Standardization of Standard-Form Contracts- Competition and Contr

COMPETITION LAW AND CONTRACT LAW

Despite numerous cases in the U.S and Europe addressing standardized contracts, there has been limited analysis on the specific issues of standardization The existing evaluations have been inconclusive, with courts failing to establish a clear connection between competition law and contract law A recent U.S case highlights the pressing need for greater clarity in this area.

Litigation against Visa, MasterCard, and their issuing banks in the U.S and Europe has raised antitrust concerns, particularly regarding bank interchange fees, which are viewed as potential price-fixing Additionally, U.S consumers have contested mandatory arbitration clauses in cardholder agreements, claiming that banks colluded to include these provisions These challenges have been presented in two lawsuits, one grounded in contract law and the other in antitrust law.

Litigation concerning credit card merchant restraint rules has become increasingly prevalent globally, with notable cases reported in countries such as Australia, Argentina, Israel, and Mexico Investigations into these issues are also occurring in numerous other nations, highlighting the widespread nature of antitrust concerns in this sector.

Key legal cases related to payment processing include Kendall v Visa U.S.A., Inc (2008), which addresses antitrust issues in the payment industry, and Paycom Billing Servs., Inc v MasterCard Int'l, Inc (2006), highlighting competitive practices among major credit card companies Additionally, Nat'l Bancard Corp v Visa U.S.A., Inc (1986) and In re Visa Check/Mastermoney Antitrust Litig (2003) further explore the implications of market control and competition in the financial sector, supported by regulatory insights from Commission Decision 2001/782.

20 See Ross v Bank of Am., N.A., 524 F.3d 217 (2d Cir 2008); In re Currency Conversion Fee Antitrust Litig., 361 F Supp 2d 237, 243 (S.D.N.Y 2005)

2010] STANDARDIZATION OF STANDARD-FORM CONTRACTS

The first suit claimed that the standardized contracts were unenforceable under contract law 2 ' The plaintiffs argued that

Defendants' collusion makes their agreements unenforceable, as their collusive behavior is procedurally unconscionable This, along with the waiver of class action remedies, further invalidates the contracts It remains unclear whether the argument centers on the contracts being unenforceable due to a violation of federal antitrust law, which would take precedence over state contract law, or if the focus is on the inherent impermissibility of enforcing contracts obtained through antitrust violations.

The district court upheld the enforceability of the contracts, rejecting claims to the contrary Citing a series of precedents, the court emphasized that similar contracts had been consistently enforced in prior rulings.

Concerns have arisen regarding "intelligible economic transactions" that may be separate from alleged antitrust violations Plaintiffs might aim to benefit from a contract while leveraging antitrust law to evade associated costs, potentially resulting in an unfair advantage beyond any damages incurred Consequently, the district court ruled that the contract remains enforceable and mandated that plaintiffs file a distinct antitrust claim.

The court dismissed the plaintiffs' claims of antitrust violations, emphasizing that the issues at hand were rooted in contract law rather than procedural unconscionability It upheld the notion that both procedural and substantive unconscionability must be present, ultimately determining that the waiver of class action remedies did not meet the criteria for substantive unconscionability Consequently, the court found that the anticompetitive implications of the agreement were insufficient to warrant a violation.

21 Currency Conversion Fee Antitrust Litig., 361 F Supp 2d at 237

25 This issue might be resolved differently in a state that had a more flexible approach to unconscionability, as some do See JOHN D CALAMARI & JOSEPH M PERILLO, THE LAW OF

CONTRACTS § 9.40 (4th ed 1998) (describing the variety of approaches taken by courts to unconscionability).

26 Currency Conversion Fee Antitrust Litig., 361 F Supp 2d at 259

WILLIAM AND MARY LAW REVIEW sufficient to invalidate it under contract law; contract law also required an inquiry into the substantive terms that resulted from the agreement.

After the plaintiff consumers filed a separate antitrust action claiming collusion as a violation, the district court dismissed the case, stating it was not ready for adjudication due to the plaintiffs' lack of a claim under the arbitration clause However, the Second Circuit Court of Appeals countered this decision, emphasizing the distinction between antitrust harm and contractual harm.

The core of the cardholders' Complaint revolves around alleged antitrust harms caused by banks' collusion to enforce a mandatory term in cardholder agreements, rather than individual injuries from arbitration clauses The Complaint highlights that this collusion has led to reduced consumer choice, as many cardholders may prefer credit cards offering diverse dispute resolution methods These anti-competitive effects, including limited options and lower quality credit services, represent tangible market injuries that fulfill the requirements of Article III injury in fact.

In other words, the plaintiffs' harm was the agreed-upon unavail- ability of contracts without arbitration clauses, not the requirement of arbitration itself.

The potential antitrust violation of the agreement does not establish the specific evaluative criteria to be used The court's mention of "diminished quality in credit services" suggests that the issue extends beyond mere agreement terms; it implies that the existence of a less favorable contract is also necessary for a violation to be established This raises questions about the overall implications of such agreements.

27 In re Currency Conversion Fee Antitrust Litig., No 05 Civ 7116 (WHP), 2006 WL

28 Ross v Bank of Am., N.A., 524 F.3d 217, 223-24 (2d Cir 2008)

In 2010, the standardization of standard-form contracts raised questions about the quality of credit services, particularly regarding arbitration limitations The assessment considered both indifferent customers and those concerned about their choices, highlighting that a decline in service quality for any individual could be seen as a violation The court's emphasis on reduced choice underscores the significance of protecting individual interests alongside collective ones.

The court's emphasis on the reduction of consumer choice raises the question of whether it will regard the arbitration clause as an "intelligible economic transaction," similar to the district court's perspective, independent of any antitrust violation If the court does not adopt this view, it may determine that the clause is unenforceable under contract law Essentially, if a consumer's selection of a contract is influenced by an antitrust violation, it challenges the notion of the contract's independence from that violation.

Parts III and IV delve into the critical interplay between contract law and competition law, while Part II offers a systematic overview of collective agreements regarding standard-form contracts This section also draws a comparison between the standardization of contracts and the more frequently examined standardization of products within antitrust law.

TYPES OF STANDARD-FORM CONTRACTS

This article discusses the concept of standardized contracts, which involve two layers of standardization The first layer occurs when a firm opts to utilize a single form contract across various transactions The second layer involves multiple firms collectively agreeing to adopt the same form contract.

"standard contract," will be used to indicate a contract that is the product of this second layer of standardization.

There are two variations of the basic scenario regarding the parties involved in standard contracts The counterparties can be individual consumers or other businesses, which may lead to different legal interpretations and treatments of these contracts.

30 See supra text accompanying note 23

The distinction between contracts involving businesses and those involving consumers is crucial in contract law, as it highlights disparities in bargaining power This difference holds greater importance in contract law than in competition law Additionally, the role of consumers in contractual agreements is more significant in Europe compared to the United States.

The agreement on contract standardization can occur with some level of organizational or state oversight While such agreements can be ad hoc, they are often the result of established organizations, particularly trade associations The involvement of these organizations can influence antitrust law in two ways: they may implement procedural safeguards to ensure an objective standard-setting process, but if adherence to the standard is a requirement for membership, it could be perceived as coercive and potentially anticompetitive.

A state-supervised standardization effort can play a crucial role in contract standardization, as governments may seek to regulate industry practices or enforce specific policies For instance, the European Commission has advocated for the implementation of standardized contract forms to promote consistency and transparency in contractual agreements.

32 For example, the Directive on Unfair Contract Terms applies only to consumer contracts See Council Directive 93/13, 1990 O.J (L 095) 29, 31 (EEC); see also M Neil Browne

& Jennifer Coon, The Impact of Market Ideology on Transnational Contract Law, 30 LOY L.A

German contract law aims to prevent undue burdens on consumers in standard form contracts, as noted by INT'L & COMP L REV (2008) While primarily focused on consumer contracts, similar principles could apply to business-to-business agreements In Germany, courts often invalidate unfair terms in business contracts, reflecting a broader commitment to fairness in contractual obligations This approach is also echoed in the EU's Council Directive on unfair contract terms, which serves as a model for ensuring equitable treatment in contractual relationships.

State supervision of standard-form contracts is crucial, especially in industries like insurance, to promote fairness and competition However, this effectiveness relies on active state review, which has often been lacking in the past When state involvement is merely superficial, it can diminish antitrust scrutiny of private actions under the state action doctrine in the United States and similar European regulations.

The standardization of contracts is akin to the standardization of products, as it involves creating a uniform package for customers However, courts have not adequately addressed whether competition law should treat contract standardization differently from product standardization, nor how contract law might influence competition analysis This section will outline various types of standards and provide examples of standardized contracts.

Product Standards and Contract Standards

Uniformity Standards: Transaction

Standard-form contracts are widely accepted primarily to reduce transaction costs linked to contractual negotiations By utilizing a uniform contract, parties can easily compare agreements and transition between providers without the need to understand multiple contract variations This approach often involves adopting standardized language for frequently used terms, streamlining the process for all parties involved.

Agreements on minor terms can be compared to product standardization efforts aimed at achieving interoperability These product standards define key design aspects, such as interfaces, enabling products from different manufacturers to function cohesively This concept is prevalent in the electronics and computer industries While contracts may not need to "work together" in the same manner, the lawyers and business professionals involved must collaborate effectively, as contract standards serve as a form of quality standards.

38 Id at 10 (quoting Joseph Farrell & Garth Saloner, Installed Base and Compatibility:

Innovation, Product Preannouncements, and Predation, 76 AM ECON REV 940, 940 (1986))

39 Daniel J Gifford, Developing Models for a Coherent Treatment of Standard-Setting Issues Under the Patent, Copyright, and Antitrust Laws, 43 IDEA 331, 338 (2003)

40 ABA STANDARDS HANDBOOK, supra note 14, at 7

41 David Gilo & Ariel Porat, The Hidden Roles of Boilerplate and Standard-Form

Contracts: Strategic Imposition of Transaction Costs, Segmentation of Consumers, and

44 See ABA STANDARDS HANDBOOK, supra note 14, at 10

2010] STANDARDIZATION OF STANDARD-FORM CONTRACTS with standard terms provide a common "interface" to ease that negotiation process and reduce transaction costs 4 5

The standardization of product interfaces enhances interoperability, creating a network effect where the value of a product increases as more users adopt it, similar to telephones and the Internet This interoperability allows various products to function together seamlessly, maximizing their utility While the reduction in contractual negotiation costs does not directly enhance the contract's value, it effectively lowers the cost of utilization, resulting in increased consumer surplus Thus, both standardization and reduced negotiation costs contribute to greater overall consumer benefits.

Contract standardization enhances the inherent value of agreements by ensuring they are widely recognized and consistently interpreted by courts This common usage leads to greater certainty in meaning and interpretation, making the contract more valuable, even for users unfamiliar with its specific terms This phenomenon has been acknowledged in various cases involving standard contracts, including bond indentures.

45 See id at 9 (discussing "uniformity standards").

46 See Mark A Lemley & David McGowan, Legal Implications of Network Economic Effects, 86 CAL L REV 479, 483 (1998); Patrick D Curran, Comment, Standard-Setting

Network effects generate both direct and indirect benefits for organizations A direct benefit arises when new users join a network, enhancing its overall value and providing advantages to all participants involved.

