Gerhard Wagner (Humboldt University School of Law) & Horst Eidenmueller (University of Oxford – Faculty of Law) have posted “Digital Dispute Resolution” on SSRN. Here is the abstract:

This essay identifies and analyses key developments and regulatory challenges of “Digital Dispute Resolution”. We discuss digital enforcement and smart contracts, internal complaint handling mechanisms, external online dispute resolution and courts in a digital world. Dispute resolution innovations originate primarily in the private sector. New service providers have high-powered incentives and face fewer institutional restrictions than the courts. We demonstrate that with smart contracts, digital enforcement and internal complaint handling, a new era of dispute resolution by contract without a neutral third party dawns. This development takes the idea of a “privatization of dispute resolution” to its extreme. It promises huge efficiency gains for the disputing parties. At the same time, risks of an extremely unequal distribution of these gains, to the detriment of less vigilant parties, and of undermining the rule of law loom large. The key regulatory challenge will be to control the enormous power of large, sophisticated commercial actors, especially platforms. We suggest regulatory tools to address this problem.

Carla Reyes (Southern Methodist University – Dedman School of Law) has posted “Creating Cryptolaw for the Uniform Commercial Code” (Washington and Lee Law Review, Forthcoming) on SSRN. Here is the abstract:

A contract generally only binds its parties. Security agreements, which create a security interest in specific personal property, stand out as a glaring exception to this rule. Under certain conditions, security interests not only bind the creditor and debtor, but also third-party creditors seeking to lend against the same collateral. To receive this extraordinary benefit, creditors must put the world on notice, usually by filing a financing statement with the state in which the debtor is located. Unfortunately, the Uniform Commercial Code (U.C.C.) Article 9 filing system fails to provide actual notice to interested parties and introduces risk of heavy financial losses.

To solve this problem, this Article introduces a smart contract-based U.C.C.-1 form built using Lexon, an innovative new programming language that enables the development of smart contracts in English. The proposed “Lexon U.C.C. Financing Statement” does much more than merely replicate the financing statement in digital form; it also performs several U.C.C. rules so that, for the first time, the filing system works as intended. In demonstrating that such a system remains compatible with existing law, the Lexon U.C.C. Financing Statement also reveals important lessons about the interaction of technology and commercial law.

This Article brings cryptolaw to the U.C.C. in three sections. Section I examines the failure of the U.C.C. Article 9 filing system to achieve actual notice and argues that blockchain technology and smart contracts can help the system function as intended. Section II introduces the Lexon U.C.C. Financing Statement, demonstrating how the computer code implements U.C.C. provisions. Section II also examines the goals that influenced the design of the Lexon U.C.C. Financing Statement, discusses the new programming language used to build it, and argues that the prototype could be used now, under existing law. Section III proposes five innovations for the Article 9 filing system enabled by the Lexon U.C.C. Financing Statement. Section III then considers the broader implications of the project for commercial law, legal research around smart contracts, and the interplay between technology neutral law and a lawyer’s increasingly important duty of technological competence. Ultimately, by providing the computer code needed to build the Lexon U.C.C. Financing Statement, this Article demonstrates not only that crypto-legal structures are possible, but that they can simplify the law and make it more accessible.

Recommended.

Martin Ebers (Humboldt University of Berlin – Faculty of Law; University of Tartu, School of Law) has posted “Liability for Artificial Intelligence and EU Consumer Law” (Journal of Intellectual Property, Information Technology and Electronic Commerce Law) on SSRN. Here is the abstract:

The new Directives on Digital Contracts – the Digital Content and Services Directive (DCSD) 2019/770 and the Sale of Goods Directive (SGD) 2019/771 – are often seen as important steps in adapting European private law to the requirements of the digital economy. However, neither directive contains special rules for new technologies such as Artificial Intelligence (AI). In light of this issue, the following paper discusses whether existing EU consumer law is equipped to deal with situations in which AI systems are either used for internal purposes by companies or offered to consumers as the main subject matter of the contract. This analysis will reveal a number of gaps in current EU consumer law and briefly discuss upcoming legislation.

