Wolves of the World Wide Web: Reforming Social Networks’ Contracting Practices

Michael L. Rustad, Thomas F. Lambert Jr. Professor of Law at Suffolk University Law School, and Thomas H. Koenig, Professor of Sociology and Anthropology in the Law and Public Policy program at Northeastern University, have published an interesting research paper entitled, Wolves of the World Wide Web: Reforming Social Networks’ Contracting Practices, Wake Forest Law Review (Forthcoming); Suffolk University Law School Research Paper No. 14-25. Prior to publishing their article, the authors conducted a statistical analysis of social media terms of use agreements including the arbitration clauses that are often included.

Here is the abstract:

This Article employs a content and statistical analysis of 329 terms of use (TOU) of social networking sites (SNS) to report findings from this first empirical study of these online “contracts.” Social media terms of use present two primary challenges to the law of contracts; first, they are excessively one-sided in favor of the SNS and second, the key clauses are well beyond the reading comprehension level of the average social media user. Part I provides a systematic overview of the characteristics of our sample of the world’s largest social network providers, a diverse group of websites that are headquartered in forty different countries on four continents. Part II assesses the overall readability of these social networks’ TOU, finding that they are written at an average reading level of grade 11.7, significantly above the eighth to ninth grade reading level of the typical U.S. high school graduate. More importantly, the minimum reading level required to comprehend what we call the rights-foreclosure clauses — the mandatory arbitration, limitation of liability, and disclaimer of warranty provisions — is much higher. Social network providers draft rights-foreclosure clauses slightly below the reading level of the average college graduate; grade 15.5. This statistical finding casts doubt on a fundamental premise of the law of online contract formation, that an opportunity to review is sufficient to indicate contractual consent.

Part III provides a content analysis of the qualities of the ninety-four arbitration clauses deployed by the 329 social media sites. Twenty-nine percent of all SNS (U.S. and foreign) require consumers to accede to arbitration, often in distant forums, where the cost of filing and travel far exceeds the capped damages and limited remedies afforded to the consumer. Forty-two percent of the U.S. headquartered sites mandate arbitration, while only thirteen percent of the foreign social media sites have any arbitration option. The mean arbitration clause required a reading comprehension level of grade 15. Our research shows that while hundreds of millions of consumers are subject to arbitration clauses in social media TOU, consumers filed less than ten arbitration cases in the past two years with the American Arbitration Association or JAMS, the two leading arbitration providers. This miniscule rate of arbitration filings is strong unobtrusive evidence that arbitration in SNS cases is neither cost-efficient nor a practical remedy for injured consumers. The cryptic arbitration clauses deployed by social media providers are consistently one-sided and fail to give users ample warning that they foreclose all realistic remedies for breach of contract, torts, intellectual property infringement or other causes of action.

Part IV uses the statistical findings presented in the earlier Parts to demonstrate that social networks’ TOU frequently violate nine standard provisions of the European Union’s (EU) Unfair Contract Terms Directive (UCTD) by including terms that are black listed in the EU as fundamentally unfair. We recommend that Congress enact EU-style procedural and substantive mandatory terms to address the fundamental unfairness of TOU rights-foreclosure clauses such as forced arbitration, total warranty disclaimers, and damages capped to a nominal amount. To address the problem of impenetrable TOU, providers should be required to draft TOU with a minimum readability level coupled with standardized disclosures. We also propose that Congress enact black lists of prohibited clauses and grey lists of suspect provisions modeled on the European Union’s Unfair Contract Terms Directive. Harmonizing or localizing social network consumer protections will ultimately lead to greater certainty for providers as well as protect the basic rights of global social media users.

This and other scholarly papers authored by Professors Rustad and Koenig may be downloaded without charge from the Social Science Research Network.

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