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Computable Contracts

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October 18, 2011 12:45pm - 2:00pm

Room 180
    About the Event: A contract is a promise, voluntarily undertaken, that is enforceable under the law. A computable contract is a contractual obligation that has been formulated such that a computer system can both interpret and determine whether the obligation has been complied with. This Article explores the theory and concept of computable contracts and their increasing impact on the law. Such computable contractual obligations offer advantages over traditional written obligations, including efficiency of compliance assessment, and detection of contradictory legal obligations.

    This first part of the Article contextualizes computable contracts within the legal theory and contract literature. In earlier work, I described how lawmakers can deliberately formulate legal obligations in particular ways (e.g. structured data, formally realizable metrics) in order to make their compliance more (or less) determinate and hence amenable to computation. This counters a view that legal obligations are intrinsically too indeterminate in nature and application to be resolved by computer systems. That view may be accurate to the extent that the majority of observed statutory, regulatory, and common-law decision making contains a significant amount of ex-ante indeterminacy concerning legal outcomes. However, relative indeterminacy is not an inherent property of law. Rather, indeterminacy is often serving a functional role due to unpredictability, uncertainty, or ex-ante definitional limitations, allowing for ex-post adaptivity, discretion, and social/contextual flexibility by legal decision-makers.

    By contrast, relatively determinate legal obligations are comparatively under-utilized because they include significant limitations in terms of adaptability, and over and under inclusiveness. They are often not appropriate for the multiple functions performed by the law, including complex conflict resolution among competing claimants or situations requiring sensitivity to context, abstraction, social values, contested norms, unpredictable facts, or larger issues of public policy. However, with a full understanding of the limitations involved, there are subsets of the law where relatively determinate legal obligations, capable of being computed, are both possible and appropriate. With the recent widespread availability and interconnectedness of computer systems and data, the benefits of determinate, computable legal obligations (e.g. significant reductions in contracting transaction costs) are beginning to outweigh the drawbacks in limited areas.

    Contracting can be considered “private-lawmaking” in the sense that the parties can control both the substance, and importantly, the form of their contractual obligations. I describe how contracting parties can design the form of their legal obligations not simply to be relatively legally certain ex-ante (as in a formally realizable bright-line legal rules), but also to agree that to make them deliberately interpretable and determinable by computer systems. I also discuss the limits and disadvantages to formulating contractual obligations in this way. While still an incipient trend, there are actual examples of computable contracts in use today in several important fields including finance (electronic derivative and swap contracts), e-commerce, and in intellectual property (computer-based structured licensing agreements). As more content becomes electronically mediated, the use of computable contracts will likely increase in areas such as intellectual property. The background adjudicative framework will need to adapt as computable contracts undermines existing assumptions about the relatively high transaction cost of creating and resolving contracts.

    About Harry Surden: Harry Surden is a professor of law at the University of Colorado Law School. His scholarship centers upon intellectual property law with a substantive focus on patents and copyright, information privacy law, as well as the application of computer technology within the legal system.

    Prior to joining CU, Professor Surden was a resident fellow at CodeX - The Stanford Center for Legal Informatics, a joint center between Stanford Law School and the Stanford Computer Science Department. In that capacity, Professor Surden conducted interdisciplinary research with collaborators from the Stanford School of Engineering exploring the application of computer technology towards improving the legal system. He was also a member of the Stanford Intellectual Property Litigation Clearinghouse and the director of the Computer Science and Law Initiative. He received his law degree from Stanford Law School with honors.

    Prior to law school, Professor Surden worked as a software engineer for Cisco Systems and Bloomberg L.P. He received his undergraduate degree with honors from Cornell University.
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1800174)

    Sponsored by CodeX - The Stanford Center for Legal Informatics, a join center between Stanford Law School and the Stanford Computer Science Department

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