Cary Coglianese (University of Pennsylvania Law School) and Erik Lampmann (University of Pennsylvania Law School) have posted “Contracting for Algorithmic Accountability” (Administrative Law Review Accord, vol. 6, p. 175, 2021 on SSRN. Here is the abstract:

As local, state, and federal governments increase their reliance on artificial intelligence (AI) decision-making tools designed and operated by private contractors, so too do public concerns increase over the accountability and transparency of such AI tools. But current calls to respond to these concerns by banning governments from using AI will only deny society the benefits that prudent use of such technology can provide. In this Article, we argue that government agencies should pursue a more nuanced and effective approach to governing the governmental use of AI by structuring their procurement contracts for AI tools and services in ways that promote responsible use of algorithms. By contracting for algorithmic accountability, government agencies can act immediately, without any need for new legislation, to reassure the public that governmental use of machine-learning algorithms will be deployed responsibly. Furthermore, unlike with the adoption of legislation, a contracting approach to AI governance can be tailored to meet the needs of specific agencies and particular uses. Contracting can also provide a means for government to foster improved deployment of AI in the private sector, as vendors that serve government agencies may shift their practices more generally to foster responsible AI practices with their private sector clients. As a result, we argue that government procurement officers and agency officials should consider several key governance issues in their contract negotiations with AI vendors. Perhaps the most fundamental issue relates to vendors’ claims to trade secret protection—an issue that we show can be readily addressed during the procurement process. Government contracts can be designed to balance legitimate protection of proprietary information with the vital public need for transparency about the design and operation of algorithmic systems used by government agencies. We further urge consideration in government contracting of other key governance issues, including data privacy and security, the use of algorithmic impact statements or audits, and the role for public participation in the development of AI systems. In an era of increasing governmental reliance on artificial intelligence, public contracting can serve as an important and tractable governance strategy to promote the responsible use of algorithmic tools.

Tabrez Ebrahim (California Western School of Law) has posted “Algorithms in Business, Merchant-Consumer Interactions, & Regulation” (West Virginia Law Review, Vol. 123, 2021) on SSRN. Here is the abstract:

The shift towards the use of algorithms in business has transformed merchant–consumer interactions. Products and services are increasingly tailored for consumers through algorithms that collect and analyze vast amounts of data from interconnected devices, digital platforms, and social networks. While traditionally merchants and marketeers have utilized market segmentation, customer demographic profiles, and statistical approaches, the exponential increase in consumer data and computing power enables them to develop and implement algorithmic techniques that change consumer markets and society as a whole. Algorithms enable targeting of consumers more effectively, in real-time, and with high predictive accuracy in pricing and profiling strategies. In so doing, algorithms raise new theoretical considerations on information asymmetry and power imbalances in merchant–consumer interactions and multiply existing biases and discrimination or create new ones in society. Against this backdrop of the concentration of algorithmic decision-making in merchants, the traditional understanding of consumer protection is overdue for change, and normative debate about fairness, accountability, and transparency and interpretive considerations for non-discrimination is necessary. The theory that notice and choice in data protection laws and consumer protection laws are sufficient in an algorithmic era is inadequate, and countervailing consumer empowerment is necessary to balance the power between merchants and consumers. While legislative activity and regulation have conceivably increased consumer-empowerment, such measures may provide a limited or unclear response in the face of the transformative nature of algorithms. Instead, policy makers should consider responsible algorithmic code and other proposals as potentially effective responses in the analysis of socio-economic dimensions of algorithms in business.

Noam Kolt (University of Toronto) has posted “Predicting Consumer Contracts” (Berkeley Technology Law Journal, Vol. 37, 2022 Forthcoming) on SSRN. Here is the abstract:

This Article empirically examines whether a computational language model can read and understand consumer contracts. Language models are able to perform a wide range of complex tasks by predicting the next word in a sequence. In the legal domain, language models can summarize laws, draft case documents, and translate legalese into plain English. However, the ability of language models to inform consumers of their contractual rights and obligations has not been explored in detail.

To showcase the opportunities and challenges of using language models to read consumer contracts, this Article studies the performance of GPT-3, a powerful language model released in June 2020. The case study employs a novel dataset comprised of questions relating to the terms of service of popular U.S. websites. Although the results are not definitive, they offer several important insights. First, owing to its immense training data, the model can exploit subtle informational cues embedded in questions. Second, the model performed poorly on contractual provisions that favor the rights and interests of consumers, suggesting that it may contain an anti-consumer bias. Third, the model is brittle in unexpected ways. Performance was highly sensitive to the wording of questions, but surprisingly indifferent to variations in contractual language.

While language models could potentially empower consumers, they could also provide misleading legal advice and entrench harmful biases. Leveraging the benefits of language models in reading consumer contracts and confronting the challenges they pose requires a combination of engineering and governance. Policymakers, together with developers and users of language models, should begin exploring technical and institutional safeguards to ensure that language models are used responsibly and align with broader social values.

