Take It or Leave It: Monsanto v. McFarling, Bowers v. Baystate Technologies, and the Federal Circuit's Formalistic Approach to Contracts of Adhesion

Chicago-Kent Law Review Volume 80 Issue 1 Symposium: Final Status for Kosovo: Untying the Gordian Knot Article 19 December 2004 Take It or Leave It: Monsanto v. McFarling, Bowers v. Baystate Technologies, and the Federal Circuit's Formalistic Approach to Contracts of Adhesion Christopher M. Kaiser Follow this and additional works at: https://scholarship.kentlaw.iit.edu/cklawreview Part of the Law Commons Recommended Citation Christopher M. Kaiser, Take It or Leave It: Monsanto v. McFarling, Bowers v. Baystate Technologies, and the Federal Circuit's Formalistic Approach to Contracts of Adhesion, 80 Chi.-Kent L. Rev. 487 (2005). Available at: https://scholarship.kentlaw.iit.edu/cklawreview/vol80/iss1/19 This Notes is brought to you for free and open access by Scholarly Commons @ IIT Chicago-Kent College of Law. It has been accepted for inclusion in Chicago-Kent Law Review by an authorized editor of Scholarly Commons @ IIT Chicago-Kent College of Law. For more information, please contact . TAKE IT OR LEAVE IT: MONSANTO V. MCFARLING, BOWERS V. BAYSTATE TECHNOLOGIES, AND THE FEDERAL CIRCUIT'S FORMALISTIC APPROACH TO CONTRACTS OF ADHESION CHRISTOPHER M. KAISER* INTRODUCTION Adhesion contracts1 in their various forms are extremely common, comprising the vast majority of all contracts made. 2 Contracts of adhesion, including form contracts 3 and shrinkwrap license agreements, 4 are an important part of the modem consumer economy. By greatly reducing transaction costs, these contracts help to lubricate the gears of the market, at least when standardized products are offered for sale, as is the case with * J.D. candidate, Chicago-Kent College of Law, Illinois Institute of Technology, 2005; B.S., Chemical Engineering, Colorado School of Mines, 1996. The author would like to thank Professor Timothy Holbrook for his insightful comments on the various drafts of this Note. 1. A precise definition of "adhesion contract" or "contract of adhesion"--terms used interchangeably-is nearly impossible, since courts do not agree to a large degree on what such a contract entails. However, the term here is used to refer to a contract for sale of a good or service that is offered on a "take it or leave it" basis, where the purchaser either buys the product and accepts the offered terms of sale (which may or may not be written down) or refuses the terms of sale and thereby forgoes the sale altogether. It should be noted that the term "contract of adhesion" tends to have a somewhat negative connotation, suggesting that the contract might be unconscionable. However, most courts take pains to state that adhesion contracts are not necessarily unconscionable and that unconscionable contracts are not necessarily adhesive-it could hardly be otherwise, given the large degree to which contracts of adhesion dominate the modem consumer economy. See infra note 2. 2. W. David Slawson, StandardForm Contractsand Democratic Control of Lawmaking Power, 84 HARV. L REv. 529, 529 (1971). Slawson notes that "[p]arking lot and theater tickets, package receipts, department store charge slips, and gas station credit card purchase slips are all standard form contracts," as are many contracts pertaining to "insurance, leases, deeds, mortgages, automobile purchases, and all of the various forms of consumer credit." Id. He believes that adhesion contracts "probably account for more than ninety-nine percent of all the contracts now made." Id. 3. For a very complete discussion of the use of form contracts to replace market transactions in the modem business environment, see Todd D. Rakoff, Contracts ofAdhesion: An Essay in Reconstruc- tion, 96 HARV. L. REv. 1174, 1220-25 (1983). 4. A discussion of shrinkwrap license agreements can be found in Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S.CAL. L. REv. 1239 (1995). As he notes, they are typically found in the context of software purchases, where the consumer accepts the terms of the agreement simply by opening the package in which the software is shipped and marketed. Id. at 1241-42. CHICAGO-KENT LAW REVIEW [Vol 80:487 most goods and services sold today. 5 They also allow the party who drafts6 ' the contract to "rationally calculate the costs and risks of performance. Thanks to these benefits, many consumers "have difficulty remembering the last time they contracted other than by standard form." 7 Most routine transactions are accomplished through contracts of adhesion, and standard forms are even used for transactions consumers engage in less frequently, such as those involving or for the sale of cars, insurance, and even real property. 8 All this benefit comes at a cost, though. While both parties experience the benefit of lowered transaction costs inherent in the use of form contracts and other contracts of adhesion, 9 the benefit of the increased ability to "calculate the costs and risks of performance"' 0 is only felt by the party who drafts the contract. The party who adheres to the contract-who must take the offered terms or forgo the transaction! l-gives up much, possibly all, of the bargaining power she is assumed to have under the traditional model of contract formation. 12 Many people adhere to such contracts without reading or understanding the terms to which they consent, even when they take the time to shop around for a good bargain. 13 Thus, although contracts of adhesion are generally considered enforceable, courts have begun to treat them differently from traditional contracts, at least under some circumstances. 14 5. 1 ARTHUR LINTON CORBIN & JOSEPH M. PERILLO, CORBIN ON CONTRACTS § 1.4 (rev. ed. 1993). 6. Id. 7. Slawson, supra note 2, at 529. 8. Id. 9. Form contracts lower transaction costs by forcing a "take it or leave it" model on consumers, freeing buyers and sellers from haggling over the terms and conditions of each individual purchase. Lower transaction costs are presumably passed on to adherents to form contracts in the form of lower prices, benefiting the adherents. In addition, sellers can include terms that allow them to produce or sell their goods more cheaply, or both, passing on the savings to buyers, as recognized by the Supreme Court in CarnivalCruise Lines, Inc. v. Shute. 499 U.S. 585, 594 (1991) (noting that a forum selection clause included in a standard-form cruise passenger ticket benefited passengers "in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued"). 10. CORBIN & PERILLO, supra note 5,§ 1.4. 11. Rakoff, supra note 3, at 1225. 12. See Slawson, supra note 2, at 529 ("The contracting still imagined by courts and law teachers as typical, in which both parties participate in choosing the language of their entire agreement, is no longer of much more than historical importance."). 13. Rakoff, supra note 3, at 1226 ("The ideal adherent who would read, understand, and compare several forms is unheard of in the legal literature (...truncated)