Category Archives: Behavioral Advertising

Blockchain in 2018 and beyond

Buoyed by Bitcoin’s latest price and a steady supply of Initial Coin Offerings (ICOs), the blockchain ecosystem in 2018 resembles the Web ecosystem of 1995 – an ecosystem that eventually disrupted advertising and marketing models by having companies such as Amazon, Google and Facebook outplace traditional retail sales and marketing companies.  This time around, however, the financial levers presently held by banks and related financial services firms will be retooled – as well as the present centralized server model so very important to the same companies who previously benefited from the Web ecosystem, namely Amazon, Google and Facebook.

Speculation vs. Utilization

in September 2017, Bitcoin was famously derided by the financial titan Jamie Dimon as “a fraud”.  The JPMorgan CEO went so far as to say he would fire anyone on his trading team who bought Bitcoin.  His gratuitous digs at Bitcoin did not temper the rise of Bitcoin and became noteworthy – and a likely source of friction with his traders, because the Bitcoin cryptocurrency went on to increase in value over three-fold a mere 1Q after Dimon’s public derision.   As of December 31, 2017, Bitcoin sits at a price of near $14,000 whereas when Mr. Dimon’s bold pronouncements were made Bitcoin “only” had a price of $4,115.

Similarly, another banker – Vitor Constancio, the vice president of the European Central Bank, said in July 2017 that Bitcoin “is not a currency but a mere instrument of speculation” – comparing it to tulip bulbs during the 17th century trading bubble in the Netherlands.

In the same way that the World Wide Web was never defined solely by Pets.com, the benefits of blockchain technology should never be defined solely by the latest price of Bitcoin.  Even Mr. Dimon acknowledges as much given during his tirade against the speculative nature of Bitcoin he also said “he supported blockchain technology for tracking payments.”

By way of background, a blockchain is nothing more than an expandable list of records, called blocks, which are linked and secured using cryptography, namely cryptographic hashes that point to each prior block and result in an unbreakable “chain” of hashes surrounding the blocks.  More accurately referred to as a distributed ledger of accounts, a blockchain ecosystem will disrupt more than one industry beginning in 2018.

The inevitable changes that will occur in 2018 spring from several unique attributes of the blockchain ecosystem.  First, because a blockchain ledger is distributed it takes advantage of the vast amount of compute power available in most every computer device.  Similar to how the Mirai botnet distributed denial of service (DDos) attack became the largest DDoS attack by simply using unsecured IoT access, blockchain technology harnesses secure unused compute power in powerful and productive new ways.  Our new IoT ecosystem – which itself is an outgrowth of the Web ecosystem, will only feed into that result.

Secondly, blockchain ledger transactions are the closest thing to an immutable form of transaction accounting we have given the transactions have been verified and cannot be changed once written to the blockchain without evidence of obvious tampering – which was always the reason Bitcoin derived any actual intrinsic value.  In other words, the promise of blockchain coupled with pure speculation has solely driven Bitcoin pricing.  By buying Bitcoin and other cybercurrencies, it is almost as if people were given a chance to turn back the clock and bet on the Web ecosystem in 1995.  Without usage for its intended purpose, namely being a trusted and immutable listing of Bitcoin transactions, Bitcoin would most certainly go to the zero valuation postulated by Morgan Stanley.  The logic is pretty straight forward – without an actual intrinsic store of value, there is no actual intrinsic store of value.  And, without some sort of intrinsic store of value there is no reason to consider Bitcoin an asset.  Accordingly, unless utilized by choice or forced to be used by a government, speculation will never be a sustainable impetus for the pricing of Bitcoin – or any other cryptocurrency for that matter.  Without utilization, tokens/app coins/cryptocurrencies will all die on the vine given external utilization will always be needed to create a store of value.