47 Sharon Steel Corp v Chase Manhattan Bank, N.A., 691 F.2d 1039, 1048 (2d Cir. 1982); Broad v Rockwell Int'l Corp., 642 F.2d 929, 943 (5th Cir 1981); Michelle E Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 MICH L REV 1105, 1112

Positive network effects arise from the use of common or boilerplate clauses in contracts, as widely shared language tends to acquire a standardized meaning When courts have previously interpreted such language, drafters can be assured of its consistent application in the future Consequently, the value of contract language grows as more parties adopt it, enhancing its reliability and effectiveness in legal contexts.

48 Of course, if courts interpret a standard term in an unexpected way, it may be that the contract's value is lessened for a particular party But the gain in certainty may still exist.

WILLIAM AND MARY LAW REVIEW

Uniform interpretation of bond indenture provisions is crucial for the efficiency of capital markets A consistent understanding allows market participants to manage their affairs effectively, regardless of whether the initial interpretation is accurate However, persistent uncertainties regarding the meaning of standard provisions can diminish the value of debentures and disrupt capital market operations Such ambiguities would escalate borrowing risks and costs without providing any compensatory benefits in the capital market or legal administration Allowing juries in various judicial districts to interpret these boilerplate provisions would exacerbate these uncertainties.

While uniformity in products and contracts can lower transaction costs, it inherently restricts consumer choice This limitation becomes more pronounced when there are significant differences among consumers, leading to varying contractual preferences that challenge the feasibility of achieving uniformity Although standardized contracts can provide a range of options, this approach diminishes the advantages of standardization, as it may still overlook the specific needs of some consumers.

Network effects enhance value but also create substantial barriers to entry for new products Even improved offerings, such as innovative contractual forms, struggle to demonstrate the informational advantages of well-established contracts Consequently, both firms and consumers often favor familiar contract terms over newer alternatives that may seem superior but carry uncertain interpretations.

50 This effect depends upon the completeness of the standardization If standard contracts contain options or menus, they reduce, but do not eliminate, choices and may have beneficial effects when contracting parties have bounded rationality.

51 Brett Frischmann & Dan Moylan, The Evolving Common Law Doctrine of Copyright Misuse: A Unified Theory and Its Application to Software, 15 BERKELEY TECH L.J 865, 917

(2000) ("Application effects and network effects are similar in that they both create barriers to entry for competitors and pressure for standardization.").

Standardization in contracts can lead to the elimination of undesirable terms, but it also poses risks, such as facilitating collusion among sellers When firms agree on a standard contract, they are less likely to challenge its terms or address its shortcomings Furthermore, the lack of competition and discussion around contracts can hinder the flow of information regarding the underlying transactions, making it harder to obtain crucial insights This unique informational aspect of contracts sets them apart from typical products.

Quality Standards: Legal Self-Regulation

Firms may choose to regulate their practices in ways that prioritize socially desirable goals rather than just uniformity and transaction costs For instance, they could prohibit certain unfair terms from contracts, raising questions similar to those faced by industry groups imposing safety standards However, from an antitrust perspective, the challenge lies in the differing views among firms and customers regarding what constitutes socially desirable goals.

The case for implementing quality standards becomes more compelling when consumers struggle to assess the available product alternatives In situations where the market fails to hold sellers accountable for inferior goods, establishing a consensus on a minimum quality threshold becomes essential Consequently, these standards are frequently adopted to ensure consumer protection and enhance market integrity.

52 See Mark R Patterson, Law-Fixing: Should Lawyers Agree How To Interpret Statutes?,

11, 16 (Fordham Univ Sch of Law Legal Studies Research Paper Series, Research Paper No.

50, 2004), available at http://papers.ssrn.com/sol3/papers.cfm?abstractidU5706 (making similar point regarding an agreement among lawyers on how to interpret a statute).

53 Henry T Greely, Contracts as Commodities: The Influence of Secondary Purchasers on the Form of Contracts, 42 VAND L REv 133, 135 (1989); Marcel Kahan & Michael Klausner, Standardization and Innovation in Corporate Contracting (or "The Economics of Boilerplate"), 83 VA L REV 713, 721 (1997)

The WILLIAM AND MARY LAW REVIEW highlights the challenges faced by consumers in evaluating the quality of professional services, as well as understanding contract terms in business-to-consumer interactions The difficulty lies not only in the lack of expertise but also in the time and resources required to thoroughly assess contracts Therefore, consumer protection is essential in ensuring fair and transparent transactions.

A significant challenge with quality standards is that individual firms can adopt desirable product characteristics independently, as the aim is not uniformity but rather the availability of appealing features Consequently, if consumers prefer certain traits, sellers are likely to embrace and promote them on their own However, consumers may lack the time to thoroughly assess contracts or advertising, particularly when the product characteristic in question is not deemed crucial Therefore, to achieve both desirable terms and consistency across the market, a collective effort may be essential.

Contracts serve as both business and legal documents, allowing parties to establish their own legal terms that may diverge from standard product characteristics For instance, they can agree to deviate from default contract-law rules or select a specific legal regime Any quality standard applied to contracts can be viewed as a modification of the law, as contracts outline the legal framework for transactions However, it is important to differentiate between standardization that ensures uniformity in the legal aspects of contracts and other forms of standardization that primarily address the business components of a transaction.

The benefits of conforming legal rules differ significantly in Europe and the United States." In the European Union, where

54 This is made explicit in the French Civil Code: "Agreements lawfully entered into take the place of the law for those who have made them." CODE CIVIL art 1134 (Fr.), translated at http://www.legifrance.gouv.frlhtml/codes-traduits/codeciviltextA.htm#Section%20I%20-

%20General%2OProv Of course, the same provision might be interpreted differently in different jurisdictions Still, standardization is likely to narrow the range of such interpretations.

55 See Collins, supra note 11, at 788-89 ("In comparison to the United States, the greater diversity of laws in Europe may continue to reduce access to markets, if only by creating

Despite the significant differences in contract law among member states, standard-form contracts can help harmonize contractual relationships, facilitating market integration within the European economy This alignment is a key objective highlighted in recent communications from the European Commission, emphasizing the advantages of adopting standard contracts across the region.

In the United States, while contract law varies by state, it remains largely consistent across the country, resulting in a uniform approach to contract enforcement Consequently, standard-form contracts are not primarily seen as a tool for legal integration but rather as an effective way to minimize psychological barriers and alleviate concerns related to unforeseen legal issues in cross-border trade.

56 See European Contract Law, supra note 15, at 6 § 2.2.1 ('The second measure sought to promote the development by private parties of Standard Terms and Conditions (STC) for EU-wide use rather than just in a single legal order Currently parties often think they have to use different sets of STC, due to the existence of differing mandatory requirements in Member states'laws, either in contract laws or in other areas of the law."); cf Browne & Coon, supra note 32, at 115 ("One potentially significant effect of consumer protection laws stems from their demonstrative effect-jurisdictions observe a consumer protection law in another jurisdiction, promoting the movement of local laws in a similar direction For example, on April 5, 1993, the terms of the AGBG were embraced by the European Union (EU) in the European Community (EC) Directive on Unfair Terms in Consumer Contracts (Directive), although with some slight modification.").

57 This assumes, though, that remedying shortcomings in the legal system is a valid goal.

The integration of European contract law and the enhancement of U.S consumer protection law raise questions about the appropriateness of private self-regulation In the context of U.S antitrust law, private agreements on business terms are generally deemed inappropriate, even if such terms may be beneficial if adopted by individual firms.

58 See European Contract Law, supra note 15

59 This uniformity has been achieved by statute in the sale of goods, through widespread adoption of the Uniform Commercial Code, but even in other contexts the common derivation of U.S contract law from English sources has resulted in great similarity among the laws of the different states But see Theodore Eisenberg & Geoffrey P Miller, The Market for

Contracts (N.Y Univ Law & Econ Working Papers, Paper No 72, 2007), available at http:/Isr.nellco.org/nyujewpl72/.

60 Indeed, a recent U.S example suggests that parties will not always choose this legal uniformity A form contract promulgated by the American Trucking Associations (ATA) actually results in less uniformity Uniform law for certain aspects of trucking in the United States is provided by federal provisions that preempt state law These provisions are not

The William and Mary Law Review discusses the benefits of cost-effective economic integration, highlighting that the rationale for reducing transaction costs is not as persuasive in the United States It emphasizes that language uniformity and the presence of large firms operating nationally and internationally foster greater consistency among contracts This consistency, even in the absence of interfirm standardization, leads to reduced costs when transitioning between different contracts.

The concept of "legal standardization" parallels the use of "code" as a substitute for law in product contexts As highlighted by experts Joel Reidenberg and Lawrence Lessig, the selection of specific software code in computer-related products can significantly influence and modify the application of legal principles.

Examples of Standardized Contracts

American Trucking Associations

The American Trucking Associations (ATA), a prominent trade association for trucking companies, has introduced two model carrier-broker contracts to define the relationship between motor carriers and brokers facilitating goods transportation These contracts, available in both short and long formats, serve as alternatives to a model proposed by the Transportation Intermediaries Association (TIA), which represents the brokers involved in these transactions.

The ATA model contracts were introduced following the release of a TIA-developed model motor carrier/broker agreement earlier this summer The ATA has advised its members that the TIA model, which has not received DOJ antitrust review, often prioritizes the interests of brokers and shippers over those of motor carriers.

The primary disagreement between the ATA and TIA centers on the TIA model, which requires motor carriers to accept that the broker is solely responsible for the payment of carrier charges, as highlighted in the ATA press release.

67 Am Trucking Ass'n, ATA Unveils Model Motor Carrier/Broker Agreements (Aug 15,

2006), http://www.truckline.com/Advissues/Litigation/Pages/Carrier%20Broker%20 Agreements.aspx.

68 Transp Intermediaries Ass'n, Transportation Intermediaries Association Introduces Model Broker-Carrier Contract, BUSINESS WIRE, June 5, 2006

69 Am Trucking Ass'n, ATA Unveils Model Motor Carrier/Broker Agreements, supra note 67

In 2010, a significant standardization of standard-form contracts was established, which includes a strict prohibition on motor carriers from demanding freight charges from shippers who have already compensated a broker This regulation raises concerns among industry experts, particularly regarding the potential risks it poses to brokers Additionally, it is suggested that this policy may have unequal impacts on large and small brokerage firms.

The potential for significant customer defaults is why many experienced brokers refrain from guaranteeing freight payments for Rust Belt shippers classified as junk bonds Smaller brokers must also acknowledge the credit risks associated with guaranteeing payments, despite the likelihood of shipper insolvency and potential offsets.

The TIA model may place small brokers at a disadvantage by requiring them to assume credit risk from shippers, a responsibility that larger brokers can manage more effectively The ATA agreement complicates this issue, stating that brokers must remit freight charges to carriers regardless of whether they have received payment from shippers While this provision does not prevent carriers from pursuing payment from shippers, it still holds brokers accountable for payment, thereby maintaining their risk exposure However, the ATA model also implies that shippers remain liable, leaving some ambiguity in the responsibilities outlined.

The ATA agreement lacks flexibility for contracting parties regarding its terms and fails to address areas of disagreement, instead simply enforcing the quoted provision This approach appears to be deliberate.

