This post provides a brief outline of the contractual chapter of my PhD thesis. Comments appreciated. See Part 1 for the introductory and theoretical outline.

The term 'digital constitutionalism' is used here to denote the essential values which underpin the development of legal principle as it applies to the new technological age. It refers to the way in which private legal doctrine will be read in an environment which clearly does not support a sharp distinction between public and private spheres. By accepting the fundamental proposition that the interpretation and application of law is never value-neutral, we are able to ask whether and how we ought to embed public values in the common law so as to achieve the balance required by justice.

The law of contract is a logical first candidate through which to examine the balance required in the regulation of virtual communities. Access to most virtual communities is generally purported to be governed by contractual terms of service documents which are overwhelmingly drafted in favour of the proprietors. These standard form contractual terms of service can rarely be said to reflect the 'intent of the parties'. They are drafted by repeat players, who are able to properly evaluate risk, and are presented in dense language on 'take it or leave it' terms, with the expected result that participants are both unable to properly evaluate the terms and, in cases where they do find the terms objectionable, are unable to negotiate alternative terms. Competition in contractual terms is negligible, and participants are unable to adequately manifest demand for fairer terms. Furthermore, participants tend to discount the risk that they will be adversely affected by unjust or onerous terms, rarely realising the gravity of their mistake unless and until those terms are enforced. Through these standard form contracts, proprietors essentially appropriate all power and discretion to themselves and, through selective enforcement, are able to exercise control over the virtual community.

The common law, however, is by no means bound to give full legal force to the literal wording of these contractual documents; instead, judges habitually read down contracts in light of the deemed intent of the parties and public policy interests. Indeed, if these documents, by setting out standards of behaviour and constraints on the exercise of power in virtual environments, are to be seriously treated as forming the basis for a type of social contract between participants and proprietors, then a formal literal reading is likely to lead to substantially unjust outcomes. By taking a critical approach to the interpretation of contractual terms of service, judges are in a position to substantially ameliorate the imbalance of power and encourage the development of contractual norms which more closely reflect societal values, rather than the self-interest of proprietors.

This instrumental approach is not alien to contract law. As Sir Anthony Mason and S J Gageler recognised in a 1987 article,

[t]he role of public policy in the formulation and application of contract rules has also tended to be understated. At root, public policy is inherent in the notion of legal adjudication. A court order for the enforcement of a contract does not simply allow the parties to pursue their own freely chosen course of conduct. It brings the full power of the state to bear against one party in the service of another. When and how this should be done are necessarily important questions of public policy.¹⁾

Considerations of public policy find their way into contractual interpretation in a variety of different doctrines. First and foremost, the plain contractual terms are read not by their subjective meaning, but in light of what the parties are deemed to have agreed to. A degree of reasonableness applies here, in that parties will be bound by what a reasonable person would have believed that each was agreeing to. In the case of standard form contracts which are rarely read and never negotiated, there is a strong argument that terms which are overly onerous or surprising would not reasonably be believed to form part of the contract. Other limitations apply to the incorporation and enforcement of contractual terms, including estoppel, waiver and acquiescence, and an implied duty of good faith, among others.

The way that terms of service are currently drafted generally imposes very little obligation on the proprietors of virtual communities. The interests of participants are essentially ignored, and participants have little hope of being able to successfully sue on the contract. If we are to continue to assume that contractual documents form the basis of governance in virtual communities, then it would seem to be desirable to ensure that participants are able to extract and enforce promises from proprietors as appropriate. Courts may be able to encourage more fully formed 'social contracts' by refusing to enforce the more egregious terms and implying certain terms that the participants are unlikely to be able to demand. In this way, courts may be able to safeguard the interests of participants in a way which negates the involuntariness associated with the power imbalance in virtual communities and simultaneously encourages the diversity which an efficient and effective contractual model provides.

Photo: Andrew Feinberg, CC BY 2.0.

Last week, I had the opportunity to talk to Mozelle Thompson at an event organised by QUT IPKCE and the IIA. Mozelle was a US Federal Trade Commissioner, and is now a legal adviser to Facebook.

Mozelle had some interesting things to say about Facebook's privacy policies, including that he had recently spoken to a convention of Australian police officers and reinforced Facebook's pledge to only cooperate with law enforcement if it's demands were backed by valid legal procedure (ie., warrants and judicial oversight).

”[Facebook is] not here to provide people who want to spy the process for a fishing expedition.”

Interestingly, he also mentioned that Facebook would not comply with authorities if it believed the local laws to be too onerous:

”[…] if we think that that legal process is overbroad or inappropriate we will not enforce it.”