Utilization under the Ethereum protocol

Disregarding the unlikely scenario of governmental adoption, the future of any blockchain/cryptocurrency ecosystem necessarily ties directly to utilization.  Even though there are several protocols with smart contracts amendable to utilization, there is only one founded by a visionary who understands the issue of scalability and why scalability is the sine qua non of a successful blockchain ecosystem – in the same way a non-scalable Web ecosystem was always a non-starter.  An early December 2017 presentation given by that visionary – Vitalik Buterin,  talks to scalability as being the most important new initiative of Ethereum going forward in 2018.   Mr. Buterin – who will likely take the blockchain ecosystem where Gates took the PC ecosystem and Bezos took the Web ecosystem, suggests that “sharding” using a Validator Manager Contract –  a construct that maintains an internal proof of stake claim using random validators, will eventually solve the problem of scalability.  Simply put, not all blocks/shards will need to be placed under the main chain.  This is a natural evolutionary progression given as it stands now everyone seeking an Ethereum wallet needs to download Ethereum’s entire trove of over four million blocks – hardly a scalable solution for the many app tokens or coins running the Ethereum protocol.  Moreover, each Ethereum block currently also takes about 14.70 seconds to promulgateIn 2014, Buterin anticipated the feasibility of a 12 second block time so has certainly been moving in the right direction.  Given security and propagation issues, work on this remains in the infancy stage with a great deal of work necessary in 2018.  Nevertheless, in 2018 and beyond, smart contracts such as those available under Ethereum will allow for the utilization necessary for the blockchain ecosystem to thrive.

Adoption by financial markets and the Ripple Effect

Ripple/XRP surged at the very end of 2017 and quickly became a rumored stealth initiative by the regulated banking industry to combat unregulated cryptocurrencies.  Ripple promises “end-to-end tracking and certainty” for those banks using its RippleNet closed-loop network.  More than anything, this initiative demonstrates that unregulated ICOs and unregulated “currencies” may have spooked the world’s financial markets sufficiently to justify taking sides by investing in a Ripple contender – a “blockchain-like” service seeking to displace existing cryptocurrency mindshare.  Indeed, Ripple just replaced ETH/Ethereum as the second largest market cap cryptocurrency.   Even though only two financial institutions are listed as investors, that does not mean other financial institutions would not want to prop up this “currency” on the open market – the list of “advisory board members” is telling in that regard.  This bank-sponsored version of Bitcoin certainly looks like it has more legs than Bitcoin given there exists budding utilization – banks are currently already using the RippleNet network, coupled with massive speculation given its ballooning market cap.

In 2018, acceptance of blockchain technology by the financial industry will be indelible proof those mistakes of 1995 made by retail sales and marketing companies will not be repeated by the financial industry or even the server sector represented by the likes of Google – who has invested in Ripple.  More than likely, upcoming technology developments under the Ethereum protocol will beget future tokens with smarter utilization and even greater potential upside than either Bitcoin or Ripple.  In other words, the blockchain ecosystem in 2018 will be no different than the Web ecosystem as it existed in 1995.

Carpenter may prod monetization of consumer data property rights

On November 29, 2017, the United States Supreme Court heard oral argument in U.S. v. Carpenter – a case involving robbery suspects who were convicted using cellphone tracking data obtained without a probable cause warrant.  Subpoenas and warrants available under the Stored Communications Act (“SCA”) allow for access to such records without any probable cause showing.    As previously pointed out, the ACLU is looking to push the Supreme Court into making a technology-forward decision by stressing how data collection methods have improved since the 2011 arrest of Carpenter.

According to Law360, Justice Samuel Alito said at the hour-long oral argument:  “I agree with [Carpenter] that this new technology is raising very serious privacy concerns, but I need to know how much of existing precedent you want us to overrule or declare obsolete.”  Justice Alito referenced the third-party doctrine that offers no added protections to material freely given to third parties given such material is generally provided without any expectation of privacy.

At oral argument, Law360 reports Carpenter’s counsel Nathan Wessler of the ACLU said that the bank records and dialed phone numbers found in third-party doctrine cases were “more limited” and freely given to a business as opposed to cellphone location records, which many users don’t understand can “chart a minute-by-minute account of a person’s locations and movements and associations.”

Law360 also reported that Justice Sonia Sotomayor raised doubt that the third-party doctrine found in prior precedent was applicable given there are instances when sensitive data freely given to third parties – such as medical records, still require consent.  According to Law360, Justice Neil Gorsuch said:  “It seems like your whole argument boils down to if we get it from a third party we’re OK, regardless of property interest.”   And, finally according to the SCOTUS Blog, Justice Stephen Breyer recognized at oral argument: “This is an open box. We know not where we go.”