Mark Shope (National Yang Ming Chiao Tung University; Indiana University Robert H. McKinney School of Law) has posted “The Bill of Lading on the Blockchain: An Analysis of its Compatibility with International Rules on Commercial Transactions” (Minnesota Journal of Law, Science & Technology, Vol. 22, 2021) on SSRN. Here is the abstract:

This article examines the legal compatibility of a blockchain bill of lading under the following UNCITRAL works: the Model Law on Electronic Commerce, the Model Law on Electronic Signatures, the Convention on the Use of Electronic Communications in International Contracts, the Rotterdam Rules, and the Model Law on Electronic Transferable Records. The bill of lading has been around for centuries, shaping the cross-border sales landscape while at the same time being shaped by it. Blockchain technology is providing an opportunity to assess how various industries are conducting business, including the cross-border sales landscape. The compatibility of blockchain with bills of lading may seem unusual, since the former may be perceived as a new, disruptive technology originally used to trade cryptocurrency and the latter may be perceived as a centuries old, outdated solution that has resisted change. This article attempts to show that these two systems can in fact be compatible with each other and be compatible with international rules on commercial transactions, specifically as they relate to the bill of lading. Blockchain could be the technology that will put an end to the drawbacks of paper bills of lading, and the bill of lading system, if fully adopted, could be the application that develops blockchain technology to its full potential in the shipping industry.

Eric D. Chason (William & Mary Law School) has posted “Smart Contracts and the Limits of Computerized Commerce” (Nebraska Law Review, Vol. 99, No. 330, 2020) on SSRN. Here is the abstract:

Smart contracts and cryptocurrencies have sparked considerable interest among legal scholars in recent years, and a growing body of scholarship focuses on whether smart contracts and cryptocurrencies can sidestep law and regulation altogether. Bitcoin is famously decentralized, without any central actor controlling the system. Its users remain largely anonymous, using alphanumeric addresses instead of legal names. Ethereum shares these traits and also supports smart contracts that can automate the transfer of the cryptocurrency. Ethereum also supports specialized “tokens” that can be tied to the ownership of assets, goods, and services that exist completely outside of the Ethereum blockchain. By some accounts, cryptocurrencies and smart contracts will revolutionize private law. Some argue they have the potential to displace contract and property law. In this Article, I will argue that a complete revolution is not inexorable. Facing the technical and complicated nature of this subject, we should keep in mind a simple fact: cryptocurrencies and smart contracts are computer data and computer programs. To a large extent, they will have legal force only if given force by judges, regulators, and legislators.

Recommended.

Juliet M. Moringiello (Widener University – Commonwealth Law School) has posted “Automating Repossession” to SSRN. Here is the abstract:

Imagine if you bought a refrigerator from BestBuy on credit and BestBuy reserved the right to disable that refrigerator remotely if you failed to pay. This is not a future fantasy; subprime car lenders have been doing something similar for two decades. Many goods are connected to networks that allow the seller of the goods to retain some measure of control over them. These “smart goods” pose several challenges to the law, notably to the rules that govern creditors’ remedies when the owner of smart goods collateral defaults on the loan secured by such collateral. A creditor with a security interest in smart goods has the technological capacity to disable such goods remotely upon the borrower’s default.

Automating Repossession addresses a question that has no clear answer in commercial law – does a creditor have the right to remotely disable collateral upon its debtor’s default? As physical goods are increasingly connected to online networks in ways that allow their sellers to control their use, it is possible for secured lenders to deploy a remote and automated repossessor to disable tangible collateral in the event of a borrower’s default. Article 9 of the Uniform Commercial Code (UCC), which allows a secured creditor to repossess collateral upon its debtor’s default without resorting to the courts only if it can do so without a breach of the peace, does not address this practice. A handful of states have responded to the use of remote disablement by enacting amendments to their versions Article 9 of the UCC or their statutes aimed more specifically at consumer protection. In the vast majority of U.S. jurisdictions, the law is silent as to whether a remote disablement is equivalent to a self-help repossession and thus imposes no limitations on its use.

This paper recognizes that remote disablement should be a permissible creditor remedy in the UCC and proposes appropriate limitations on its use. To craft appropriate limitations, the article explores the history of the breach of the peace standard in repossessions involving physical contact. Rejecting that standard for automated repossessions, the article draws from contractual, legislative, and judicial sources to suggest limitations on remote disablement that address the unique harms caused by that remedy. Those sources include contracts governing remote disablement in the subprime automobile lending industry, the handful of existing laws governing the practice, and the restrictions on self-help remedies in the laws governing physical repossessions such as evictions, digital disablement of computer software, and remedies that cross the digital-physical divide in satellite financing. The article concludes by considering the interests that might be violated when a creditor crosses the digital-physical divide to remotely disable physical collateral and makes recommendations about how the UCC should address remote disablement as a creditor remedy.

Recommended.