Author

In Response to: Contracts as Technology

In his Article Contracts as Technology Kevin Davis makes an analogy between technological innovation and contractual innovation and suggests that contractual innovation, like technological innovation, can both add value to exchange and promote trade. Davis presents a theory of the uses and sources of contractual innovation that has at its core the idea that “[t]he principal determinant of the value of adopting a contract is the value of the changes in behavior it induces.” The Article then draws on this theory and the analogy to technological innovation to explore the incentives of law firms, businesspeople, trade associations, and a variety of nonprofit institutions to engage in contractual innovation, even though there is no equivalent of copyright, trademark, or patent protection for contractual language. It concludes that given the lack of intellectual property protection for contractual language, potential contractual innovators of all types are likely to make socially sub-optimal investments in contractual innovation.

This Comment adds to Davis’s analysis by describing the ways that standard-form contracts and trading rules are produced and used in trade associations. It suggests that many trade associations tie these contracts to other products and services they offer in ways that create contractual value for their members that is not fully available to those who might simply decide to adopt, or more aptly, copy the language of their contractual forms. As a result, association members endorse contract and trade rules revision efforts funded by membership dues even though these contracts can be copied and these rules incorporated by reference into transactions between nonmembers who in effect free ride on the associations’ costly drafting efforts. More broadly, exploring contractual innovation in the trade association context suggests that once it is recognized that the value of a contract depends as much on the institutional and interpersonal context in which it is adopted, governed, performed, and enforced as it does on the specific words used, the lack of intellectual property protection for contractual language might be far less of a barrier to contractual innovation generally than Davis suggests.