Tuesday Tips from SSRN
Noam Kolt
Abstract
The prospect of artificial superintelligence—AI agents that can generally outperform humans in cognitive tasks and economically valuable activities—will transform the legal order as we know it. Operating autonomously or under only limited human oversight, AI agents will assume a growing range of roles in the legal system. First, in making consequential decisions and taking real-world actions, AI agents will become de facto subjects of law. Second, to cooperate and compete with other actors (human or non-human), AI agents will harness conventional legal instruments and institutions such as contracts and courts, becoming consumers of law. Third, to the extent AI agents perform the functions of writing, interpreting, and administering law, they will become producers and enforcers of law. These developments, whenever they ultimately occur, will call into question fundamental assumptions in legal theory and doctrine, especially to the extent they ground the legitimacy of legal institutions in their human origins. Attempts to align AI agents with extant human law will also face new challenges as AI agents will not only be a primary target of law, but a core user of law and contributor to law. To contend with the advent of superintelligence, lawmakers—new and old—will need to be clear-eyed, recognizing both the opportunity to shape legal institutions as society braces for superintelligence and the reality that, in the longer run, this may be a joint human-AI endeavor.
Paul B. Miller
Abstract
Good faith is a protean concept: it takes on different shades of meaning, and has been made to do many quite distinctive things, in private, public, and international law. These qualities have made good faith perplexing. Partly in consequence, conventional wisdom on good faith is decidedly anti-theoretical. Some have argued that good faith is indefinable. Others argue that the law knows no concept of good faith: reference to good faith is just a placeholder for its antonym, bad faith. In this essay, I suggest that the conventional wisdom is wrong. One can extract a coherent, generalizable, notion of good faith from the law. On the theory presented here, illustrated in respect of voluntary obligations, good faith consists in personal integrity with respect to juridical speech acts. To evince good faith in this sense is to demonstrate fidelity to the known legal significance (objective legal meaning) of one’s speech acts and attendant jural relations. A person who acts in good faith behaves righteously in a specifically legal sense. Bad faith, correlatively, involves lack of integrity: iniquity. Iniquity implies a defect in one’s deliberate behavior, and hence goes to character, consistent with the intuition that bad faith is morally culpable. But bad faith in law has distinctively legal upshots: it threatens to undermine the institutional integrity of law. Thus, good faith is properly considered an über-norm of foundational importance to law and to legality.
Mateusz Grochowski
Abstract
Algorithmic pricing has quietly become a defining feature of online consumer contracting. Using automated models fed by large-scale personal data, firms now set individualized prices by predicting each consumer’s willingness to pay. These practices are widely condemned as “unfair”-yet fairness is invoked more often as a slogan than as a legal standard, leaving courts and regulators without a workable test for when personalization becomes problematic. This Article supplies that test. It argues that algorithmic price fairness should not be equated with price uniformity. Neither U.S. contract law nor consumer protection law has ever recognized a general right to identical prices, and differential pricing long predates algorithms. An exclusive focus on equality therefore obscures what is genuinely new-and genuinely troubling. The distinctive challenge of algorithmic pricing is informational: prices are shaped not by what parties reveal in bargaining or by broadly observable market conditions, but by inferences drawn from behavioral surveillance and predictive analytics. The result is a structural inversion of classical price formation. Firms accumulate granular knowledge of consumers’ preferences and vulnerabilities; consumers face opacity, degraded comparability, and no meaningful capacity to contest or reciprocate. Reframing the problem as informational resets the regulatory agenda. Traditional tools-disclosure mandates, unconscionability doctrine, excessivepricing tests, price caps-are ill-suited to practices that operate through hidden correlations and individualized baselines. This Article proposes instead an augmented price fairness framework built on three complementary safeguards: (1) meaningful explainability of the key factors and data inputs driving a personalized price; (2) access to usable reference prices, including nonpersonalized or cohort-based benchmarks; and (3) selective data controlenforceable rights to exclude sensitive categories of personal information from pricing algorithms. Together, these pillars restore epistemic symmetry between firms and consumers, protect autonomy and privacy, and supply courts and regulators with administrable standards where none currently exist.
Adam J. Levitin
Abstract
May banks engage in viewpoint discrimination? That is, may a bank deny service to an anti-vaxxer or an antifa or an election denier? Concerns about viewpoint discrimination in banking have been a conservative cause for a decade, with “viewpoint debanking,” seen as an extension of progressive cancel culture. Yet there is scant evidence that banks, even in the face of regulatory pressure, have engaged in viewpoint discrimination, aside from a few cases related to the January 6 insurrection. To the contrary, bank account closings can often be explained by viewpoint-neutral concerns over credit and anti-money-laundering compliance risk.
Despite the dearth of evidence of an actual viewpoint discrimination problem, scholars on the right and left have argued for treating banks as either common carriers or public utilities, both of which are subject to a general duty of non-discrimination, not just in regard to personal status, such as race, sex, or religion, but also regarding customers’ lines of business, and political or religious views. Banks, however, have never historically been regulated as common carriers or public utilities and with good reason: they do not raise the concerns about monopoly power that animate common carrier and public utility regulation, and the very nature of the service they provide requires discrimination based on individualized counterparty credit and compliance risk. Moreover, prohibiting viewpoint discrimination forces a cross-subsidy among bank customers in which low-risk customers are forced to subsidize the high-risk ones, which just transposes the problem: viewpoint subsidization is itself viewpoint discrimination.
