Contracts as Technology

April
2013
Kevin E. Davis

If technology means “useful knowledge about how to produce things at low cost,” then contracts should qualify. Just as mechanical technologies are embodied in blueprints, technologies of contracting are embodied in contractual documents that serve as “blueprints for collaboration.” This Article analyzes innovations in contractual documents using the same kind of framework that is used to analyze other kinds of technological innovation. The analysis begins by laying out an informal model of the demand for and supply of innovative contractual documents. The discussion of demand emphasizes the impact of innovations upon not only each party’s incentives to collaborate efficiently, but also upon reading costs and litigation costs. The analysis of supply considers both the generation and dissemination of innovations and emphasizes the importance of cumulative innovation, learningby- doing, economies of scale and scope, and trustworthiness. Recent literature has raised concerns about the extent to which law firms produce contractual innovations. In fact, a wide range of actors other than law firms supply contractual documents, including end users of contracts, specialized providers of legal documents, legal database firms, trade associations, and academic institutions. This Article discusses the incentives and capabilites of each of these potential sources of innovation. It concludes by discussing potential interventions such as (1) enhancing intellectual property rights, (2) relaxing rules concerning the unauthorized practice of law, and (3) creating or expanding publicly sponsored clearinghouses for contracts.

This article appears in the April 2013 Issue: Volume 88, Number 1
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