71 Henry E Seaton, Who Pays the Freight? (Jan 2007), http://www.transportationlaw. netlarticles/janO7article.html.

73 Am Trucking Ass'n, Model Motor Carrier/Broker Agreement § 3.2(c), http://www truckline.com/Advlssues[Litigation/Pages/Carrier%20Broker%20Agreements.aspx (follow

"Model Motor Carrier-Broker Agreement" hyperlink) (last visited Oct 16, 2010) [hereinafter ATA Model Motor Carrier/Broker Agreement].

The WILLIAM AND MARY LAW REVIEW emphasizes the need for carriers' protection over ensuring that parties thoroughly evaluate competitively important terms The lack of provided options is particularly notable, especially considering that a prior ATA model agreement included commentary that outlined alternative provisions for carrier and shipper agreements.

American Institute of Architects

The American Institute of Architects (AIA) is a leading provider of standard-form contracts in the United States, offering a comprehensive range of building design and construction documents widely utilized in the construction industry AIA supplies form contracts that primarily cater to architectural services, as well as contracts designed for various relationships, including those between building contractors and property owners.

While the AIA claims its contracts are balanced, Justin Sweet highlights various aspects that primarily safeguard architects' financial interests Additionally, AIA contracts present several noteworthy contractual challenges.

Many owners, contractors, and users of AIA forms are often unaware that the contract they sign includes approximately 50 additional pages of "general conditions" referenced within the contract AIA Document A201, which outlines these general conditions, is typically not included with the signed contract and must be purchased separately from the AIA This oversight frequently leads to parties discovering the A201 and its implications only after the contract is executed.

76 See Am Trucking Ass'n, Model Truckload Motor Carrier/Shipper Agreement with Commentaries, http://www.truckline.com/Advlssues/Litigation/Carrier%20Shipper%20 Agreements/Model%20Agreement.pdf (last visited Oct 16, 2010)

77 Justin Sweet, Essay, The American Institute of Architects: Dominant Actor in the Construction Documents Market, 1991 Wis L REV 317

78 See Am Inst of Architects, Document Synopses by Family, http://www.aia.org/ contractdoes/aias076693 (last visited Oct 16, 2010).

79 See infra text accompanying note 217

In 2010, the standardization of standard-form contracts revealed that parties often only recognize the specific terms of their agreements during disputes This realization highlights that they may have unknowingly consented to detailed procedures concerning change orders, insurance, dispute resolution, and payment, which they might not have considered or agreed to if they had been aware of these terms beforehand.

In recent years, the AIA has revised its contracts, yet certain problematic provisions remain, including mandatory arbitration requirements, alterations to the statute of limitations, and waivers of consequential damages While these provisions may sometimes be justified, their tendency to favor architects raises concerns regarding the AIA's commitment to standardization in contract practices.

Certain AIA contracts have faced criticism from industry professionals, including a notable lawyer-architect who highlighted concerns related to indemnity, mutual waivers of claims, and insurance provisions.

Concerns were raised regarding the governance board of the contractually-created entity, as it ensures majority control for the owner and may breach licensing laws in certain states In response, the AIA maintained that the contracts were adequate, acknowledging that the documents would provoke thoughtful discussion.

Insurance Services Office

In the United States, much of the work of generating insurance policy forms is done by the Insurance Services Office, Inc (ISO), an

81 C Daniel Lins, AIA General Conditions: What You Don't Know Might Hurt You, http://www.mglaw.net/2008/08/aia-general-conditions-what-you-don't-know-might-hurt-youl (last visited Oct 16, 2010).

83 See infra text accompanying notes 166-72

84 Id.; see also AIA Contract Documents: Of Antelopes and Alligators-The AIA A201 Waiver of Consequential Damages from the Owner's Perspective and Other Troubling Tales, http://www.acrel.org/Documents/Seminars/a002113(1).pdf (last visited Oct 16, 2010).

85 Nadine M Post, IPD Contracts Draw Criticism from Lawyer, ARCHITEcTURAL REC., June 15, 2009, http://archrecord.construction.com/news/dailylarchives/090615ipd.asp.

The Insurance Services Office (ISO) plays a crucial role in the insurance industry by providing model insurance policies along with essential actuarial and rating data, which significantly enhances efficiency for insurers The Supreme Court has acknowledged that many ISO members would struggle to maintain the use of these forms if ISO were to discontinue its support services, highlighting the organization's importance in the sector.

ISO is primarily owned by insurance companies, which means its operations can be seen as a collaboration among these insurers Nonetheless, the process of developing contracts allows for contributions from various stakeholders within the industry.

The ISO drafting process mirrors the legislative process, involving collaboration among interest groups and regulators, along with drafting, feedback, and revisions Similar to legislative amendments, the revision of standard form policies addresses evolving needs Issuing new endorsements to tackle emerging issues, such as the exclusion of asbestos or pollution coverage, reflects the characteristics of regulatory amendments and agency opinions.

Insurers should not have control over the legislative process, as demonstrated by a late 1980s antitrust suit that claimed their involvement in the Insurance Services Office's (ISO) preparation of form contracts violated antitrust laws This lawsuit was settled with the State of Texas, resulting in an agreement that insurers would relinquish their decision-making authority over policy language, although they could still provide consultation to the ISO.

88 There are other similar but smaller organizations, such as the American Association of Insurance Services 1 JEFFREY W STEMPEL, STEMPEL ON INSURANCE CONTRACTS § 4.05[A] (3d ed 2006 & Supp 2010).

90 Hartford Fire Ins Co v California, 509 U.S 764, 772 (1993)

93 Eric N Berg, Four Big Insurers Settle Texas Antitrust Case, N.Y TIMES, Mar 28, 1991, at D2 ('The Insurance Services Office will change its policy forms decision-making process nationwide as a result of an antitrust suit settlement reached with Texas state officials 'ISO agrees that decision-making authority in ISO with respect to all Policy Forms that are filed or to be filed in Texas shall be exercised by ISO staff,' rather than by participating ISO

2010] STANDARDIZATION OF STANDARD-FORM CONTRACTS 355

Insurers have attempted to maintain control over the Insurance Services Office (ISO), particularly highlighted in the 1993 Supreme Court case Hartford Fire Insurance Co v California In this case, the ISO proposed two alternative insurance policy forms: one for traditional "occurrence" coverage and another for a "claims-made" policy However, several insurers opposed these forms and initiated a boycott, involving reinsurance companies in their efforts Consequently, the ISO made concessions to address some of the insurers' demands.

The Court determined that the boycotters' actions were anticompetitive but noted that these actions might be exempt from antitrust laws under the McCarran-Ferguson Act, which limits antitrust scrutiny to insurance businesses not regulated by state law Since insurance is primarily governed by state law, the Act generally protects the industry from antitrust challenges However, there is a notable exception that allows for antitrust law to apply to any agreements involving boycott, coercion, or intimidation Ultimately, the Court found that the allegations were adequate to support a claim against the insurers as outlined in the settlement agreement.

The Court examined whether the alleged actions constituted a "boycott," which would exempt them from the antitrust immunity granted by the McCarran-Ferguson Act (15 U.S.C § 1012(b) (2006)) In Hartford, the Court noted that while a conspiracy to refuse to issue occurrence policies could breach antitrust laws as a concerted refusal to deal, it remains protected from antitrust scrutiny under the McCarran-Ferguson Act, as established in cases like UNR Industries, Inc v Continental Insurance Co and Pierucci v Continental Casualty Co.

"fix[ed] the terms of [insurance] policies" because state law provided for approval of policies, and therefore complaints about policy terms should have been made to state regulators).

99 As discussed subsequently in the text, infra notes 103-07 and accompanying text, many argue that insurance should receive more antitrust scrutiny See also ABA SECTION OF ANTITRUST LAW, INSURANCE ANTITRUST HANDBOOK 2 (Michael Blankshain ed., 2d ed 2006) [hereinafter ABA INSURANCE ANTITRUST HANDBOOK] ('Legislators at both the national and state levels have made efforts to significantly increase the insurance industry's exposure to the antitrust laws.").

WILLIAM AND MARY LAW REVIEW of a boycott that would subject the insurers' conduct to the antitrust laws.'o

The Court did not conduct a comprehensive antitrust analysis regarding the effects of standardization due to the case's procedural posture It did not determine whether the standardization would have been deemed anticompetitive if the ISO had not faced coercion to implement changes This suggests that the coercion itself may have constituted the anticompetitive act, independent of the standardization's competitive impact Furthermore, without the coercive boycott, the standardization would have qualified for exemption from antitrust scrutiny under the McCarran-Ferguson Act.

Many perceive ISO contracts as unfavorable and complex for policyholders, a sentiment that became particularly evident following Hurricane Katrina in New Orleans.

2005 One of the primary legal issues that arose following Katrina was whether the exclusion in the ISO policies for damage from

Flood damage resulting from breached levees in New Orleans has been a contentious issue, with a district court initially ruling that such damage was covered However, the court of appeals countered this decision, stating that flood damage was "unambiguously" excluded from coverage Notably, neither court examined the implications of how the insurance policies were drafted.

Katrina has intensified calls for the repeal of the McCarran-Ferguson Act, with critics citing the Insurance Services Office (ISO) as a contributor to anticompetitive practices In Senate testimony, J Robert Hunter, Director of Insurance for the Consumer Federation of America, highlighted what he described as "collusive activities" by organizations resembling cartels, specifically referencing the ISO Advocates for repeal largely argue against the current regulatory framework, believing it fosters anti-competitive behavior.

103 In re Katrina Canal Breaches Consol Litig., 466 F Supp 2d 729, 765 (E.D La 2006), aff'd in part, vacated in part, and remanded, 495 F.3d 191 (5th Cir 2007)

104 In re Katrina Canal Breaches Litig., 495 F.3d 191, 196 (5th Cir 2007)

105 Nor did other courts considering Katrina-related insurance issues See, e.g., Leonard v Nationwide Mut Ins Co., 499 F.3d 419 (5th Cir 2007) But see Jay S Goldbaum, Comment,

Katrina and Beyond: Judicial Treatment of Boilerplate Language in Standardized Insurance

106 The McCarran-Ferguson Act: Implications of Repealing the Insurers' Antitrust

In 2010, the standardization of standard-form contracts raised concerns about the adequacy of state regulation Hunter described the Act as "a truly astounding piece of legislation," highlighting its significant exemption of insurers from antitrust laws and the absence of federal oversight on state regulation.

COMPETITION AND CONTRACT ANALYSIS

Competition law and contract law share similarities and differences, particularly regarding their focus on efficiency Antitrust law explicitly prioritizes economic efficiency, while contract law subtly evaluates the efficiency of its rules through scholarship Conversely, contract law emphasizes the importance of consent and self-determination among contracting parties, a principle that is less significant in antitrust law, which imposes restrictions on the freedom of action for those involved.

Different branches of law can interpret the same behavior in contrasting ways For instance, while contract law may positively regard an agreement aimed at removing unfair contract terms, antitrust law might perceive it as anticompetitive, as it emphasizes market competition.

In 2007, J Robert Hunter, the Director of Insurance at the Consumer Federation of America, provided testimony before the Senate Committee on the Judiciary regarding the implications of the McCarran-Ferguson Act on antitrust laws His statement highlighted the need for reevaluating the exemptions granted to the insurance industry, emphasizing the importance of consumer protection and competitive practices within the market The full testimony can be accessed through the Consumer Union's website.