Allowing viewpoint discrimination means that all viewpoints are subject to market discipline: if a customer’s viewpoint imposes risk on a bank, then the bank should be allowed to price against it, while if a bank discriminates against a viewpoint solely from animus—that is, an expression of the bank’s own viewpoint—then market will price against the bank, which will lose market share to non-discriminating banks. Banks should be free to reject customers for any reason unrelated to personal status, including viewpoint. Doing so is a business decision that is best left to private actors and checked by the marketplace, not government.
Brett M. Frischmann & Sarah Rajtmajer
Brett Frischmann
Sarah Rajtmajer
Abstract
The moral magic of consent in privacy law is pure illusion. Existing consent mechanisms transform legal and social relationships without requiring actual consent. Our surveillance-based economy is thus built upon countless legal lies.
Privacy scholars lament this state of affairs. They acknowledge that consent is illusory and broken. Some argue it should be abandoned and replaced with substantive rules. Others argue it is “murky” and of questionable legitimacy but should still be tolerated as a governance mechanism. Most arguments about consent miss the mark, however, by failing to commit to a morally defensible theory of consent and to engage with plausible mechanisms for improving how it works in practice.
This article is the first to examine how to reform the moral magic of consent in privacy law so that the law only transforms legal and social relationships when actual consent exists. We advance a morally defensible theory of consent based on subjective intent and understanding. Then, contrary to conventional wisdom, we show how such a normative commitment is doctrinally and practically possible.
We propose a new legal standard of demonstrably informed consent. This standard would put the burden on the party drafting and designing consent mechanisms to generate reliable evidence that a person actually understands the consequential terms to which the person agrees. A doctrine that requires actual comprehension, rather than notice and assent, is feasible and normatively desirable.
The article is also the first to engage with the friction-in-design literature and explore how to operationalize our novel legal requirement. We demonstrate that mechanisms for generating reliable evidence are not cost-prohibitive. Companies regularly employ this type of friction-in-design in online ethics and other training modules. Using the same mechanisms or new ones to generate and test comprehension is feasible, as results from our preliminary experimental studies show.
Finally, the article sets forth an interdisciplinary research agenda, discussing two experiments we have conducted and research opportunities in five specific contexts where there is a strong case for demonstrably informed consent.
Anna Gelpern
Abstract
Introduction: This Chapter considers the implications of using private contracts as public policy tools, or what happens when regulators ‘catch a ride’ on private law instruments to their policy destination. It centres on an episode of creative problem solving after the transatlantic financial crisis of 2007–2009, when wealthy governments pledged to stop bailing out too-big-to-fail global banks and turned to standard-form contracts for help to deliver on their pledge. To convince voters and markets that even megabanks could fail under their new ‘special’ resolution regimes, governments had to contain the costs of failure to economies and financial systems. The prospect of chaotic termination of the banks’ derivatives contracts emerged as a major obstacle in the way of establishing credible resolution regimes and ending bailouts.
Derivatives are among the principal beneficiaries of an effective exemption from corporate and bank insolvency regimes worldwide. Although the start of insolvency proceedings usually halts (stays) claims against the debtor, derivatives contract counterparties may terminate, net bilateral exposures, seize and sell collateral, and take other steps that put them at the head of the debt collection queue. Such generous ‘safe harbour’ treatment reflects pre-crisis policy consensus that derivatives performed critical functions in national and global financial systems; that maximum market liquidity was essential for their ability to perform these functions; and that ensnaring them in bankruptcy would disrupt markets and harm economies.
The Lehman Brothers and AIG failures in 2008 revealed that, instead of treating safe harbours as a guarantee of repayment and staying put, derivatives counterparties could use safe harbours to run on the failing firm. After the crisis, policy makers feared that excluding systemically important contracts from systemically important resolution frameworks would distort incentives and exacerbate turmoil. In the worst-case scenario, an avalanche of panicked terminations could strip the debtor’s balance sheet bare before resolution got under way. Standard derivatives contract terms moreover allowed the failure of an affiliate in one country to trigger claims against every part of a multinational conglomerate, threatening a cascade of failures in different parts of the world. The public (or publics, in cross-border cases) would soon be back to the old choice between suffering spillovers and paying for bailouts.
Meeting the megabank failure challenge under the circumstances entailed more than balancing the costs and benefits of contract enforcement, or weighing pre-crisis and post-crisis perspectives on financial stability. The treatment of derivatives contracts in special resolution regimes implicated politically charged distribution commitments. Contract boilerplate and bankruptcy safe harbours were part of an institutional architecture that allocated losses between failed firms and their counterparties, between failed firms and their governments, and among states. If the safe harbours let contract counterparties run on a bank, its government could come under pressure to bail it out. If the same contracts were stayed, losses would fall on the bank’s counterparties, and could shift the pressure for bailouts onto different governments.
Michelle Cumyn
Abstract
This Article draws on sources from Canada, England, France, Germany, and the United States to appraise Western law’s treatment of standard form contracts. Courts currently recognize standard clauses as express contractual terms, even when it would not be reasonable to expect adhering parties to read and understand them. Standard forms are undemocratic because they replace common default rules by “the law of the firm.” Reviewing standard forms to suppress unfair clauses is not enough. It is proposed that the courts should adopt a higher threshold for consent by taking seriously the opportunity to read, which was always a condition for incorporating standard clauses. Courts should require the drafting party to produce a readable form, taking into consideration a form’s intended audience, content, and context. A form that is not read-able should be denied incorporation into the contract. In most instances, a contract exists independently of the form and is effective without it.