumers really understand the terms before they clicked ‘I Agree?’ The general conclusion is no, but it doesn’t matter because the courts hold consumers to the terms anyway. The theory is that agreeing to online terms without reading them first is akin to signing a paper contract without reading it.

Ridiculous Provisions

But the circumstances are notably different. A paper contract is in front of the signer, in full-sized text. The reader has the ability to flip back and forth among the pages to consider terms. An online contract can be difficult to read, especially on a cell phone. And it’s very easy to get lost in the scrolling text. For example, the Facebook terms are spread over numerous policies that contain links to additional documents. A report issued last year by ProPrivacy.com brought the issue to light in a rather humorous way. It found that 99% of study participants were willing to agree unwittingly to ridiculous contract provisions using a point-andagree reaction when presented with terms of use for a website. Among the terms they accepted, consumers gave the company the right to name their children and granted permission for parents to view their browsing history. One could argue that use of online contracts allows businesses to hold significant advantages over consumers. Some of these terms for interaction between company and customer opaquely make consumers forgo rights previously protected by the common law. If the rules have changed, one can also argue that a better-informed consumer is less likely to have problems with a company. What’s the harm in making terms and conditions more accessible and more likely to be read? The company can still set the terms, but facilitating consumer understanding of the terms seems like the better, more ethical approach. Let’s conclude with the hardest question of all: While it seems companies have wide berth in setting their terms and conditions for doing business with consumers, how one-sided should they be? Just because they can escape liability for certain business practices, or limit consumer ability to seek redress for claims, should they take full advantage of that electronically facilitated shield? HCBM

Judith Wright is a clinical assistant professor of business law at Indiana University Kelley School of Business at IUPUI.

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