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Ex Machina
Code as contract: The future of covenants in cyberspace
We can express contractual obligations in terms of code and hardwire these into digital platforms
Over 20 years ago, Lawrence Lessig published a book called Code and Other Laws of Cyberspace. At the time, it was one of the very few books that dealt with the challenge of regulating the internet, arguing that we should not apply online the rules we use to regulate the offline world. It warned, presciently, that if the governments of the world did not shape the architecture of the internet, tech companies would do so—to their exclusive benefit.
We tend to think of regulation as a mixture of written laws, judicial precedents and human enforcement. But that is not the only way to regulate human behaviour. It was Lessig’s belief that it would be far more efficient to regulate the internet through the code that defines it—by embedding the rules we want to govern its use directly into its architecture.
This notion, that the architecture of digital platforms is malleable and capable of being designed to shape user behaviour, is a powerful one. It suggests that rather than regulating actions and outcomes, what we really need to do is design the architecture of the internet so that it can achieve the intended regulatory outcomes. For instance, if there is a regulatory intent to enforce copyright law, anti-circumvention technology could be built into the architecture of the internet, making it impossible for anyone to willy-nilly re-use copyrighted works. Granted that this would also make it impossible to invoke “fair use”, an equally essential component of modern copyright law, but provided that regulators are able to find a way to balance these competing objectives, the fact that the architecture of the internet is built from code makes it possible to embed regulation directly into it.
This was a concept way ahead of its time. Not only have governments been unable to make anything of it since, to the contrary, just as Lessig feared, Big Tech capitalized on this regulatory inaction and went ahead with architectural settings of their own choice.
For the next 20 years, I had little occasion to think about this framework. And then, earlier this year, as I was mulling over the appropriate legal framework for a digital vendor financing platform I was advising on, it occurred to me that if we borrowed a few pages from Lessig’s book, we might be able to construct an innovative alternate model to govern the various obligations and responsibilities of participants on multi-party platforms.
The contractual frameworks we currently apply to digital platforms are hopelessly archaic. They are, for the most part, dense legal documents that everyone assents to, but no one actually reads. They tend to apply traditional concepts of obligation and liability to digital services, even though the services themselves function in ways that render many of these obligations utterly meaningless. As incongruous as these frameworks are in the context of users on simple e-commerce websites, they become wholly unworkable when used to describe the roles, responsibilities and obligations of the many participants operating on larger, complex platforms.
If we want to make digital platforms truly effective at scale, we need to fundamentally rethink the way in which we design the contractual frameworks we use to govern them. In order to do that, we need to start to think of contract as code.
What do I mean by that?
Most digital services use algorithms that describe a sequence of actions which, when properly performed, inevitably produce a given result. In a more general sense, contracts are also algorithms that describe the manner in which the obligations of various parties interplay with each other and specify the sequence in which they are to be performed. However, unlike contracts in the non-digital context, there is no need to prescribe consequences for a failure to perform a digital contract since it can be designed to automatically carry out the obligations of multiple different parties in the sequence of steps prescribed in the algorithm.
Since both the contract and the services they seek to regulate are algorithms, it is actually relatively trivial to design a construct in which the obligations described by the one could be embedded into the sequence of actions performed by the other. In other words, in the context of a digital platform, we can easily describe contractual obligations in terms of code so that performance can hard-wired into the platform itself.
A more traditional way to design a multi-party platform contract would have called for a series of interlocking framework agreements that each party would have had to sign with every other party so that everyone was legally bound to everyone else by all these different contracts. It would have required the consequences of non-performance to be specified, along with appropriate remedies. However, in the context of large-scale platforms that we hope to scale up someday to hundreds of thousands of participants, this approach quickly becomes infeasible.
Code facilitates the performance of obligations, and, once set in motion, executes them impartially in accordance with the terms programmed into its design. Describing contracts in code allows us to minimize the conditions that get reduced to words on paper, and can be used to create the sorts of complex, highly-scalable multi-party transactions that would have otherwise been impossible. This might not be good news for lawyers in this field, but it is the inevitable future of contracting.
Rahul Matthan is a partner at Trilegal and also has a podcast by the name Ex Machina. His Twitter handle is @matthan
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First Published:10 Nov 2020, 08:41 PM IST
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