Despite the third-party doctrine, it seems the Court is leaning towards carving out Constitutional exceptions to the SCA based on data gathering technologies that may give rise to an expectation of privacy.   As often done, the Justices will likely come up with a result that takes into consideration stare decisis while meshing with new technological capabilities far removed from earlier cases.   As recognized by Justice Sotomayor in the U.S. v. Jones case of 2012, “it may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties.  This approach is ill suited to the digital age, in which people reveal a great deal of information about themselves to third parties in the course of carrying out mundane tasks.”

To that end, the most interesting aspect of this case involving robberies in Detroit will be how far the decision goes in helping define property rights for consumers of digital services.  In a nod to Justice Breyer’s Pandora’s Box allusion, this decision might eventually give rise to a newfound consumer awareness mandating a change in how consumer data is used by companies.  In other words, property rights acknowledged in this case may help prod consumers into seeking compensation for their consumer data property rights – something the tech amicus might not have envisioned when filing their brief in U.S. v. Carpenter.

CA lawmakers do not pass AB 375 – The California Broadband Internet Privacy Act

Succumbing to the pressure of heavy lobbying, the proposed California Broadband Internet Privacy Act was shelved early this morning by the California Senate:

If enacted, the law would have beginning in 2019 barred ISPs from monetizing consumer browsing data without first obtaining consumer consent.  In essence, large ISPs such as AT&T and Verizon would have been barred from refusing to provide service or limiting service if customers did not waive their privacy rights.  It would have also barred them from charging customers a penalty or offering discounts in exchange for waiving privacy rights.

By way of background, the FCC earlier this year pulled back on those Obama-era regulations that impacted ISPs – regulations that completely ignored the data collection practices of companies such as Google and Facebook given they were not subject to FCC regulation.  The “Net Neutrality” Red Herring previously used by lobbyists to protect those tech companies alleged ISPs deserve different treatment because they curtail broadband usage for certain segments of society – alleging that ISPs closed out the Internet for many in poorer rural communities.

Current FCC policy, however, maintains rules that protect the “openness” of the Internet.  And, the stated intent on the FCC’s May 2017 pullback was a desire to implement a “light-touch regulatory framework” that immediately leveled the field, allow the FTC to continue enforcing privacy infractions, and ultimately defer for a later date the exact parameters of any  federal consumer privacy consent law.

Currently, the privacy infractions of companies like Google and Facebook are policed by the FTC and not the FCC so having the FTC also focus on ISPs is perfectly natural within our current regulatory scheme.  After all, the only reason large ISP’s such as AT&T, Cox and Verizon even came under the FCC’s purview was because they are also telecom and cable operators.  To use this FCC front door to regulate the backdoor Internet businesses of telecom and cable operators was always forced and unnatural.  Indeed, this very public dispute between ISPs and website owners was itself s a subterfuge.  Not surprisingly, AB 375 was also opposed by Google and Facebook because “expanded privacy regulations could indirectly affect the websites’ own ability to gather and monetize user data.

As accurately stated by a libertarian blog:  “By framing this as a dispute between ISPs and websites — instead of accurately presenting it as a struggle between Internet users and anyone who would mine and sell their data, the powers that be (including lawmakers, bureaucrats, corporations, and the media) have muddied the waters to conceal a simple fact: This is actually a struggle between those who value their privacy and those who would profit by violating it.”

Perhaps fearing the demise of AB 375, a California ballot initiative proposed on September 1, 2017 would allow California consumers to know what personal information businesses are collecting from them as well as how that information is used.  As it stands, consumers obviously have no clue who ultimately processes, uses or outright purchases their data.  The California Consumer Privacy Act of 2018 will be placed on the November 2018 statewide ballot if it obtains 365,880 valid voter signatures.  This ballot initiative goes further than AB 375 given it would apply to any business that collects and deals in data for commercial purposes and not just ISPs.

The apparent premise behind this ballot initiative is that there is no longer any such thing as anonymous data – it only takes about 10 visited URLs in total to uniquely identify someone, and there certainly is no difference between what a Google or an AT&T  ultimately do with consumer data.  As it stands, relatively few use a Firefox browser set to its highest privacy setting or a Privacy Badger extension to keep Google scripts from running Google Analytics.  Even fewer users forgo Google in favor of the donation-funded DuckDuckGo search tool that allows users to browse the web without storing search results.

As suggested years ago:  “It may one day be determined, however, that an even more effective means to satisfy all constituent needs of the [online behavioral advertising] ecosystem (consumer, merchant, publisher, agency, etc.) will be to find a means to directly correlate between privacy rights, consumer data, and a merchant’s revenue.”

