Exclusive contract law for data transmission

Si Gyeongmin

Sep 03, 2021

A contract is just one or a group of promises to be executed by the contract law, while contract law is a legal system that defines the right of one or more doers to execute the promises of another doer.

Contract principles vary from market to market. In many markets, private doers choose to deviate from the rules provided by the state and formulate their own industry contract law guidelines. Contract laws in varies from jurisdiction to jurisdiction, especially between jurisdictions with common law and civil law traditions.

The differences in contract law between different markets are not necessarily small, and even the most basic contract principles in common law have deviations. There are fierce debates about whether the rules of contract law should change in different markets and to what extent. One view is that the normative theory of contract law is generally applicable, which provides certain substantive rules of contract law for all markets. The opposite is a special theory that stipulates different rules of contract law for different markets, that is, different types of agreements should be interpreted differently.

Special theories tend to be instrumental rather than obligatory. In other words, their premise is that contract law should be designed to promote specific goals. Contract law usually plays a key role in facilitating mutually beneficial transactions, which cannot be concluded immediately because performance takes time or is difficult to verify. In this case, one party must take the risk of starting to fulfill its agreement or invest in reliance on the promise before it can ensure that the other party completes its performance. Knowing that commitments can be implemented can help mitigate this risk. The prospect of enforcement also encourages one party to make expensive investments to increase the value derived from the other party’s expected performance.

Therefore, the proposition that contract law should aim at promoting mutually beneficial transactions is highly consistent with the special theory of contract law. Under this approach, the appropriate rules for any particular market will vary based on factors such as the distribution of preferences among participants. The best rules to promote mutually beneficial transactions will also depend on the level of information barriers. At the same time, this method can also justify the adoption of special rules to regulate the personal data market.

It is generally believed that the personal data market is dysfunctional, and interventions that seriously deviate from the general principles of contract law are needed to correct these problems. Some of these recommendations are based on concerns about how personal data transmission may affect third parties. Others are out of non-instrumental considerations.

Many aspects of contract law can be used to eliminate or mitigate the impact of information barriers. First, it may be useful to adjust rules on formation and enforceability, which can effectively attract consumers to read and understand. Second, implied restrictions on use or transfer can protect consumers who fail to recognize the value of such restrictions.

According to the general rules of contract relativity, the agreed use or transfer restrictions cannot be enforced against third parties in the contract. In the event that the original transferee’s claim is insufficient to prevent or provide compensation for breach of contract, the insistence on relativity limits the effectiveness of contractual restrictions. In order to facilitate execution, it may be necessary to restrict the use of data or impose restrictions on the third party to which the data is transmitted, regardless of whether the third party agrees.

It also makes sense to deviate from the general rules regarding the right to terminate contracts and sue for breach of contract. The broad right to terminate the agreement protects the transferor from the harm of agreements that they later consider to be unfavorable. At the same time, in the case of a breach of contract, the aggrieved transferor who is difficult to prove the extent of its loss can freely use specific forms of relief, such as deleting data, in order to restore it to the state before the contract was concluded. In terms of damages, the breach of contract for expected damages forces the breaching party to pay damages equal to the damages caused. In order to create an optimal incentive mechanism, it is necessary to give higher and more punitive damages.

Finally, the procedural rules governing the settlement of contract disputes can also encourage enforcement. The most obvious rules conducive to law enforcement are those that allow class actions, which allow multiple parties to share the cost of law enforcement.

The theory of information barriers believes that information barriers provide justifications for adopting special rules to regulate personal data transmission. Although the theory has been proven to have considerable influence, it is far from indisputable. It is actually based on several premises that are not generally valid.

First, the theory assumes that information barriers are not easy to overcome. This may not be true. Just as data collection technology continues to advance, so does the technology that allows people to control the data collected from it. Relatively immature consumers can learn about possible transmission restrictions by observing the terms that provide more complex parties. In addition, imperfect information is not necessarily an obstacle to mutually beneficial transactions. As consumers become more aware of the potential consequences of personal data transmission in a general sense rather than specific transactions, this misunderstanding may decrease. For all these reasons, consumers may actually be able to obtain more information than assumed by the information barrier theory.

Second, the theory assumes that a considerable number of consumers tend to impose restrictions on the use or transmission of collected data. In fact, their behavior often shows that they pay less attention to these restrictions, the so-called "privacy paradox." In addition, people's evaluations of these restrictions also vary greatly depending on different environmental factors.

Third, the theory assumes that the benefits of imposing restrictions on use or transfer outweigh the costs associated with inducing parties to incorporate these restrictions into their agreements. However, these costs can be huge. If it is difficult to foresee the potential uses and users of a certain type of data at the time of the initial transfer, then in the process of renegotiating the original restrictions, the use of new valuable uses and the benefits that users may generate will be completely lost or reduced. The costs associated with restricting the third-party restrictions on obtaining data without notice may become particularly large.

The fourth controversial premise of the theory is that specific forms of private litigation, such as class actions, are essential to ensure that restrictions on use or transfer are enforced. However, reputational sanctions and public enforcement may also result in sanctions that violate use or transfer restrictions, and the deterrent effect of such sanctions may be sufficient to eliminate the need for private litigation.

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