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The End of Contract Law?

by Glen Emerson Morris

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It could be argued that the history of business began with the introduction of the legally enforceable contract. Prior to then, commerce had been a free for all, and the side with the biggest army usually won. After contracts were introduced, some 4,000 years ago, business began to have the predictability it needed to flourish. A number of contracts survive from this time period, and they all tend to be concise and remarkably clear in their meaning. The same cannot be said for many of the contracts of today.

There are several new trends in the creative use of contracts by telecommunications corporations that not only threaten to vastly limit the growth of Internet commerce, but also threaten the very foundations of contract law. The idea that a contract should spell out what is to be purchased, and for what price, as agreed to p by buyer and seller, is all too frequently viewed as ancient history by the sellers of telecommunications services.

For instance, a number of American phone companies have adopted a tactic of making it close to impossible to cancel any kind of phone service, despite printed assurances that customers had the right to cancel the contract at any time.

As Business Week recently reported, some companies are going even farther, and billing customer's credit cards for goods and services they never agreed to purchase in the first place. This is fairly easy to do once the company has acquired the customer's credit card number, and difficult for a customer to do anything about.

Customers are increasingly finding that they have little recourse against these practices, since many of these companies require customers to waive the right to take them to court, and instead agree to contractually binding arbitration, through a service of the seller's choice. A new variation of this trend has been to use an arbitration service that charges the consumer a substantial fee just to hear the case.

An even more insidious tactic by some telecommunications companies is to adopt the famous credit card company line of reserving "the right to change conditions of the contract without notice." This allows them to jack up the rate for a call several hundred percent, sometimes with no more notice than just posting the rate increase on their Website.

A Bay Area newspaper reported the case of a businessman, who, after signing up for a ten cents a minute long distance service months earlier, found the telecom service had raised the rate to sixty nine cents a minute, without notifying him. By the time the first bill came with the new rate, he had been using the service for several weeks and had run up a substantial bill.

Recently, the service provider for this magazine's Website, Verio, increased the monthly rate by 50%, and applied it retroactively to the previous month as well. The increase was in the form of a charge for new services we had not requested, and no one at Verio's billing office could say what the new services did, just that we would be very unhappy if we cancelled them. When we told them that a dispute would be filed with the credit card company, their comment was, "It won't do you any good, we've already got your money." Eventually, the problem was settled by going through Verio's sales department. Still, we have to wonder how many other customers were subjected to this, and how it affected their confidence in e-commerce.

Internet marketing will never be capable of reaching anywhere near its full potential unless the average consumer, and the average business, have a justified feeling of confidence in the entire e-commerce system. The customer needs to trust Internet marketers as much, or more, than they trust their banks, and Internet marketers need to have an equal in trust their e-commerce service providers.

According to a number of surveys, most of the people who don't shop on the Internet, don't because of a basic lack of trust of the system. Since this group includes about half the population, it means e-commerce will never become a true mass market until the trust issue is addressed, even if 100% of the population has high speed Internet access.

If anything, consumers' distrust of Internet commerce is increasing. There have been a number of high visibility cases where hackers acquired customer's credit card numbers from major Internet sites. In addition, the recent decision by many online businesses, like, to consider their customer databases an asset to be sold in case of bankruptcy has also increased distrust by consumers. These events, combined with the new trends in telecommunications contracts, indicate a very problematic future for e-commerce ahead.

It is unthinkable to imagine an advertiser making media buys under a system that allowed media the unlimited ability to increase rates after the contract had been signed. It would virtually be giving media a blank check on the company's bank account. Budgeting would simply be impossible. Yet increasingly, telecommunications companies, that both business and consumers depend on for e-commerce, are offering service on exactly those same terms.

Unless advertisers and consumers are very careful, they may find the "Information Superhighway" has turned into a toll road, with speed traps, and has become no place, as the ancients would say, to put a trade route. But even worse, if this trend of one-way contracts continues to grow, the real question may prove to be not whether we're facing the end of the e-commerce boom, but whether we're facing the end of contract law.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved

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