108 See, e.g., Olympia Equip Leasing Co v W Union Tel Co., 797 F.2d 370, 375 (7th Cir.

In 1986, antitrust policy underwent a significant transformation, shifting its focus from safeguarding competition as a rivalry process to prioritizing competition as a tool for enhancing economic efficiency This change reflects a broader understanding of the role of competition in fostering a more effective economy.

1040 (2010) (observing that "[a]ntitrust law," has a "primary emphasis on economic efficiency").

109 Contract law also arguably has concerns that go beyond efficiency, at least in Europe.

See Study Group on Social Justice in European Private Law, Social Justice In European

Contract Law: A Manifesto, 10 EuR L.J 653, 664-67 (2004) (contending that "fairness," or distributive justice, is part of EU law).

An agreement between businesses that benefits consumers could be seen as procompetitive, particularly if it addresses a market failure However, if the agreement originates from the consumers themselves, it may be considered anticompetitive, leading to a less favorable interpretation under antitrust law.

The WILLIAM AND MARY LAW REVIEW emphasizes the focus on the competitive process rather than the fairness of outcomes Agreements that yield greater competitive advantages than disadvantages typically withstand antitrust evaluation; however, if such agreements lead to contracts of adhesion, they may face criticism under contract law This is particularly relevant in the context of the unconscionability doctrine in the United States and unfairness regulations in Europe.

The interaction between different legal frameworks can significantly impact the evaluation of standardized contracts For instance, one legal body may establish rules that change the legality of actions governed by another If sellers agree to a contract that removes a term disadvantageous to buyers, this could be seen as procompetitive from an antitrust perspective, provided the advantages to buyers surpass any potential competitive drawbacks However, if that same term was deemed unenforceable under contract law, the implications of such a removal could differ greatly.

In that case, it is less clear that there would be any real benefits to be obtained by the agreement.

Industry-standard contracts should be interpreted uniformly, which could lead to the enforcement of potentially unfair agreements However, uniformity does not guarantee enforceability; in some cases, it may warrant the rejection of such contracts altogether Courts have occasionally viewed the widespread use of specific terms as an indicator against unconscionability Consequently, if contract law applies less scrutiny to standardized agreements, the significance of antitrust law becomes even greater Despite a handful of cases supporting uniform interpretation, there has been limited judicial focus on this issue.

111 See, e.g., United States v W Elec Co., 578 F Supp 668, 672 (D.D.C 1983) ("[Antitrust] laws are intended to protect the competitive process, not to assure positive results for competitors.").

The typical antitrust standard is 112, but the establishment of a "new" contract may receive even greater leniency According to Jonathan B Baker in his 2007 article, antitrust courts appear to have embraced a rebuttable presumption that new products or processes are not detrimental to competition, provided they offer some advantages to consumers.

113 See supra text accompanying notes 47-49.

The interpretation of standardized contracts, particularly those from the American Institute of Architects (AIA), remains complex due to a lack of appellate decisions offering guidance on the language used Professor Sweet highlights that the limited number of reported cases makes it challenging to foresee the interplay between contract law and antitrust law in this context.

The impact of antitrust considerations on standardized contracts remains underexplored, with most cases focusing on product standards typically highlighting injuries to excluded competitors However, standardized contracts can also adversely affect counterparties involved, raising questions about the applicability of challenges in product standards to standard contracts This ambiguity underscores the need for further examination of antitrust implications in contract standardization.

This article examines the intersection of antitrust and contract law in the context of contract standardization It highlights the importance of product terms, emphasizing how standardization can lower costs through interoperability standards and enhance contract quality through quality standards The discussion then shifts to the contract standardization process, analyzing the implications of various negotiation methods Finally, the article explores the adoption of standard contracts, considering both voluntary adoption and incentives for adoption provided by private organizations and governmental entities.

Substance: Price-Fixing v Standardization

Agreement on Price and Related Terms

Numerous cases related to standardized contracts have been identified as instances of price-fixing A considerable number of these cases do not pertain to genuine standardization efforts; rather, they involve basic agreements on sales terms, particularly pricing, which are subsequently formalized through standard contracts In such instances, there is no valid justification for the efficiency of standardization, leading to the appropriate classification of these agreements as per se illegal price-fixing arrangements.

A prominent example involved the Dramatists Guild's long-term effort to encourage use of a standard contract.' 3 ' The Guild promotes

126 See Choi & Gulati, supra note 10

127 See, e.g., Estate of Garrison v Warner Bros., Inc., Civ No CV 95-8328 RMT, 1996 WL

In a case from June 1996, the plaintiffs accused the defendants of violating the Sherman Act through price-fixing practices and by refusing to engage with talent that had signed "standard net profits contracts" (407849, at *2, C.D Cal.).

130 In one sense, price-fixing is always efficient, because it saves the cost of negotiating on price, but the efficiency does not outweigh the anticompetitive effect of price-fixing.

The recent case of Barr v Dramatists Guild, Inc., 573 F Supp 555 (S.D.N.Y 1983), examines whether the Dramatists Guild's policy of licensing plays exclusively under a standard contract violates antitrust laws Additionally, the case of Ring v Spina, 148 F.2d 647 (2d Cir 1945), highlights the reversal of a trial court's dismissal regarding a claim for treble damages under the Sherman Act, which involved the Guild's requirement for producers to sign its agreement.

2010] STANDARDIZATION OF STANDARD-FORM CONTRACTS a "Minimum Basic Production Contract" (MBPC) and has been subject to allegations that the Guild and individual playwrights

The collaboration among certain parties to establish minimum prices and conditions for dealing with producers has led to an agreement to only license plays based on a standard form contract, known as the MBPC This initiative aimed to enhance the terms for playwrights, culminating in the unsuccessful Playwrights Licensing Antitrust Initiative Act of 2004 If enacted, this Act would have exempted joint discussions and agreements focused solely on creating a standard contract that ensures minimum artistic protections and compensation levels for playwrights from antitrust laws.

Recent cases have examined contract standardization efforts linked to pricing agreements, where courts often view the alignment of other contract terms as a means to prevent firms from violating price agreements This indicates a clear anticompetitive impact from standardizing contract forms, with little likelihood that any potential procompetitive benefits could outweigh these negative effects Notably, there are no reported instances where a form contract agreement has been deemed sufficiently procompetitive to counteract the implications of price-fixing, and form contracts are not considered prima facie evidence of restraint of trade.

The proposed legislation, S 2349 from the 108th Congress, aimed to exempt the creation of a standard contract and facilitate a collective agreement among playwrights This agreement would allow participating playwrights to exclusively license their works to producers using the developed standard form contract.

134 See, e.g., Commodity Futures Trading Comm'n v Co Petro Mktg Group, Inc., 680 F.2d

573, 580-81 (9th Cir 1982) (finding defendant engaged in standardized futures contracts and also set prices for its products according to the then-prevailing market rates).

In the case of Hyland v Homeservices of America, the court granted class certification to the plaintiffs, who contended that the defendants offered nearly identical services and manipulated a state real estate commission to uphold an antirebate rule This rule was designed to prevent the defendants from circumventing their price-fixing agreement.

The potential advantages of standardizing non-price terms may surpass the drawbacks associated with price-fixing agreements, suggesting that such standardization can be beneficial even in the presence of price-fixing practices.

The standardization of terms can lead to significant cost savings and does not necessarily require a price-fixing agreement Therefore, it is reasonable to apply a per se treatment in this context, as the relationship between standardization and pricing is not essential for achieving these efficiencies.

Not all efforts to standardize contracts are aimed at fixing prices; instead, as suggested by Choi and Gulati, standard contracts serve as a legal framework for both price and non-price competition However, the reliance on market participants to agree on this legal backdrop, rather than its formal adoption by legislators, raises concerns and invites antitrust scrutiny The Supreme Court has highlighted that members of standard-setting associations may have economic incentives to limit competition, indicating that the product standards established by these associations carry significant potential for anticompetitive harm.

Uniformity: Agreement on Minor Terms

The likelihood of a uniformity standard being perceived as procompetitive is low unless the agreed terms are minor While the removal of competition on significant terms could theoretically be procompetitive, this scenario is improbable, as the costs of comparing such terms would typically outweigh the benefits of having alternatives Buyers are unlikely to incur comparison costs unless they expect value from the effort, particularly if prices are already within a narrow range, leading them to focus on minor non-price differences In such cases, the elimination of price competition might not significantly impact buyers, but it could reduce the costs associated with comparing non-price terms, offering potential savings However, this situation is too unlikely to justify moving away from a per se treatment.

137 Choi & Gulati, supra note 10, at 1131-33

138 Allied Tube & Conduit Corp v Indian Head, Inc., 486 U.S 492, 500 (1988)

Buyers may mistakenly perceive comparison shopping as valuable, but this notion appears unlikely Furthermore, it remains uncertain whether antitrust law would support the idea that sellers are safeguarding buyers from misguided comparison shopping This topic is explored in detail in the case of National Society of Professional Engineers v United States, 435 U.S 679 (1978).

The primary argument supporting the antitrust legality of standardized contract terms is that any potential anticompetitive effects from reduced competition on those terms are outweighed by the benefits of more effective bargaining on the more significant remaining terms While this rationale mirrors the defense presented in the Catalano case, which was ultimately rejected by the Supreme Court, it remains a fundamental justification for uniformity standards This argument may hold merit for certain standardized contracts, especially when the agreed-upon terms are less critical than the credit restrictions addressed in Catalano.

In a recent letter from the Antitrust Division of the Department of Justice (DOJ), the focus was on the minor nature of the terms in the model carrier-broker contracts established by the American Trucking Associations (ATA) The DOJ indicated that it would not challenge these proposed model contracts, noting that they lack provisions related to rates or other competitively significant terms.

The standardized terms in contracts may not all be considered minor, as highlighted by the contrasting ATA and TIA model contracts The ATA model serves as an alternative to the TIA's proposal, indicating a significant divergence in views between the two parties This disagreement underscores the importance of the issues at hand, as the contracting parties are likely to have the most insight into their agreements.

140 See supra text accompanying notes 117-21

On August 10, 2006, Thomas O Barnett, Assistant Attorney General of the Antitrust Division at the U.S Department of Justice, addressed a letter to Kenneth P Ewing of Steptoe & Johnson LLP concerning the proposed model contract by ATA The letter can be accessed at the U.S Department of Justice's website, providing insights into antitrust considerations related to the contract.

The Barnett Letter emphasizes that the adoption of the agreements is voluntary, allowing each company to make independent decisions regarding their use This important aspect of the standard contract will be explored further in Part III.C.1 of the article.

144 See supra notes 70-73 and accompanying text.

146 See supra note 70 and accompanying text (noting that unlike the TIA Model Contract,

TIA version would be to put small brokers at a competitive disadvantage, which indicates that the issue is one of antitrust significance 14 7

The DOJ's business review letter fails to address critical issues, focusing instead on the ambiguous term "competitively significant." This reliance on a vague definition raises questions about the clarity and effectiveness of the DOJ's analysis in assessing competitive implications.

The term may indicate a lack of significant competition among firms, suggesting their terms are already identical In this case, the necessity or advantage of standardization becomes questionable Furthermore, if standardization holds value, it prompts an inquiry into the Department of Justice's rationale for determining competitive significance.

The letter indicates that the DOJ did not perform an independent evaluation of the competitive relevance of the standardized terms, nor did it depend on an assessment provided by the ATA It appears that the DOJ's implication was that the agreed terms excluded critical components such as price, payment conditions, and limitations on remedies The European Commission has proposed a comparable strategy The differing views presented by the ATA leave broker indemnification to be negotiated between the parties involved.

