Corporations Use End User License Agreements to Create a Parallel Legal System

Trying to think about all the contracts I've half-wittingly signed away to tech companies is mind boggling. A handful with Apple, Amazon, Google, Facebook, Netflix; End User License Agreements for every piece of software I've downloaded, every gadget I've bought, every subscription service or app I use. Many of them are changed with little or no notice, most of them are hundreds of pages long.

End User License Agreements—the fine print you never read but always agree to whenever you download software, sign up for a subscription service, or buy a gadget—have been used to create a parallel legal system that gives companies carte blanche to force you into terms that you can't negotiate.

It's no secret that EULAs are insidious legal documents designed to create an "information asymmetry" that benefits the contract writer—often a tech company—and screws over consumers. But the recently published The End of Ownership takes a deep dive into the history of EULA and explains how these agreements have become an unshakable part of modern life.

"Licenses displace the laws Congress created to secure consumer property rights," Case Western Reserve University law professor Aaron Perzanowski and New York University law professor Jason Schultz write in the book. "The license agreement, in short, has us over the proverbial barrel."

Perzanowski and Schultz have come to the conclusion that companies have "created private regulatory schemes that impose all manner of obligations and restrictions … effectively rewriting the balance between creators and the public that our laws are meant to maintain."

As the pair explain, on a near-daily basis we are forced into agreements that we don't understand, don't have time to read, and that are designed to be dense. Since the first EULAs were developed in the early 1980s by IBM, they have become a commonplace and refined tradecraft. Courts have often recognized them as binding "contracts," but they aren't contracts in any real sense of the word, which has traditionally assumed negotiation on a level playing field and a nuanced understanding of the terms from both parties.

Many EULAs are the size of short books (PayPal's terms of service is 20,000 words) and written in legalese. They are designed to create an "information asymmetry" that benefits the contract writer—in these cases, the electronics manufacturer. John Deere has used a EULA to prevent farmers from repairing their tractors. uTorrent used EULA to get your permission to surreptitiously mine bitcoin on your computer. Game console developers use EULA to prevent people from breaking the "Warranty Void if Removed" sticker, which blatantly violates federal law. Apple uses EULA to make sure you don't use iTunes to develop nuclear weapons.

And, most commonly, EULA contains some variation of the terms "this product is licensed, not sold," which has allowed companies to maintain strict control over things you may think you "own" but do not, such as Kindle ebooks, iTunes MP3s, and even tractors.

Because EULAs are so effective, the spirit of successful ones are often copied across companies and sectors. The terms designed to prevent "unauthorized" software tinkering or reverse engineering in an iPhone are similar to the terms designed to prevent you from tinkering with your tractor.

"Few licenses are drafted from scratch," Perzanowski and Schultz write. "Lawyers copy and paste liberally."

This means the EULA is near-impossible to escape, because there's no downside for companies using them. Courts have rarely imposed any limits on EULA, and they apply to people who don't even know that they've entered into a legal contract. Besides the ubiquitous "I Agree" button on software, EULA are often agreed to simply by using a product. John Deere's applies to anyone who turns the key on a tractor; sometimes, terms come inside a gadget's box, which can only be read after it's been purchased. Some courts have even ruled that simply linking to a EULA on a company's website is enough for a consumer to have "accepted" it.

"The uniformity in license terms is partly about safety in numbers," Perzanowski wrote. "Once a term becomes standardized, its inclusion becomes a strategy for reducing competitive risk."

Not to be overly dire, but there simply isn't a whole lot that individual consumers can do about this. Every time we agree to a EULA, we are doing a cost-benefit analysis: Is reading a wonky licensing agreement worth the "cost" of doing so? The answer, the vast majority of the time is "of course not." It would simply be insane to read the terms of service for everything you buy. Are you going to read the 6,800-word iTunes terms of service before you buy an MP3?

Indeed, a 2014 NYU study found that roughly a tenth of one percent of consumers even look at licensing agreements at all, and most read them for only a few seconds. And even if you do read the EULA, you cannot feasibly negotiate better terms; EULA are take-it-or-leave-it affairs. As economists and legal experts have demonstrated, an "informed minority" of consumers who attempt to influence the market by boycotting companies for unfair contract terms will never be sufficiently powerful to get companies to change their business practices. This is because the cost of getting informed is designed to be high enough so that there will never be a "tipping point" for corporations to create fairer terms.

The question that society must ask, then, is whether there are laws or regulations that can be put into place to prevent companies from putting whatever they want into EULAs. It's hard to envision a scenario in which EULAs go away entirely, but in the short term, eight states have introduced right-to-repair legislation that specifically invalidates contracts that infringe on the property rights of electronics owners. The legislation is just a start, but at least it's something.