Document Type
Article
Publication Date
2024
Abstract
Smart contracts (i.e., electronic agreements written in computer code) can resolve contractual disputes instantaneously, without resorting to court. For workers and consumers—whose lack of bargaining power often requires them to accept pre-drafted contracts on a take-it-or-leave-it basis—reducing the role that courts play in resolving contractual disputes can be problematic. While courts could deploy traditional interpretive doctrines (e.g., contra proferentem) to interpret vague contract language against the drafter’s interests, smart contracts can be programmed to interpret contract language in the drafting party’s favor. Because the drafting party knows that they will have the ability to interpret vague language in their own favor (rather than try their luck with a court’s neutral interpretation), the drafting party has the incentive to use vague smart contract language that the drafting party can later interpret to advance its own future interests, which might change over time.
The incentive to use vague terms that the drafting party can later interpret to promote its own future interests is not unique to the futuristic world of smart contracts. To the contrary, administrative law has long grappled with a similar incentive presented to government agencies empowered by Auer v. Robbins to interpret the regulations they write. Under Auer, a court reviewing a regulation’s text would often defer to the agency’s interpretation of that language—even though the regulated entity disagreed with the agency’s interpretation. A traditional critique of that so-called “Auer deference” was that, because an agency knew that courts would favor the agency’s own interpretation, the agency was incentivized to draft regulations with vague terms that the agency could later interpret to fit its own interests. This left regulated entities with less notice as to what their legal obligations might be in the future. But administrative law has developed to correct such incentives by requiring, in Kisor v. Wiklie, that courts play a more central role in interpreting regulatory text (rather than quickly deferring to an agency’s self-serving interpretation). This Article applies the lessons offered by administrative law to the world of smart contracts.
Administrative law’s lessons apply to the world of smart contracts because companies can regulate private behavior through smart contracts, similar to how agencies regulate private behavior through regulations. Thus, much like administrative law has developed to ensure that courts do not defer automatically to an agency’s self-serving interpretation, state governments should protect workers and consumers by limiting companies’ abilities to interpret algorithmically their own smart contracts without judicial oversight.
Recommended Citation
Chad Squitieri, Against Algorithmic Auer Deference, 112 Ky. L.J. 291 (2024).