148 Barnett Letter, supra note 141, at 2.

Standardization is important when only a few firms use a term that differs from the widely accepted terminology This is because counterparties may mistakenly believe that all firms adhere to the more common term, leading to confusion and difficulty in understanding the actual terms being used.

The Barnett letter fails to fully address the potential issues related to the ATA agreement, particularly regarding dispute resolution While the letter suggests that the dispute resolution terms would be negotiable between carriers and brokers, the ATA Model Contract indicates otherwise It states that the terms in Attachment 3 will govern any disputes, which means that while parties can negotiate their own Attachment 3, the existing one on the ATA website includes specific provisions for dispute resolution, including mandatory arbitration under the Commercial Rules of the American Arbitration Association.

151 See Barnett Letter, supra note 141, at 2 ("The model agreements do not contain any provisions specifying rates to be charged or other competitively significant terms.").

152 See Commission Notice, Guidelines on the Applicability of Article 81 of the EC

Treaty to Horizontal Cooperation Agreements, 2001 O.J (C 3) § 6, para 164, available at

The standardization of standard-form contracts between the ATA and TIA highlights the challenges outsiders face in identifying competitively significant factors As Hugh Collins points out, courts often lack reliable information about the practical workings of specific markets, leading them to focus solely on the formal terms of contracts without grasping the unique conditions of the market sector involved.

Allowing one party to choose from numerous agreed-upon terms in contracts, such as the ATA's proposed contract, can lead to significant cumulative harm, even if individual terms seem minor While adjusting the price might mitigate potential harm from one party defining these terms, the Department of Justice (DOJ) suggests that parties often overlook these details This raises questions about whether standardization would prompt a renegotiation of contract prices Although standardization could potentially encourage parties to pay more attention to these terms, it remains uncertain if this is the case or if the DOJ considered this aspect.

Price can offset unfair terms in agreements, even if consumers are unaware of those terms According to EU regulations, agreements that standardize minor product characteristics do not significantly restrict competition in relevant markets However, both the Department of Justice (DOJ) and the European Commission (EC) fail to provide substantial justification for this stance.

Quality: Agreement on Fair Terms

Quality and regulatory standards present unique challenges for sellers, who aim to establish agreements that offer advantages for all buyers or provide sufficient benefits to some to offset any drawbacks to others Such agreements can also benefit certain sellers by reducing competition from those opting for inferior alternatives For instance, in the context of children's toys, sellers might collectively agree to avoid using lead paint, ensuring that all buyers receive safer products while also supporting sellers committed to higher safety standards.

In the context of contracts, sellers may agree to refrain from disclaiming warranties or requiring arbitration; however, even agreements that purport to establish quality standards can violate antitrust law This was highlighted in the case of National Society of Professional Engineers v United States, where the Court struck down a provision in the society's code of ethics that effectively banned competitive bidding, arguing that such a prohibition was a direct attack on competition The Court expressed skepticism regarding the society's impartiality in promoting the benefits of the agreement, suggesting that while some regulatory restraints could be permissible under different circumstances, the justification presented did not adequately support the ban on competition.

Unfortunately, it is not easy to find examples of clearly beneficial regulatory standardization, either of products or of contracts.

Sellers often prefer to unilaterally offer advantageous terms to buyers to gain a competitive edge However, standardization may only be suitable for minor terms that don't significantly impact competition In such instances, a seller might choose to adopt favorable terms, believing they will yield long-term benefits, while still aiming to avoid a short-term disadvantage against competitors.

Of course, this is exactly the sort of elimination of competition with which Professional Engineers was concerned,"' so the question is whether sellers could justify this sort of agreement.

In the consumer context, addressing unfair terms through an agreement can promote competition This approach differs from the situation in Professional Engineers for two key reasons: it emphasizes competitive bidding and fosters a more equitable marketplace.

The provision outlined in 435 U.S 679, 682-83 (1978) does not impact contracts established between engineers and their clients, except that it prohibits the submission of fee proposals prior to the client's selection of an engineer and the initiation of contract negotiations.

178 Id at 691-93 (noting that the ban on competitive bidding in the Society's agreement

"restrain[ed] trade within the meaning of § 1 of the Sherman Act").

The standardization of standard-form contracts is not inherently unfair, particularly within the professional engineering sector, where parties are typically capable of protecting themselves from unjust terms In contrast, consumers may overlook unfair clauses, leading to market failures that standardized contracts could effectively address.

Eliminating specific unconscionable terms from contracts could promote fairness and competition, although there is no universal agreement among states on what constitutes unconscionable terms A reasonable approach would be to agree to remove any term deemed unconscionable in any jurisdiction from contracts However, standardization in contracts typically involves adopting specific terms rather than outright prohibiting undesirable provisions While adopting a particular term over an unconscionable alternative might suggest a quality standard, this perspective may incorrectly imply that quality objectives are present when they are not.

In Europe, a systematic approach to standardizing contract law is being considered to promote harmonization across the region This initiative aims to enhance uniformity and facilitate the integration of the European economy However, there are also significant concerns regarding the quality of contracts, as highlighted by the European Commission.

To promote the creation of EU-wide standard terms and conditions, it is essential to compile a comprehensive list of existing initiatives at both the European level and within individual Member States This list would provide valuable insights for parties interested in developing standard terms, allowing them to access information on similar initiatives across various sectors or within the same sector in different Member States By doing so, stakeholders can enhance their understanding and foster collaboration in the development of standardized practices.

The prohibition on competitive bidding significantly disrupts market dynamics, hindering customers' ability to compare prices when choosing engineering services This view is supported by the ruling in United States v National Society of Professional Engineers, which emphasized that such a ban deprives consumers of essential market functions.

180 Sometimes, standard contracts offer alternative terms, but more often the standard provides only one option See, e.g., supra text accompanying notes 75-76

WILLIAM AND MARY LAW REVIEW from the mistakes of others and benefit from their successes ("best practices").''

The intention behind the "best practices" mentioned remains ambiguous, as it could aim to either ensure uniformity or enhance contract quality in terms of fairness However, the Commission also highlighted concerns regarding quality issues in the same communication.

The European Commission aims to publish guidelines to remind companies, individuals, and organizations of the legal limitations that apply, particularly referencing the Unfair Contract Terms Directive This initiative involves representatives from all relevant groups to ensure comprehensive input Additionally, the Commission is actively working on reforming European contract law, with a strong emphasis on promoting fairness in contractual agreements.

While legal self-regulation can offer potential advantages, it may lead to conflicts with existing statutes or common law Issues related to uniformity and quality standards are less prevalent, as mandatory business terms are scarce In contract law, most rules serve as defaults rather than mandatory regulations However, certain legal rules cannot be modified or can only be changed in specific ways, making self-regulation challenging Additionally, even default rules may vary across jurisdictions, indicating that standardization might not be beneficial.

The European Commission's 2003 Action Plan emphasizes the need for a more coherent European contract law framework, highlighting the importance of harmonization across member states to enhance legal certainty and facilitate cross-border transactions The document outlines strategic objectives aimed at improving contract law, ultimately fostering a more integrated European market For further details, refer to the full text available at the provided link.

The Commission has announced that it will not be publishing separate guidelines regarding the development and use of standard terms and conditions in European Contract Law This decision reflects a shift in their approach, as indicated in their previous communications.

183 Action Plan, supra note 181, at 22-23 para 88

Process: Transaction Costs and Bargaining

Open Access to the Standardization Process

Standard-setting organizations generally offer formal access to their processes, allowing input from interested parties despite maintaining ultimate control over the outcomes The Department of Justice (DOJ) has emphasized the significance of this transparency in a business review letter concerning standardization, excluding contract standardization.

You have guaranteed that the processes for establishing and enforcing reliability standards are transparent and inclusive for all stakeholders, ensuring representation from all industry segments These processes are designed to avoid competitive disadvantages for any specific party, and there will be avenues for Commission or court review to address any disputes that may arise.

Multilateral standardization efforts seem designed to provide this sort of openness The AIA, for example, describes its drafting process as multilateral:

The process relies on the collaborative contributions of a Documents Committee composed of experienced architects selected for their diverse backgrounds, regional expertise, and varied practices This committee's insights play a crucial role in shaping the final outcomes.

On June 17, 1999, Joel I Klein, Assistant Attorney General of the Antitrust Division at the U.S Department of Justice, addressed a letter to Joseph C Bell and Mary Ann Mason from Hogan & Hartson, LLP The correspondence is accessible online at the Department of Justice's official website, providing insights into antitrust matters.

AIA actively seeks input from a diverse group of stakeholders, including owners, general contractors, engineers, subcontractors, sureties, lawyers, and insurers By incorporating feedback from various disciplines, AIA aims to create documents that reflect the best interests of all parties involved.

The extent to which multilateralism is achieved in the AIA drafting process remains unclear Professor Sweet, drawing from his observations, notes that while the AIA engages the Associated General Contractors (AGC) and even secures their endorsement for certain documents, there is a significant lack of input from owners or groups representing their interests Additionally, Sweet highlights concerns regarding control over the drafting process, which will be addressed further.

The potential issues with a multilateral, collaborative process are highlighted by Perillo, who cites the ISDA as a successful example of this model, showcasing its diverse array of participants.

The International Swaps and Derivatives Association (ISDA) boasts more than 830 member institutions across 57 countries and six continents Its membership comprises leading global entities engaged in privately negotiated derivatives, alongside various businesses, government bodies, and other end users who utilize over-the-counter derivatives to effectively manage financial market risks associated with their primary economic operations.

217 Am Inst of Architects, History of AIA Contract Documents, http://www.aia.org/ contractdocs/AIAS076671?dvid=&respec=AIAS076671 (last visited Oct 16, 2010).

218 See Sweet, supra note 77, at 319-22 The AIA does not seek the endorsement of any other organization for its documents dealing with architectural services See id at 322

The ISDA Master Agreement is designed to address the interests of various stakeholders through a collaborative and participatory approach, rather than an adversarial one, ensuring that diverse concerns are effectively considered.

222 Int'l Swaps & Derivatives Ass'n, About ISDA, http://isda.org (follow "About ISDA" hyperlink) (last visited Oct 16, 2010).

But a key difference between the ISDA and many other contract- standardization organizations is the nature of the contracts at issue.

Swap and derivative agreements are inherently symmetric, allowing parties to potentially find themselves on either side of the contract This symmetry creates a natural incentive for both parties to ensure the contract is balanced, reflecting a fundamentally bilateral perspective in their negotiations.

Even in a "symmetric" context like the ISDA, an "openness" problem may arise For instance, if a contract outlines terms for intermediaries such as brokers and includes costly and inefficient dispute-resolution procedures while allowing brokers to set their own service fees, widespread adoption of this contract could lead to brokers passing on these excess costs to clients Consequently, users of broker services would have limited alternatives, making it likely that they would bear the financial burden of these inflated fees.

Contract standardization can be perceived as anticompetitive because it leads to increased prices for users While contracting parties may not achieve higher profits, they face higher costs due to the inefficient terms of the contract Ultimately, contract standardization results in anticompetitive waste rather than anticompetitive profits.