Mozelle also had some statistics about Facebook's adoption and growth. Without going into the details, Facebook is becoming enormous, everywhere. This raises some interesting questions. It is slowly becoming difficult to organise and participate in events if you're not a member of Facebook. Indeed, a large proportion of the people at Mozelle's talk heard about it only through Facebook. Both social and professional networking appears to be migrating to Facebook and (perhaps to a lesser extent) similar platforms. Anecdotally, it appears that it is not uncommon for a friendship group to organise themselves almost exclusively through Facebook. This means that people are becoming increasingly reliant on Facebook and other proprietary platforms for the organisation of their social life, and, to my mind, this raises the question of what responsibilities do Facebook and such other platforms have to their users?

The first thing to point to is Facebook's Terms of Use, which could charitably be described as oppressive. Significantly, they contain a clause which allows unilateral termination:

The Company may terminate your membership, delete your profile and any content or information that you have posted on the Site or through any Platform Application and/or prohibit you from using or accessing the Service or the Site or any Platform Application (or any portion, aspect or feature of the Service or the Site or any Platform Application) for any reason, or no reason, at any time in its sole discretion, with or without notice[.]

So, I asked Mozelle whether there were any applicable limits to Facebook's discretion in the way it treats its users. His answer was a very emphatic 'no'. Mozelle highlighted that it doesn't make good business sense to treat your customers poorly, and that the market provides essential safeguards for the interests of users. The problem with this argument is fairly simply stated: (a) there are few alternatives to facebook; (b) network effects inhibit exit and impose barriers to entry to new players; and © even if the market were efficient, it reduces important issues of rights and interests to a market rhetoric and provides little to no protection for the interests of minority groups.

When I pressed Mozelle about non-market limitations, he forcefully rejected the suggestion that Facebook's discretion could be limited. By differentiating Facebook from public utilities, Mozelle argued that the public (government) had no right to interfere in the way in which Facebook was run. Unlike public utilities, Facebook receives no public funding and operates in a competitive market. I asked for clarification on this point, because the market certainly doesn't seem competitive. Mozelle, who was a Federal antitrust lawyer, answered that you couldn't definte the market as narrowly as 'a market for social networking websites', and, accordingly, Facebook didn't have market power.

Competition law aside, there is a significant problem with the false dichotomy presented by Mozelle Thompson. It is simply not true that either an entity is a public utility, in which case it is regulated, or it is a private proprietary corporation, in which case it is not. We impose limits on the behaviour of private entities all the time. There is no reason that we cannot alter the boundaries of private property and the apportionment of liability and responsibility in any given case, and the proper location of these boundaries is exactly the discussion we need to be having.

I pointed Mozelle to the example of Sara Andrews, who was threatened with banning from World of Warcraft by Blizzard after she advertised for a LGBT-friendly guild. Mozelle distinguished World of Warcraft from Facebook based upon the subscription fee which WoW gamers pay. The gist of the argument was that by paying $15/mo, WoW subscribers had a right to complain to Blizzard about the way they are treated. Facebook users, on the other hand, pay nothing, and therefore have no such rights.

This is very dangerous thinking. Firstly, Facebook users, in aggregate, provide almost all of the value of the Facebook company. The technical platform represents some intiial investment, but it is the social network which provides the real driving force (and advertising revenue). If we focus only on subscription models, we are able to say that there is no consideration paid by Facebook users, and hence no contractual remedies. On the other hand, if we recognise the value that participants provide, this assumption may no longer hold.

More importantly, I believe that a valid contractual relationship is not the only source of liability that platforms like Facebook may be exposed to. There are any number of non-contractual arguments which could be raised, including, most significantly, negligence, estoppel, and unjust enrichment. It may be that Facebook owes its users a duty of care not to arbitrarily or maliciously remove them, for example. Alternatively, it may be that Facebook's oppressive Terms of Use are not adequately reflected in the internal community norms, and Facebook may be estopped from enforcing those terms as written in a particular case.

We need to stop talking in terms of clear dichotomies between private and public spaces. These private networks are providing functions which were public in nature when we drew the boundaries we know – which explains why there are constitutionally protected remedies against the State when it prevents you from associating with your social network in public. In no way does this fact preclude us from determining the appropriate level of responsibility that proprietors will owe to individuals in the future.

It may well be that we will decide not to impose liability on facebook for arbitrarily or maliciously ejecting its customers, but this result is by no means certain. By presenting these issues as a clear dichotomy between private and public, we are ignoring the malleability of legal rules and forestalling a proper debate on the rights and responsibilities of actors in our networked society. We are also ignoring the very real harms that individuals may suffer at the hands of platform owners like Facebook, and it is certainly time open up this debate. In this debate, the reification of property-based arguments will only slow us down.

Most EULA and ToS documents now require the participant to 'accept' the document by checking a box or clicking a button before continuing. If this is accepted to be equivalent to signing the contract, then the terms of the documents will generally be incorporated regardless of whether the participant has actually read them or not (absent any misleading conduct).¹⁾ However, if clicking an 'I agree' button is not treated as equivalent to signing a contract, and is instead considered more analogous to the ticket cases (incorporation by notice), terms will only be incorporated where the drafting party can show that he or she has taken reasonable steps to bring the clause to the attention of the other party.²⁾ What is reasonable, of course, depends on the circumstances and on the clause itself.