Until such direct financial correlation takes place – with the ensuing compensation to consumers, the true value of consumer data will never be known.  Very likely, companies who continue pilfering something consumers do not properly value will never do as well as companies that actually pay for what they want.

Given any present mass consumer education necessary to prod these issues forward will rely on online tools provided by companies with the most to gain or lose, the only immediately viable solution necessarily requires agreement from the likes of Google and Facebook.  Unfortunately, given current circumstances, there simply is no financial incentive for these companies to rock a very lucrative boat.

 

 

 

 

AG’s move against Google’s latest cy pres settlement

Without tackling the underlying merits of the case, the Attorneys General of Alaska, Arizona, Arkansas, Louisiana, Mississippi, Missouri, Nevada, Oklahoma, Rhode Island, Tennessee, and Wisconsin asked the Third Circuit to reverse approval of a $5.5 million settlement involving consumer privacy claims against Google.   Relying on Fed. R. Civ. P. 23(e)’s prohibitions against unfair settlements, the AG’s argued in their July 5, 2017 brief, the proposed cy pres settlement fund would be unfair given consumers would not receive a dime from these settlements.

In their brief, the AG’s point out that because “class members extinguish their claims in exchange for settlement funds, the funds belong to class members.”  Brief at 5.  And, simply giving these proceeds to various privacy rights groups chosen by Google and class counsel would be unfair to the actual class members.

The underlying multidistrict lawsuit – which was previously before the Third Circuit (In re: Google Inc. Cookie Placement Consumer Privacy Litigation), was filed in 2012 and alleges that Google deliberately circumvented default privacy settings used to prevent advertisers from tracking the browsing activities of persons using Safari and Internet Explorer.

Google is no stranger to cy pres funds pegged at $5.5 million.  In August 2016, Google settled a privacy suit by paying $5.5 million into a cy pres fund benefiting some of the same privacy groups looking to benefit from this latest settlement.  And, years earlier Google and Quantcast settled yet other privacy matters by way of a cy pres fund.

A cy pres fund provides the best of both worlds for defendants such as Google – it allows resolution of costly disputes while being able to fund non-profit organizations that ultimately help their cause.  Moreover, they have willing partners in class counsel given it really does not matter if an unnamed class plaintiff sees compensation so long as the settlement is approved and counsel’s fees are paid.  Hopefully, the United States Court of Appeals for the Third Circuit issues a well-reasoned opinion that guides courts around the country on this very troublesome practice.

FTC settles major IoT privacy case with smart TV maker VIZIO

On February 6, 2017, smart TV maker VIZIO entered into a stipulated Order granting injunctive relief and a monetary judgment to the FTC and New Jersey Division of Consumer Affairs.  The FTC brought its claims pursuant to Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), and the New Jersey DCA brought claims pursuant to the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq.  VIZIO and a subsidiary will pay $2.2 million to settle claims that the companies improperly tracked consumers’ viewing habits and sold this information without compensating viewers.  According to the Complaint filed the same day as the stipulated Order, Vizio and its subsidiary since February 2014 continuously collected viewing data on a “second-by-second” basis without any notice to the consumer.  Complaint at ¶ 14.  This action comes on the heels of the FTC’s smart TV workshop this past December.

Pursuant to the Order, all viewing data obtained by VIZIO prior to March 1, 2016 must be destroyed.  As for obtaining future viewing data, VIZIO must first prominently disclose to the consumer, separate and apart from any “privacy policy” or “terms of use” page: “(1) the types of Viewing Data that will be collected and used, (2) the types of Viewing Data that will be shared with third parties; (3) the identity or specific categories of such third parties; and (4) all purposes for Defendants’ sharing of such information.”  And, VIZIO will be able to collect such information only after the consumer affirmatively consents to such collection.

It is not entirely clear what incentive currently exists for consumers to voluntarily provide their viewing data to VIZIO given their initial smart TV purchases exist apart from any potential future relationship with VIZIO.  In other words, VIZIO really has nothing new to offer for this viewing data – it can only offer something on behalf of those who buy or broker this data.  Accordingly, VIZIO may act in the future as a new stream of commercials.  It has already been suggested that Netflix could make billions by bringing ads to its streaming offerings.