223 See, e.g., William N Eskridge, One Hundred Years of Ineptitude: The Need for

Mortgage Rules Consonant with Economic and Psychological Dynamics of the Home Sale and

The article discusses the significance of "preformulated" contracts in addressing marketplace demands and consumer protection needs, as highlighted in the Loan Transaction analysis (70 VA L REV 1083, 1180-81, 1984) Additionally, it references the insights of Samuel Krislov and Paul Kramer on the future of California's civil courts in their work "20/20 Vision" (66 S CAL L REV 1915).

1957 (1993) (describing the formation of standard contracts, which are developed with equal bargaining power allocated between the parties).

224 But see Sean M Flanagan, Student Article, The Rise of a Trade Association: Group

The ISDA Master Agreement incorporates specific measures designed to minimize transaction costs, such as "close-out activity." This approach leads to decreased transaction expenses, lower legal fees, reduced legal risk, and diminished default risk, ultimately enhancing the efficiency of financial transactions within the derivatives market.

225 However, in the example given, there could be profits gained through the dispute resolution process, as perhaps by an inefficient arbitration organization.

Effective participation in contract bargaining requires not only the involvement of both parties but also the inclusion of those who bear the costs of the contract terms These individuals have the incentive to advocate for efficient contracting terms Additionally, informed participation is crucial, yet it may be challenging to achieve For instance, principals relying on brokers might lack adequate information regarding the costs and benefits associated with the brokers' contractual decisions, hindering their ability to influence the standardization process effectively.

Balance in the Standardization Process

Contract negotiation processes, even when open to all, can be dominated by one party For instance, the AIA's documents are perceived to favor architects and contractors, often at the expense of owners, as noted by both scholars and industry participants This highlights the challenge of integrating valuable input from various industry stakeholders when an organization like the AIA, which represents one side of the contract, controls the process Professor Sweet expresses skepticism about this dynamic.

226 See RESTATEMENT (SECOND) OF CONTRACTS § 2 cmt g (1981)

The AIA's willingness to seek input from owner-oriented groups on ALA drafts raises the critical question of whether it will genuinely share its power Despite this openness, the AIA is likely to resist relinquishing any significant authority, as highlighted in the Futures Task Force Report on Document Preparation and Review The report emphasizes that participation must be "responsible" and that the AIA must maintain control to ensure all interests are considered fairly It further asserts that the document-making process should be efficient and orderly, without compromising AIA policy or the public interest, ultimately affirming the need for "full and final authority" by the AIA.

In the 1960s, contractors raised objections to indemnity clauses in AIA contracts, leading to state legislatures limiting such provisions Additionally, the National Association of Attorneys General expressed concerns regarding ALA contracts and contemplated creating its own model contracts.

Many multilateral processes may face similar challenges, suggesting that management by a single industry group could simplify the situation A straightforward bilateral agreement appears to be more viable, as it facilitates clearer consensus between the parties and allows for easier management while still incorporating input from both sides Perillo's concept of "collective bargain" supports this approach.

Negotiation between potentially adversarial organizations is a critical aspect of collective bargaining agreements, particularly within the organized labor context These agreements frequently involve employer associations, which operate under a specific antitrust exemption that addresses relevant antitrust issues.

An example of a bilateral relationship in the contract-standardization context was initially present in the ATA-TIA carrier-broker

234 Collective bargaining agreements are both statutorily and judicially exempt from antitrust regulations See 15 U.S.C § 17 (2006) (statutory); Brown v Pro Football, Inc., 518

In 2010, the attempt to standardize standard-form contracts between the ATA and TIA failed due to an inability to reach a joint agreement, leading each organization to create its own contract This breakdown in negotiations suggests potential issues with the standardized contract proposed by one party, particularly if it addresses the contentious topic that led to the impasse.

As previously discussed, that was indeed the case in the carrier- broker negotiation 2 3 7

In the Hartford Fire Insurance case, a group of insurers attempted to persuade the Insurance Services Office (ISO) to modify a standardized contract When the ISO refused their request, the insurers initiated a boycott This situation exemplifies a bilateral negotiation, as there were differing preferences regarding the contract among the insurers, despite them all being on the same side of the agreement Their divergent interests ultimately hindered the possibility of reaching a consensus on the contract.

Negotiations in bilateral contexts have consistently failed, highlighting a lack of successful bilateral contract standardization This raises concerns about the effectiveness of "open" processes in multilateral organizations like AIA and ISO, suggesting they may struggle if reliant solely on agreement among all parties Consequently, the Standards Development Organization Advancement Act mandates a balance of interests to ensure a more inclusive and effective standardization process.

The concepts of control and balance play a crucial role in both antitrust and contract law In antitrust law, balance is often used to assess whether standardization yields overall procompetitive advantages rather than benefiting a single group Similarly, contract law fundamentally relies on these principles to ensure fairness and equity in agreements.

235 See supra Part II.B.1 and text accompanying notes 143-52.

238 Hartford Fire Ins Co v California, 509 U.S 764 (1993); see supra notes 90-97 and accompanying text.

241 For example, in the area of vertical restraints, antitrust law takes a permissive view

The concept of mutual assent is crucial in the William and Mary Law Review, emphasizing the necessity of balance as a fundamental requirement However, it is essential to recognize that neither bilateral nor multilateral bargaining can be deemed sufficient in every situation Both forms of bargaining primarily ensure vertical balance, meaning they only guarantee that participants at different levels support standardization.

Bilateral and multilateral bargaining fail to achieve horizontal consent, which necessitates agreement from all firms or consumers at each level regarding standardized terms This lack of agreement is concerning because specific terms can affect different parties at the same level in varying ways The importance of horizontal consent was highlighted by the Court in the Allied Tube case and in prior credit-card cases Therefore, the consensus decision-making outlined by the Standards Development Organization Advancement Act should include not only parties from different contractual levels but also those of varying sizes and characteristics at the same level, ensuring that the agreed-upon terms are genuinely beneficial for all involved.

The Business-to-Consumer Context

Consumer contracts pose unique challenges compared to business-to-business agreements While consumers are the primary beneficiaries of antitrust laws and require protection from unfair contracts, their ability to negotiate standard contract terms is often limited.

As Perillo notes, the drafting mechanisms for standardization of contracts do not often involve consumers, at least in the United States."'

Consumer involvement is acknowledged, especially in discussions about insurance contracts that impose manufacturer restraints This is partly due to the belief that manufacturers' interests align with those of consumers, as highlighted in the case of Leegin Creative Leather Prods., Inc v PSKS, Inc., 551 U.S 877, 896-99 (2007).

243 Perillo, supra note 10, at 187 ("Consumers are notably absent from most of the standard-form drafting organizations.") In Europe, consumer associations play a more active role See Cafaggi, supra note 11, at 101, 106 n.37, 111 n.47.

2010] STANDARDIZATION OF STANDARD-FORM CONTRACTS suggests that if consumers are involved in the process, the legal treatment of a standardized contract may be more generous:

Antitrust analysis evaluates the role of consumer input in the standard-setting process, as their exclusion may indicate anticompetitive intent By enabling policyholders to share their opinions on proposed coverages, insurance rating organizations can alleviate concerns regarding potential anticompetitive motives among their members.

But the cases cited in support of this passage really support only the

"considers," "may be," and "would tend to" claims In other words, the role played by consumer input is not at all clear.

In Europe, the participation of both parties in transactions is crucial due to the diverse institutional mechanisms available for addressing standard-form contracts Consumer associations are instrumental in developing, monitoring, and challenging these contracts, enhancing consumer protection However, some commentators express concerns about depending on consumer associations, drawing unfavorable comparisons to collective bargaining in labor contexts.

At first glance, the collective bargaining model seems suitable for consumer contracts due to the significant imbalance of bargaining power present in both employment and consumer contexts However, successful collective bargaining in employment relies on strong, organized representative bodies, such as trade unions or professional associations, that have the legitimacy, time, and resources to negotiate effectively For this model to be effective in the consumer sector, comparable associations must be established not only at the national level but also across Europe.

The ABA Insurance Antitrust Handbook highlights key legal precedents, including Moore v Boating Industries Association, which underscores important antitrust principles relevant to the insurance sector Additionally, the case of Consolidated Metal Products, Inc v American Petroleum Institute further illustrates these principles, providing a comprehensive overview of antitrust considerations.

National consumer associations within Member States vary significantly in their nature, objectives, and capacity to address consumer needs Given the multiple essential roles these organizations fulfill, it remains uncertain whether national or European associations have the necessary time, resources, or specialized expertise to effectively negotiate fair and comprehensive contract terms.

The principles discussed extend beyond Europe, highlighting the necessity for courts and antitrust agencies to possess expertise and contextual information regarding proposed standard contracts to assess their impacts effectively Consumer groups, similarly, play a crucial role in this process, often being better equipped to influence legislation than to engage in contract negotiations Consequently, while the antitrust perspective on standardization may prioritize procedural aspects over substantive ones—potentially due to a lack of in-depth knowledge—the assessment of consumer representation in negotiations demands significant expertise.

Adoption of Standardized Contracts

Organizational Constraints

The manner in which a standard contract is created can have two contrary implications with respect to parties' incentives to use an

Collaborative work in contract creation can lead to improved agreements; however, this benefit may not be sufficient to warrant the effort involved in standardization In such processes, each participant must accept a contract that may not perfectly align with their individual interests but reflects a balance of collective needs The trade-off for this compromise is the assurance that the contract will be utilized by all parties, thereby solidifying the agreement.

Larger firms may find it more feasible to engage in standard-setting compared to smaller companies, as they can more easily absorb the associated costs This could explain why some standardization initiatives appear to benefit larger organizations disproportionately.

266 Allied Tube & Conduit Corp v Indian Head, Inc., 486 U.S 492, 500 (1988)

The creation of contracts by ad hoc groups can lead to more favorable terms for their members, particularly when existing contracts from standard-setting organizations fail to meet their needs This dissatisfaction may drive both group members and nonmembers to adopt these tailored contracts Conversely, contracts developed by established organizations may come with incentives, including market or organizational sanctions, that discourage users from deviating from standard agreements Thus, the dynamics of contract formation can significantly influence user flexibility and satisfaction.

In the United States, there are few public instances of ad hoc groups creating standardized contracts outside of established organizations Notably, several Supreme Court cases, including Paramount Famous Lasky, Catalano, and Hartford Fire Insurance, involved such groups that developed form contracts or agreed on specific terms These cases suggest that when ad hoc agreements are made public, they may be more prone to litigation compared to the more ambiguous standard-setting processes within competitive organizations.

Parties involved in an ad hoc arrangement to standardize a contract are generally motivated to use that contract, as their participation in its creation suggests a commitment to its application Without additional benefits from joining the drafting group, their involvement is primarily focused on the practical use of the standardized contract.

Compromises will inevitably arise within groups, highlighting the distinction between ad hoc groups and established standard-setting organizations (SSOs) Professor Schweitzer points out that in SSOs with closed or restrictive membership, insiders may have motives to collaborate against outsiders In contrast, recognized SSOs with open and broad membership make it more challenging to coordinate collusive strategies.

268 See Hartford Fire Ins Co v California, 509 U.S 764 (1993)

270 446 U.S 643 (1980); see supra notes 117-22 and accompanying text.

271 509 U.S 764 (1993); see supra notes 94-101 and accompanying text.

272 See supra note 213 and accompanying text.

Moreover, they are likely to act on the understanding that the other parties to the arrangement will also use the standardized contract.

