Did Facebook Violate an Implicit Contract?

Christopher Caldwell offers a fresh perspective on the Facebook Beacon imbroglio in today's New York Times, entitled Intimate Shopping.  He applies the concept of "implicit contracts" which was developed by Andrei Shleifer and Lawrence Summers in their 1989 paper Breach of Trust in Hostile Takeovers.  Shleifer and Summers argues that the increase in share price after a hostile takeover stems from the new owners reneging on the implicit agreement between employer and employee that if employees work hard when they are young the company will take care of them when they are older.  The new owners can say they weren't around when that agreement was made and thus change arrangement ex post.  Anyone who lived through the Eighties can recall the moment when corporations discovered they could abandon such implicit contracts, for instance moving plants from Michigan to North Carolina, then to Mexico, India, and Asia.  Economists will argue that the resulting arrangements were more efficient and thus could lead to more prosperity, but those caught up in the change weren't always happy with the disruption.  Still, being on the early side of making those changes could be very lucrative, whether it was globalizing manufacturing, outsourcing services or, most recently, securitizing mortgages.

Caldwell points out that this same process is at work on the Internet.  The average user had an expectation that information on one's purchases would not be widely shared.  It turns out that this expectation is not grounded in any law or contract and thus open to reinterpretation by sites such as Facebook.  Had Facebook gotten away with it, they might have benefited handsomely, but in this case they overreached and had to retrench.  I'm confident this won't be the last time we see this dynamic play out.