It has been reported that over half of US households use an internet-enabled television.  The VIZIO settlement with the FTC and New Jersey DCA does a great job of highlighting the peril of collecting IoT data such as TV viewing data without proper consent.  Samsung and LG faced similar pressure in 2015 but that was far from a clarion call given the lack of any hefty fine.

The VIZIO resolution may actually be more similar to the major shift brought on after CardSystems was breached over a decade ago.  CardSystems had no excuse for unsecurely maintaining track 2 data for its potential marketing purposes so that breach definitely helped promulgate the PCI data security standard.  Similarly, the VIZIO settlement may lead to more safeguards regarding the use of IoT data.  Rather than Visa or Mastercard waiting in the wings to enforce compliance we would have the FTC and state regulatory bodies.  Nevertheless, such efforts will still have to garner consumer support given the backdoor of affirmative consent that still exists even after the VIZIO resolution.  In other words, there may still have to be something in it for the consumer.

As previously suggested, it may finally be time for consumers to just be paid cash for their consumer data.

Google pays $5.5 million to cy pres fund

Gavel at the computer keyboard

On August 29, 2016, Google resolved yet another privacy suit – this one for $5.5 million with again nothing going to consumers.  Instead, the money will go to privacy groups agreed upon by Google and class counsel. Specifically, the list of proposed recipients of this latest cy pres fund include:

  1. Berkeley Center for Law & Technology;
  1. Berkman Center for Internet & Society at Harvard University;
  1. Center for Democracy & Technology (Privacy and Data Project);
  1. Public Counsel;
  1. Privacy Rights Clearinghouse; and
  1. Center for Internet & Society at Stanford University (Consumer Privacy Project)

As previously discussed, the cy pres method of settling privacy class actions is sought after by tech companies given such a mechanism more easily helps fund non-profit partners – organizations that more often than not push for the very policies advocated by defendants.  Given that class counsel look to resolve cases as soon as possible, the settling defendant obviously dictates the cy pres recipients.   More than likely, this latest Google settlement will obtain the necessary court approval.

Hopefully, Courts in the future take a harder look at this settlement method given the lack of direct benefit to those most impacted.

Data Privacy Day 2016 — Time to Get Paid for Your Personal Data?

Despite an active website and Twitter feed, most folks do not realize that January 28th was chosen as a “birthday” celebration for privacy statutory rights given the first statutory privacy scheme came into being on 28 January 1981 when the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data was passed by the Council of Europe.  As pointed out four years ago, the purpose of this convention was to secure for residents respect for “rights and fundamental freedoms, and in particular his right to privacy, with regard to automatic processing of personal data relating to him.”  It used to be heavily sponsored by Microsoft and Intel without much focus on how personal data is used for online behavioral marketing.  Perhaps spurred on by articles such as a recent one describing how Facebook values its users, the value of personal data is certainly more front and center on Data Privacy Day 2016.

As recognized today by an author writing about Date Privacy Day 2016, “you’re a walking, talking data source.”  The author goes on to discuss a project from the Harvard Data Privacy Lab springing from the fact “the average person has no idea just how much personal data is bought and sold.”

Data Privacy Lab director Latanya Sweeney, who is a former chief technology officer for the Federal Trade Commission, helped launch the project titled, “All the Places Personal Data Goes,” to illustrate the path personal info takes from one place to another.  According to the article, the Lab gathers “information on data buyers and sellers and make it available to journalists and others.  The project will also soon host a data-visualization competition to bring the issue to life.”  It is no surprise that the think tank created by publishing icons John and James Knight, the Knight Foundation, awarded the Lab’s project $440,000 to expand its efforts.

It’s very possible that after consumers read in the press exactly how valuable their personal data is to so many different companies they just might want in on the action.  The first company that helps make that a reality would certainly benefit consumers — as well as data buyers and sellers.

 

New Jersey State AG Enters into COPPA Consent Order

Capitalizing on its federal grant of authority, the New Jersey state Attorney General’s Office recently resolved claims it brought against Dokogeo, the California-based maker of the Dokobots app, that were based on the Children’s Online Privacy Protection Act (COPPA) and state Consumer Fraud Act.  According to the Consent Order filed on November 13, 2013, the Dokobots app is a geo-location scavenger hunt game that encourages users to visit new locations and gather “photos and notes from the people they meet.” One major attribute of the app is its geo-tracking of users.  A product review of the app describes it as blending “playtime, learning, exploration, and creativity in a curiously enticing way.” The State’s position was that the app was directed to children by virtue of its use of animated characters and “child-themed” storyline.