The agreement to standardize the contract can be viewed as an implicit commitment to its usage Typically, even straightforward price-fixing cartels lack a formal enforcement mechanism to guarantee adherence to the agreement.

Standard contracts are often established by existing organizations, which may create additional incentives for members to comply with these agreements Members might face rules that necessitate adherence to the organization's contracts, risking the loss of membership benefits if they do not Even without such rules, the organization's endorsement can significantly influence market perceptions Ultimately, the pressure to conform to standardized contracts is determined by weighing the advantages of compliance against the benefits of opting for alternative contracts.

Standard contracts can be developed by organizations that operate independently from market participants, minimizing the risk of antitrust issues since there is no agreement among competitors In such cases, the primary motivation for parties to utilize the standardized contract is the credibility and market power associated with the organization that endorses it, rather than the contract's inherent value Additionally, independent entities have less incentive to design contracts that favor one party over another However, the creation of standard contracts by genuinely independent organizations is relatively uncommon.

There are three potential sources of form contracts, each influencing their usage in distinct ways The main motivations for adhering to these contracts typically stem from the benefits they provide, such as lowering transaction costs and enhancing competition, or from the potential advantages gained through collusion The accompanying table outlines additional incentives associated with form contracts.

274 See Christopher R Leslie, Judgment-Sharing Agreements, 58 DUKE L.J 747, 812

(2009) ("Most aspects of agreements among price-fixing firms are not enforceable in court

[but] the mere presence of these kinds of agreements has served to stabilize many a cartel in the past.").

Incentives for Using Form Contracts

Formal compliance Market compliance mechanisms incentives

(in addition to benefits of contract)

Ad hoc breach-of-contract none arrangement action?

Organization of membership sanctions market significance of contracting organizational approval firms

Independent none market significance of organization organizational approval

The pressure to adopt a specific standardized contract could be reduced or removed if several options were accessible This scenario would likely necessitate competition among various standard-setting organizations, which is relatively rare While there are instances of competing standards, such as in the trucking industry, these cases remain exceptions rather than the norm.

The network effect resulting from standardization may explain this phenomenon, as it influences demand Additionally, there are likely supply-side economies of scale involved in the development of these standards.

The European Commission addressed the issue of standards competition in the SCK case, emphasizing the need for a certification process that is entirely open, independent, and transparent To foster competition, the Commission mandated that the system must allow for the acceptance of various standards, ensuring that no barriers are placed on market participation.

A commentator notes that the EU Commission has shown a preference against competition in standard-setting within the marketplace, specifically criticizing both unilateral standard development and the establishment of private standard-setting consortia.

280 Joined Cases T-213/95 & T-18/96, Stichting Certificatie Kraanverhuurbedrijf v. Comm'n, 1997 ECR 11-1739 para 125

In 2010, the Court of First Instance highlighted the necessity for standard-setting organizations to not only assess compliance with their own standards but also to recognize equivalent certifications from competing certifiers This requirement emphasizes the importance of inclusivity in the approval process, as limiting acceptance solely to the evaluations conducted by SCK could undermine the integrity and credibility of the standardization efforts.

"cannot be objectively justified by an interest in maintaining the quality of the products and services ensured by the certification system." 282

The State and Contract Standardization

The State can significantly influence contract standardization by participating in the process This involvement can lead to two contrasting outcomes: while state approval or review can promote fairness and competitiveness in contracts through meaningful evaluation, it may also introduce complexities that could hinder the contracting process.

State involvement often reduces antitrust scrutiny of private standardization efforts, particularly when the government actively oversees these activities In Europe, this involvement can also influence contract analysis.

In the United States, the most significant state involvement with contracts standardization is in the insurance industry Most insur-

297 Id (quoting 4 MELVILLE B NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 13.03[F] (1997))

298 Computer Assocs Int'l, Inc v Altai, Inc., 982 F.2d 693, 710 (2d Cir 1992)

Copyright doctrines align with antitrust law restrictions regarding interface control, similar to standardized contracts This relationship highlights the intersection of intellectual property and competition policy, as discussed by Herbert Hovenkamp in his 2007 article, "Standards Ownership and Competition Policy."

The integration of expertise and co-regulation between private entities and the state fosters a collaborative approach that merges binding legislative measures with the practical insights of stakeholders This process enhances policy ownership by actively involving those impacted in the development and enforcement of regulations, as highlighted in the Commission White Paper on European Governance.

21, COM (2001) 428 final (July 25, 2001), available at http://eur-lex.europa.eu/LexUriServ/ site/en/com/2001/com2001_0428en01.pdf.

In the case of FTC v Ticor Title Ins Co., 504 U.S 621 (1992), the legal standard in Europe is notably less stringent It merely necessitates that the state retains its authority to make final decisions or to oversee the execution of those decisions, as highlighted by Schweitzer.

When standardized contracts are created by a trade association under formal delegation from a public authority, the assessment of their anticompetitive nature should focus solely on the state delegation This evaluation differs from the scrutiny applied to contracts developed independently by associations or market participants.

In 2010, the standardization of standard-form contracts in the insurance industry raised concerns regarding the quality of oversight by state regulators, who must approve insurance policies generated primarily by the Insurance Services Office (ISO) A study revealed that over half of the states are underfunded by more than 40%, compromising their ability to adequately protect consumers Additionally, the McCarran-Ferguson Act exempts the insurance business from federal antitrust laws, resulting in a lack of federal oversight over state regulations.

Perhaps this concern would be lessened if the ISO's deliberation and selection process were open, but it is not:

ISO and insurers often withhold the drafting and regulatory history of policies, making it difficult for policyholders to access this crucial information When policyholders do manage to obtain it, ISO frequently secures protective orders that prevent the sharing of these materials with third parties As a result, much of this information remains obscured from the public, accessible only to policyholders and their legal representatives who have successfully navigated the discovery process.

State regulation of insurance contracts is primarily driven by contract and consumer protection concerns unique to insurance transactions While the states often rely on the Insurance Services Office (ISO) for drafting efforts, U.S contract law has evolved various doctrines, particularly in insurance law, that significantly mitigate the challenges associated with self-regulation.

304 Press Release, Consumer Fed'n of Am., State Insurance Department Resources Have Risen Over Last 10 Years But Are Still Inadequate To Fully Protect Consumers (Oct 22,

2009), http://www.consumerfed.org/pdfs/stateinsurance.pdf (quoting J Robert Hunter, Dir. of Ins., Consumer Fed'n of Am.).

306 See Press Release, supra note 304.

307 1 STEMPEL, supra note 88, § 4.05[A] (3d ed 2006) (quoting KALIS ET AL., POLICYHOLDER's GUIDE § 1.02).

In the mid-to-late 1970s, states implemented readability requirements for insurance contracts to safeguard consumer interests, highlighting the importance of clear communication in health insurance policies This initiative aimed to enhance understanding and accessibility, ensuring that consumers could make informed decisions regarding their coverage.

The William and Mary Law Review highlights that some states mandate specific provisions to be included in insurance contracts, regardless of whether these provisions are explicitly stated in the written agreement.

State regulation may offer minimal benefits in preventing unfavorable contract terms, potentially leading to the unintended consequence of eliminating beneficial terms This is particularly concerning as innovative and consumer-friendly terms often emerge from small insurers, who may struggle to meet the costly requirements for state review of new contracts.

The European Commission adopts a similar stance towards the insurance sector, offering a block exemption from antitrust laws for standard insurance contracts This exemption, akin to the McCarran-Ferguson Act in the United States, does not evaluate whether contractual agreements enhance or diminish consumer benefits While it prohibits insurers from creating policies that bundle unrelated risks, it largely refrains from specifying which contract terms may be considered unfavorable.

The block exemption notably differs from the McCarran-Ferguson Act by allowing the Commission to withdraw the exemption upon request from a Member State or a party with a legitimate interest if contract terms create a significant imbalance to the detriment of the policyholder Interestingly, while the block exemption primarily pertains to competition law, this specific provision is framed in the context of contract law.

310 Commission Regulation (EC) No 358/2003 of 27 February 2003, On the Application of Article 81(3) of the Treaty to Certain Categories of Agreements, Decisions, and Concerted Practices in the Insurance Sector, art 1, 2003 O.J (L 53) 8-16

The EC block exemption mandates that agreements must be publicly accessible and available at no cost, as outlined in Article 5, Section 1(c) In contrast, in the United States, the policies of Independent System Operators (ISOs) are typically not freely available to the public.

313 See Commission Regulation, supra note 310, art 10, § b

314 See generally Cafaggi, supra note 11

In this respect, another DOJ business review letter is suggestive.

ANALYTICAL APPROACHES TO

The discussion highlights the challenges in providing definitive recommendations for reviewing standardized contracts due to the complex interplay of costs and benefits associated with contract standardization and the specific nature of antitrust and contract laws The limited number of cases further complicates the understanding of relevant issues like standardization procedures This article aims to emphasize the need for increased focus on standardized contracts rather than proposing specific legal standards Consequently, the following sections will primarily address the potential costs of standardization, which are less apparent compared to its benefits.

Although both contract law and antitrust law are relevant, antitrust law seems the more appropriate means for scrutinizing

315 Letter from Anne K Bingaman, Assistant Att'y Gen., Antitrust Div., U.S Dep't of Justice, to Joel M Cohen, Esq (Jan 25, 1994), available at http://www.usdoj.gov/atr/public/ busreview/211724.pdf.

317 Id.; cf Union Labor Life Ins Co v Pireno, 458 U.S 119, 129 (1982) (providing a different definition of the "business of insurance").

The primary concern of the WILLIAM AND MARY LAW REVIEW is the standardization of contracts, specifically the horizontal agreements among competitors, which are central to antitrust discussions In contrast, contract law emphasizes vertical agreements between contracting parties, who are generally not competitors As a result, while contract law may indirectly relate to the issue of standardization, it does not directly address it within its doctrine.

Incentives and Effects

From an antitrust perspective, the incentives of parties involved in standard-setting serve as indicators of both their agreement to adopt a standardized contract and their anticipated competitive effects Given the costs associated with standardization, participation implies an expectation of a return on investment It is crucial to explore the potential sources of this return, as one anticompetitive concern is that standardization may facilitate collusion To counter this inference, standard-setters should provide a credible alternative explanation for how they plan to recoup their costs.

Standardization efforts are often justified by the potential for cost savings, but this rationale may not hold if competing parties continue to compete on price, as any savings could be eroded Additionally, since the investment in standardization represents a fixed cost, pricing based on marginal costs may not enable recovery of that investment However, if standardization promotes price collusion, it could lead to a return on the investment.

The Supreme Court's approach to standard-setting cases indicates a willingness to impose certain requirements on standard-setting entities, despite potential controversy This is exemplified in the case of Allied Tube & Conduit Corp v Indian Head, Inc., where the Court referenced the precedent set in E R.R Presidents Conference v Noerr Motor Freight, Inc.

Standardizing standard-form contracts can enhance efficiency and reduce complexities in transactions However, it is essential for the involved parties to clarify their expectations regarding profitability or at least breaking even from the standardization process This understanding is crucial to ensure that the investment in standardization yields beneficial outcomes for all parties involved.