Most of the ticket cases concern exclusion clauses. It appears likely, however, that it is the unusualness, severity, or unreasonableness of the clause which is important, rather than the strict type of clause. Lord Justice Denning (as he then was), in J Spurling Ltd v Bradshaw, noted, obiter, that

the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.³⁾

Lord Denning MR had an opportunity to develop this reasoning in Thornton v Shoe Lane Parking Ltd, where the Queen's Bench was asked to determine whether an exclusion provision referenced on a pillar upon entering a car park and again in small print on a ticket dispensed by an automatic parking machine was validly incorporated in the contract. His Lordship held that it was not, because the ticket was issued after the contract was formed;⁴⁾ however, he noted, obiter, that if this were not the case, then the customer would be “bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it.”⁵⁾ Lord Denning appeared to recognise that the more onerous the provision, the greater the requisite notice must be – in the instant case, the limitation was
so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way.⁶⁾

In the same case, Megaw LJ applied a test of whether or not unusual terms had been “fairly brought before the notice of the accepting party”.⁷⁾ His Lordship held that

at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Mellish LJ, “reasonably sufficient to give the plaintiff notice of the condition,” depends upon the nature of the restrictive condition.⁸⁾

This principle was explicitly considered by Brennan J in the High Court in Oceanic Sun Line Special Shipping Co Inc v Fay, where His Honour said that

where an exemption clause is contained in a ticket or other document intended by the carrier to contain the terms of carriage, yet the other party is not in fact aware when the contract is made that an exemption clause is intended to be a term of the contract, the carrier cannot rely on that clause unless, at the time of the contract, the carrier had done all that was reasonably necessary to bring the exemption clause to the passenger's notice⁹⁾

In Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) 22 NSWLR 1, Kirby P (as he then was) considered that there was a “responsibility to bring unusual conditions at least to the notice” of passengers of a cruise ship – it was the unusualness of the limitation clauses, combined with the failure to alert passengers that they ought to make their own arrangements for insurance, which meant that simply stating that the contract was subject to terms and conditions was not sufficient notice.¹⁰⁾ Similarly, it was the “subject matter and content of the relevant limitation clauses”¹¹⁾ which “significantly limit[ed] the appellants common law liability”¹²⁾ that determined the requisite level of notice for Gleeson CJ (as he then was) in the same case. Chief Justice Gleeson concluded that “it is the fact, and extent, rather than the precise mechanics, of the limitation that are of primary importance.”¹³⁾

In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, the Queen's Bench did not accept that the reasoning of Shoe Lane Parking was limited to exclusion clauses, Dillon LJ holding that

what their Lordships said was said by way of interpretation and application of the general statement of the law by Mellish L.J. in Parker v South Eastern Railway Co, 2 CPD 416, 423-424 and the logic of it is applicable to any particularly onerous clause in a printed set of conditions of the one contracting party which would not be generally known to the other party.¹⁴⁾

Lord Justice Dillon extended the decision in Shoe Lane Parking to the general principle that

where a condition is particularly onerous or unusual the party seeking to enforce it must show that that condition, or an unusual condition of that particular nature, was fairly brought to the notice of the other party.¹⁵⁾

Lord Justice Bingham reached the same conclusion, holding that

what would be good notice of one condition would not be notice of another. The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound must in all fairness be given.¹⁶⁾ at “a very high and exorbitant rate”,¹⁷⁾ which resulted in “an inordinate liability.”¹⁸⁾ Indeed, the both judges in this case apparently would have held that the offending clause was void as a penalty clause, but the argument was not raised at first instance or upon appeal.¹⁹⁾ In the circumstances, the Queen's Bench had no difficulty substituting a quantum meruit for the subject matter of the contract.²⁰⁾ Interfoto has not, however, been greatly extended in the two decades since it was decided.

The ticket cases are interesting for our purposes. They show a line of authority which suggests that where a person does not read a contract (and is not reasonably required to read the contract) then any surprising terms must be reasonably brought to their attention before they will be bound. These cases suggest that it must be possible to contract without reading the whole terms, and that it is the responsibility of the drafter to make surprising or unusual terms stand out. They are likely to be negated, however, where the contract has been signed.²¹⁾

The interesting point to draw from this line of cases is that if, for some reason, the ticket cases can be extended to cover click-wrap contracts (ie., the terms are sought to be incorporated by notice rather than by assent), then there is support for the proposition that surprising and unusual terms should be specifically brought to the attention of the participant, without the need to imply a duty of good faith. This in turn is interesting, because it particularly accords with the Karl Llewellyn's theory of Blanket Assent.