Kevin E. Davis


Contracting for Personal Data

Kevin E. Davis, Florencia Marotta-Wurgler

Is contracting for the collection, use, and transfer of data like contracting for the sale of a horse or a car or licensing a piece of software? Many are concerned that conventional principles of contract law are inadequate when some consumers may not know or misperceive the full consequences of their transactions. Such concerns have led to proposals for reform that deviate significantly from general rules of contract law. However, the merits of these proposals rest in part on testable empirical claims. We explore some of these claims using a hand-collected data set of privacy policies that dictate the terms of the collection, use, transfer, and security of personal data. We explore the extent to which those terms differ across markets before and after the adoption of the General Data Protection Regulation (GDPR). We find that compliance with the GDPR varies across markets in intuitive ways, indicating that firms take advantage of the flexibility offered by a contractual approach even when they must also comply with mandatory rules. We also compare terms offered to more and less sophisticated subjects to see whether firms may exploit information barriers by offering less favorable terms to more vulnerable subjects.

The Demand for Immutable Contracts: Another Look at the Law and Economics of Contract Modifications

Kevin E. Davis

One of the most challenging questions in contract law is whether parties should be free to create contracts that limit their own freedom of contract and thereby, in effect, contract over the scope of freedom of contract itself. So far the debate has revolved around the enforceability of “anti-modification clauses,” which state that subsequent modifications to the contract in which they are contained will be unenforceable. The courts appear reluctant to enforce anti-modification clauses. Some rominent law and economics scholars have argued that in certain circumstances parties would benefit from being able to make their contracts immutable and that courts therefore should enforce anti-modification clauses. This Article advances several claims that contradict the underlying remises of this argument. It begins by setting out a variety of reasons why the demand for immutable contracts, or at least those created by adopting anti-modification clauses, might be low. The central claim is that although anti-modification clauses may be unenforceable, contracting parties can duplicate their economic effects by using a technique labeled the “representative trustee technique.” The essence of this technique is that the parties agree to turn over the benefits of any modification to a trust with a large number of beneficiaries. The conceptual building blocks of the representative trustee technique are all familiar, yet there is no indication of its use in practice. If valid, these observations are inconsistent with the idea that there is a significant demand for enforceable anti-modification clauses. It is, however, possible that, contrary to the primary argument in this Article, contracting parties are unaware of the possibility of adopting the representative trustee technique. In that case, the analysis here is still relevant because it suggests that once the technique is publicized it will satisfy at least some of the demand for enforceable antimodification clauses. In any case, there seems to be no compelling reason to heed calls to enforce anti-modification clauses.

Contracts as Technology

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.