Product standardization, particularly in terms of interoperability standards, can significantly expand the market for sellers by facilitating compatibility with a wider range of products This is especially evident when standardization allows devices, such as computers, to effectively work with various peripherals, thereby enhancing the competitive edge of certain sellers While standardized contracts could also lead to market expansion, the challenges posed by contract negotiation costs are generally less restrictive compared to the issues of incompatible hardware.

In the context of product standardization, sellers are motivated to participate in standardization efforts to avoid being disadvantaged by standards they cannot easily meet However, this motivation may not be as strong in contract standardization, as users of a specific contract typically have similar capabilities to adopt a standardized version Unlike product standardization, which may require significant redesign efforts, transitioning to a standardized contract can be achieved simply by adopting the new format without extensive drafting changes.

In certain situations, standardizing contracts can be beneficial for individual firms, especially in markets with multiple large players utilizing their own unique contracts If customers are accustomed to these varying contracts, it may create a competitive edge for smaller firms that adopt a standardized approach, enhancing clarity and trust in their offerings.

322 Drew Andison, Dir., Standards and Conformance Policy Section, Dep't of Indus Sci.

& Tourism, Presentation to the Australian APEC Study Centre: Product Standards and Their Impact on International Trade (Dec 5-6, 1996), available at http://www.apec.org.auldocs/ citerlO.htm.

Some sellers may feel confident that they can outperform their competitors in attracting new customers resulting from standardization Even without such expectations, they often perceive a larger, albeit competitive, market as more advantageous than a smaller one.

Firms attempting to enter the market faced pushback from customers hesitant to adapt to new contracts Standardization could potentially encourage customers to switch to these new entrants, making it a beneficial strategy for them However, existing firms might resist standardization, creating uncertainty about the overall effectiveness of such efforts in driving widespread adoption.

The portrayal of individual firms deciding on standardization participation can be misleading, as most standardization efforts, particularly regarding contracts, are driven by trade associations These associations can effectively address the collective-action problem that often discourages participation and encourages free-riding on others' efforts When the association takes on the standardization process or finances its members' involvement, the burden of costs is alleviated, eliminating the need for members to recover those expenses However, if the standardization relies on voluntary contributions from members, the challenge of cost recoupment persists.

Terms and Severability

Part IV.A indicates that the rationale for contract standardization based solely on "interoperability" cost reduction may not always apply In such cases, the specific standard terms become crucial, as parties may recover the costs of standardization through improved contract terms instead of merely reducing drafting expenses If the benefits of interoperability are likely to be diminished by competition, then the terms of the contracts themselves may serve as the primary justification for standardization.

However, the antitrust assessments of standardized contracts sometimes seem to focus on the efficiency of standardization of the contract as a whole rather than on particular terms 3 25 Antitrust

325 This seems to have been the case in the DOJ review of the ATA contract, in which the

The standardization of standard-form contracts allows for the review of specific restraints within the context of broader activities The Supreme Court has previously condemned individual restraints that are part of larger agreements, as seen in the Paramount Famous Lasky case Therefore, it is essential for courts to continue scrutinizing the individual terms of standardized contracts to ensure fairness and legality.

In antitrust analysis, the ancillary-restraint doctrine plays a crucial role in evaluating joint ventures, such as standard-setting initiatives This doctrine stipulates that for a restraint, like standardization, to be deemed lawful, it must not only fulfill a legitimate purpose but also be ancillary to that purpose Consequently, in the context of contract standardization, it is essential that any standardized contract designed to reduce costs or enhance quality excludes provisions that do not directly support these goals or impose unnecessary restrictions.

Standardized contracts differ significantly from standardized products, as the latter often present challenges in selecting specific characteristics due to their interdependent nature In contrast, the individual provisions of standardized contracts are typically severable, allowing for careful examination of each term Importantly, many contracts include clauses stating that if one provision is invalid, the remaining terms will still be effective However, substantive scrutiny of these contracts raises concerns, particularly regarding whether sellers would mitigate any potential disadvantages to buyers through competitive pricing This suggests that even burdensome contract terms may not necessarily lead to anticompetitive outcomes.

327 See Paramount Famous Lasky Corp v United States, 282 U.S 30 (1930); see also NCAA v Bd of Regents, 468 U.S 85 (1984) (holding NCAA's plan for televising college football games restrained competition in the relevant market).

328 Paramount Famous Lasky, 282 U.S at 41-44 See supra note 116

329 A similar approach is recognized by courts that ask whether a restraint is the least restrictive alternative available to accomplish its procompetitive goals.

In Catalano, the court ruled that the absence of negative effects does not negate the antitrust violation caused by eliminating competition on any terms While some courts may adopt a more lenient approach, two key conditions must be satisfied for price competition to offset harm from agreements on other terms Firstly, there must be strong price competition, as standardization can imply collusion and facilitate such behavior Secondly, the affected parties, including buyers, must be uniform; otherwise, competition on price alone cannot alleviate the harm experienced by all involved.

Antitrust concerns regarding horizontal competition, while not the primary focus of contract law, are still relevant Contract tests for unconscionability and unfair terms in standardized contracts can consider the market context of standardization This connection highlights how contract law's emphasis on vertical interparty consent and bargaining power relates to antitrust market power Ideally, competition should drive firms towards contractual terms that promote fairness and consumer welfare Although competing standard-setting organizations are rare, contract law could evaluate similar factors as antitrust law, such as network effects, the makeup of the standard-setting body, and the significance of any state review of the contract.

Contract law's focus on unconscionability highlights the significance of burdensome terms and bargaining power, which can enhance antitrust analysis regarding the existence of an agreement When multiple sellers impose unfair terms, it indicates that any seller could potentially attract buyers by offering more favorable conditions.

330 Catalano, Inc v Target Sales, Inc., 446 U.S 643, 650 (1980) (per curiam) See supra text accompanying note 121.

In theory, sellers might be able to cater to various buyer groups with different pricing strategies However, practical implementation poses challenges, particularly in accurately identifying distinct buyer groups and effectively restricting transactions to those specific groups.

332 See supra text accompanying note 158

If sellers do not receive compensation for lost sales due to burdensome terms imposed on buyers, it raises questions about the rationale behind such practices In the absence of adequate compensation, one would expect to see evidence of sellers independently enforcing similar terms without any standardization.

In 2010, the standardization of standard-form contracts highlighted a "plus factor" indicating a potential agreement among sellers It is widely accepted that when firms exhibit behavior that is rational only if they are acting in concert, it is reasonable to infer a collective agreement among them.

It is feasible for desirable terms to be standardized through private agreements, with contract law playing a supportive role While contract law usually does not evaluate desirable terms, standardization may be pursued to remove undesirable ones Antitrust law often views agreements on terms with skepticism, even when the parties argue their benefits However, if certain terms are deemed unfair under contract law, self-regulatory standardization aimed at eliminating those terms could be acceptable.

Trade Associations as Standard-Setters

The concept of severability in contracts indicates that the procedural review approach proposed by the Supreme Court in Allied Tube may not be suitable for contract standardization This approach evaluates the contract in its entirety, yet it fails to ensure the desirability of individual provisions through satisfactory overall procedures Due to the complexity of many standardized contracts, a procedural review may overlook significant competitive implications, especially when not all stakeholders can voice their opinions Nonetheless, courts may possess a greater capacity to assess the costs and benefits of standardized contracts compared to their ability to evaluate more conventional product standards.

334 See 1 JONATHAN M JACOBSON ETAL., ANTITRUSTLAw DEVELOPMENTS 11 (6th ed 2007)

("The plaintiff typically must prove other facts and circumstances (often referred to as 'plus factors') in combination with conscious parallelism to support an inference of concerted action.").

335 See, e.g., Interstate Circuit, Inc v United States, 306 U.S 208, 222 (1939); Re/Max Int'l v Realty One, 173 F.3d 995, 1009-10 (6th Cir 1999)

337 See generally Allied Tube & Conduit Corp v Indian Head, Inc., 486 U.S 492 (1988)

338 See supra text accompanying note 222 (discussing possible harm to third parties to standardized contracts).

Contract standardization significantly differs from product standardization, particularly in procedural aspects While most product standards are set by dedicated standard-setting organizations, often accredited by the American National Standards Institute, the approach to standardizing contracts varies considerably.

ANSI's accreditation requirements emphasize "openness, balance, consensus, and due process," aligning with the criteria for a "voluntary consensus standards body" as outlined in the Standard Development Organization Advancement Act of 2004.

As a result, there is at least some reason to expect that these organizations will provide unbiased fora for standard-setting.

Standardized contracts are increasingly adopted by trade associations rather than recognized standard-setting entities, raising concerns about the adherence to essential criteria Notably, major standardizing organizations such as ISO, AIA, and ATA are not listed as accredited standards developers by ANSI, which highlights issues related to openness, balance, consensus, and due process within these groups Given the significance of these criteria, especially in the context of antitrust law as outlined in the Standard Development Organization Advancement Act of 2004, it is crucial to focus on their proper implementation.

Modification of Standardized Contracts

Focusing on individual contract terms rather than solely on standardized contracts implies that the issue of voluntary adoption of these contracts may be overly generalized The inquiry should extend beyond merely questioning whether users feel pressured to accept the contract; it should also explore additional factors influencing their decision-making process.

339 Am Nat'1 Standards Inst., Domestic Programs (American National Standards) Overview, http://www.ansi.org/standardsactivities/domestic-programs/overview. aspx?menuid=3 (last visited Oct 16, 2010).

342 See Am Nat'1 Standards Inst., ANSI Accredited Standards Developers, http://www. ansi.org/Standards-activities/domestic-programs/accreditation-asdeveloper/ asd.aspx?menuid=3 (follow "Standards Developers" hyperlink) (last visited Oct 16, 2010).

In 2010, the standardization of standard-form contracts raised the question of whether users can modify specific undesirable terms Allowing such alterations enables users to enjoy the benefits of standardization while maintaining the flexibility necessary for competition.

Flexibility in contract terms is crucial for accommodating the varying needs of different users, such as small and large firms If contract terms can be adjusted to meet the requirements of both types of businesses, it reduces the risk of anticompetitive effects The feasibility of such alterations is key; widespread modifications to standardized contracts suggest that any potential anticompetitive impact is minimal Additionally, even if alterations are rare, other evidence, like testimonies from contract parties, can indicate that the terms are chosen for their desirability rather than necessity.

Frequent alterations of standardized terms raise questions about the necessity of their standardization If the standardization process overlooked the need for uniformity in certain terms, there may be other terms that parties wish to modify but refrain from doing so This situation could be particularly relevant if the usage of standardized terms varies based on user characteristics, such as company size, suggesting that renegotiating less favorable terms may be too burdensome for some parties.

Contract standardization differs from product standardization in two key ways, indicating a need for careful examination of standardized contracts Firstly, the motivations behind standardizing contracts may not be as strongly linked to procompetitive benefits as those for product standardization Secondly, standardized contracts allow for a detailed, term-by-term review, which can lead to the invalidation of specific terms if deemed inappropriate.

345 See supra note 72 and accompanying text.

346 That is so, at least, in the absence of any countervailing evidence, such as that alteration is expensive, either in attorneys' fees or in customer resistance.

Tiêu đề	Standardization of Standard-Form Contracts: Competition and Contract Implications
Tác giả	Mark R. Patterson
Trường học	Fordham University
Chuyên ngành	Law
Thể loại	Article
Năm xuất bản	2010
Thành phố	New York

Định dạng
Số trang	89
Dung lượng	5,02 MB