Ricardian Contracts are really a stepping stone to Smart Contracts. They are a way to link a contract to another system, typically an accounting system. Ian Grigg came up with the Ricardian Contracts some time ago. He first published about it in Financial Cryptography in 7 Layers in 1998. Ricardian Contracts were initially used for Ricardo (hence their name), a bond platform.
They are a melding of a traditional contract with a contract that can be read and executed by machines. A Ricardian Contract can be defined as a single document that:
- is a contract offered by an issuer of some item of value (think of a bond, coin, token, currency, etc.) to a holder of such item;
- for a valuable right held by the holder, to be managed by the issuer;
- can be read in plain language by humans (so like a normal contract);
- can be read by programs (and is parsable like a database);
- digitally signed;
- carries the keys and server information; and
- is allied with a unique and secure identifier.
Generally a Ricardian Contract is one that is used to define a value for issuance and holding of something over the Internet. It sets forth the applicable terms and sets it in cryptographic stone, so everyone knows who signed it, and when and exactly what it said at that time. It automates the offer and acceptance of the agreement and ensures they are enforceable.
It removes a good deal of the typical contract dispute issues, but not all of them. Items such as what was the offer and whether it was accepted, who the parties are, what the terms of the contract are are greatly resolved. When you use natural language however, there are always items that may be ambiguous, or changes in the nature of the parties, the industry or the economy which can greatly change what parties expected in a contract (that’s assuming they both had the same expectations for all provisions in the contract – another thing that is usually not the case).
The Ricardian Contracts are a bit unique, and likely cannot be used for anything, as drafting these agreements which must include markup language to enable them to be read by computers is a bit different. They are also pretty versatile and can be strung together (usually transactions are more complicated than one agreement can cover).
In In re Facebook Biometric Information Privacy Litigation, 185 F. Supp. 3d 1155, 2016 U.S. Dist. LEXIS 60046, (N.D. Cal. 2016):
- A class action against Facebook was filed pursuant to the Illinois Biometric Informration Privacy Act (BIPA). Parties agreed to transfer case to N.D. California, but wanted Illinois law (and not CA law) to apply.
- Plaintiff’s alleged that facial and other recognition used by Facebook violated BIPA
- There were three plaintiffs at issue and court reviewed the sign up procedure for each (2005, 2008 and 2009).
- When Facebook updated its Terms it emailed a notice to all user’s email addresses and the next time each user logged on, they saw “jewel” notification in their personal newsfeed alerting to the change in such documents but no affirmative action was required by each user).BUT said the general and individualized notice was enough, that the agreement was effective, but that in the situation it would not apply CA law.
- The Court said that the notice provided by Facebook was enough to have a binding choice of law provision (seemed to like the “personalized” nature of the news feed notice).
- But the Court then still chose to apply IL law as opposed to CA.
In Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2012):
- Said “inquiry notice” turns on “design and content of the website and agreement’s webpage.”
- This case was followed by e.g., Long v. Provide Commerce, Inc. 245 Cal. App. 4th 855 (Cal. Ct. App. 2016) (refused to compel arbitration, stated that to put users on notice you need conspicuous hyperlink plus notice that it contains binding terms. A conspicuous notice alone is not enough).
In Jerez v. JD Closeouts, LLC, No. CV-024727-11, 2012 WL 934390 (N.Y. Dist. Ct. 2012):
–The court held that a terms of sale provision found on the “About” page of the website was not enough to enforce the forum selection clause.
- Plaintiff ordered products ($6,000 worth of tube socks) over the Internet, and sued claiming there were defects.
- Seller moved to dismiss claiming the forum selection clause required the dispute be heard in a Florida state court, and Plaintiff claimed he never saw clause.
–Court found the clause was not reasonably communicated where it was “buried” and “submerged” on the website, and could only be found by clicking on an “inconspicuous” link to the company’s About Us page. Seller’s attempt to have the terms incorporated by reference in a printed contract and letter agreement were not enough for the court.
- Court relied on Specht and Carnival Cruise Lines.
–Similar holding in Cvent, Inc. v. Eventbrite, Inc., 739 F. Supp. 2d 927 (E.D. Va. 2010).
In Ticketmaster Corp. v. Tickets.com, Inc., 2003 U.S. Dist. Lexis 6483 (C.D. CA., March 7, 2003):
–Relying on Register.com and Pollstar, the court held that a contract can be formed by use of a website, provided the user, at the time of use, has knowledge of the site’s terms and conditions that provide that such use constitutes an agreement to be bound.
- Court relied on “cruise ship” case law precedent. It analogized interior web pages to the back of a cruise ship ticket’s venue clause, where user has actual or presumptive knowledge.
–Court found that Tickets.com used Ticketmaster’s site with full knowledge of the terms, and upheld such terms in the breach of contract action.
In Pollstar v. Gigmania, Ltd., 170 F. Supp. 2d 974 (E.D. CA 2000):
–Pollstar kept track of concert information on its website, which any user could download by accepting the terms of Pollstar’s license.
»License prohibited commercial use of information.
»License was not on Pollstar’s homepage, but on different page of its site.
»Visitor is alerted to existence of Pollstar’s license only by reason of a small grey print on grey background (with a link to terms, but other links on homepage were blue)
–Gigmania downloaded information from Pollstar’s site and used it on its own site for commercial purposes. Pollstar sued to enforce terms.
–The court refused to enforce the terms of the license agreement because it found that the link to the license was hard to read based on the way it was presented.
- Notably, the court did not rule that the license agreement was unenforceable, only that the website did not give users adequate notice of it.
Below is a brief overview of Register.com v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004):
–VERIO claimed there was no contract as it never agreed to the terms, and in any event any user of the WHOIS site could receive the information before seeing the terms.
- The court said that this argument may only have worked if Verio used the WHOIS database once, but Verio did it every day with full knowledge of the terms.
Here is a brief summary of the case In re Zappos.com, Inc. Customer Data Security Breach Litigation, 893 F.Supp. 2d 1058 (Dist. Ct. Nevada 2012):
–Users sued in multiple forums for damages due to a security breach.
–Zappos had a hyperlink on each page of its website to the terms but it was hard to see, being the same size and color as other insignificant links, and located ¾ of the way down the page. The website never prompted or directed a user to the terms even when purchasing a product or opening an account.
–Court concluded that the plaintiffs may have never seen the terms, so in no way could be deemed to have actually or constructively agreed to them. No assent, no contract.
- Sidenote: The Court also held the arbitration provision was an illusory contract (and therefore not enforceable) because Zappos was able to amend the Terms as it saw fit at any time. See Grosvenor v. Qwest Corp., 854 F. Supp. 2d 1021 (D. Colo. 2012) for this same holding.