Will Increased Disclosure Help? Evaluating the Recommendations of the ALI\u27s Principles of the Law of Software Contracts

The aim of the American Law Institute\u27s new Principles of the Law of Software Contracts is to improve online contracting practices. Instead of regulating terms directly to reduce the possibility of unfair or biased terms, the Principles emphasize increased contract disclosure to encourage readership and comparison shopping. In this Article, I test whether increasing disclosure in the proposed manner is likely to increase readership in the setting of end user license agreements (EULAs) of software sold online. I follow the clickstreams of 47,399 households to 81 Internet software retailers and find that EULAs are approximately 0.36 percent more likely to be viewed when they are presented as clickwraps that explicitly require assent, as suggested by the Principles, than when they are presented as browsewraps. The results indicate that mandating disclosure will not by itself change readership or contracting practices to a meaningful degree. I briefly review other approaches to reform that may be more effective but come with their own limitations

Does Anyone Read the Fine Print? Testing a Law and Economics Approach toStandard Form Contracts

A cornerstone of the law and economics approach to standard form contracts is the 'informed minority' hypothesis: in competitive markets, a minority of term-conscious buyers is enough to discipline sellers from offering unfavorable boilerplate terms. The informed minority argument is widely invoked to limit intervention in consumer transactions, but there has been little empirical investigation of its validity. We track the Internet browsing behavior of 45,091 households with respect to 66 online software companies to study the extent to which potential buyers access the standard form contract associated with software purchases, the end user license agreement. We find that only one or two out of every thousand retail software shoppers chooses to access the license agreement, and those that do spend too little time, on average, to have read more than a small portion of the license text. The results cast doubt on the relevance of the informed minority mechanism in a specific market where it has been invoked by both theorists and courts and, to the extent that comparison shopping online is relatively cheap and easy, suggest limits to the mechanism more generally

Disclosure as a Mechanism to prevent Market Failure

Regulators often address the potential for onesided standard form contracts by requiring extra disclosure of the terms. Despite its ubiquity, for a disclosure regime to be effective, it must increase readership of contracts beyond a nontrivial rate, and, in addition, individuals must be willing to change their decisions conditional on what they read. I follow the clickstream of 47,399 households to 81 Internet software retailers to test whether those who shop for software online are more likely to read the license agreement when it is more prominently disclosed. I find that the degree of disclosure has almost no impact on the rate at which consumers read license agreements. Moreover, those who do read are equally likely to purchase the software product regardless of the onesidedness of the contract. The results suggest that mandating disclosure online is unlikely, on its own, to put pressure on sellers

Will Increased Disclosure Help? Evaluating the Recommendations of the ALI\u27s Principles of the Law of Software Contracts

The aim of the American Law Institute\u27s new Principles of the Law of Software Contracts is to improve online contracting practices. Instead of regulating terms directly to reduce the possibility of unfair or biased terms, the Principles emphasize increased contract disclosure to encourage readership and comparison shopping. In this Article, I test whether increasing disclosure in the proposed manner is likely to increase readership in the setting of end user license agreements (EULAs) of software sold online. I follow the clickstreams of 47,399 households to 81 Internet software retailers and find that EULAs are approximately 0.36 percent more likely to be viewed when they are presented as clickwraps that explicitly require assent, as suggested by the Principles, than when they are presented as browsewraps. The results indicate that mandating disclosure will not by itself change readership or contracting practices to a meaningful degree. I briefly review other approaches to reform that may be more effective but come with their own limitations

Self-Regulation and Competition in Privacy Policies

I investigate alternative explanations for the content of privacy policies. Under one model of self-regulation, firms signal their privacy protections to consumers by highlighting compliance with third-party guidelines. However, in a sample of 249 policies, only 27 percent claim compliance with a specific guideline, and the policies that do claim compliance with at least one guideline are generally inconsistent with its requirements. Alternatively, under a market-based mechanism, firms incorporate consumers’ preferences directly. Consistent with this influence, there are several intuitive differences in terms across markets. Adult sites—none of which claim certification—are much more likely to give concise and clear notice of privacy practices and limit data sharing with third parties, while cloud-computing sites are particularly likely to follow stringent data security standards. Overall, privacy policy content appears to be shaped at least as much by market forces as by a self-regulatory regime based on external guidelines