The Consent Order alleges that the app collects information, “including e-mail address, photographs, and geolocation information” deemed personal information under COPPA yet did not provide any neutral screen registration process to restrict the age of its users to those over the age of 13. Moreover, there was no terms of use agreement and its privacy policy does not disclose that the app is restricted to users over the age of 13. Pursuant to the Consent Order, Dokogeo removed all photographs of children and location information from its website and agreed to more clearly disclose information it collects.  As of November 24, 2013, the Dokobots site merely had a static home page – presumably given it is still in the process of implementing the terms of the Order.

The Consent Order also provides for a suspended fine of $25,000 which will only be enforced if Dokogeo fails to meet the terms of the Order.

This is the second such settlement reached by the New Jersey state AG’s office.  In July 2012, authorities announced a similar settlement against Los Angeles-based 24 x 7 Digital, LLC requiring the destruction of all children’s data that had previously been collected and transmitted to third parties.  That action was commenced by way of Complaint filed in June 2012.

It is not unusual for state AGs to commence COPPA actions against out-of-state companies.  In fact, a state AG action under COPPA was brought years ago by the Texas AG against a Brooklyn-based company for improperly collecting personal information such as names, ages, and home addresses from children.  What is interesting about the Kokogeo case, however, is that the underlying statute requires that the “the attorney general of a State has reason to believe that an interest of the residents of that State has been or is threatened or adversely affected. . . .” 15 USC § 6504 (emphasis added). Other than merely reciting the statute, no actual finding was made or referenced by the New Jersey AG’s office regarding the impact to New Jersey residents.  In fact, Kokogeo defended by arguing the app was intended for adults and there was no discussion by either side regarding New Jersey users.

App developers are well advised to appreciate two basic lessons from Kokogeo. If an app appears to target children, developers should comply with COPPA — especially given FTC guidelines involving the collection of geo-data and use of photographs.   And, if they do not comply, they should be prepared to defend against those state AGs who are not adverse to spending state dollars pursuing an enforcement action

California’s Right to Know Law Put on Hold

As reported by the LA Times, “a powerful coalition of technology companies and business lobbies that included Facebook, Inc., Google, Inc., the California Chamber of Commerce, insurers, bankers and cable television companies as well as direct marketers and data brokers” were able to stop a California bill aimed at giving consumers greater insight as to the use of their personal data.

First introduced in February by Assemblywoman Bonnie Lowenthal (D-Long Beach), the proposed Right to Know Law (AB 1291) would have implemented major revisions to existing law and created new rights for consumers.  Specifically, the proposed law would require

any business that has a customer’s personal information, as defined, to provide at no charge, within 30 days of the customer’s specified request, a copy of that information to the customer as well as the names and contact information for all 3rd parties with which the business has shared the information during the previous 12 months, regardless of any business relationship with the customer.

This new level of transparency might have helped sooth consumer concerns.  According to a 2012 USC Dornsife/Los Angeles Times poll, “82 percent of Californians said they are “very concerned” or “somewhat concerned” about Internet and smartphone companies collecting their personal information.”   On the other hand, providing a full and accurate accounting of who had access to a consumer’s data – even to only the small percentage of consumers who would actually take the time to request it – would have generated a major undertaking for a wide range of companies.  It is not surprising that the companies who fought so hard to pull the plug on this bill represent a very diverse coalition of businesses.

Even if this bill does not get revived in a new form sometime in the future, the prospect of what it might have brought to the table should serve as a wake up call to those businesses deep into online behavioral advertizing.  It may be time to better understand just who has access to what information – and it may not eventually matter whether that information belongs to a current client or consumer or whether it was anonymized.  As usual, staying in front of the regulatory curve remains a sound business practice.

Financial Correlation of Privacy Rights

In Letting Down Our Guard With Web Privacy, published on March 30, 2013, the author details ongoing research being conducted by Alessandro Acquisti, a behavioral economist at Carnegie Mellon University.  Mr. Acquisti’s research is cutting edge when it comes to online behavioral advertising (OBA)  and associated consumer behavior.  Indeed, he’s the academic who famously announced in 2011 that one might be able to discover portions of someone’s social security number simply by virtue of a posted photograph.   His research often distills to one major premise – consumers may not always act in their best interests when it comes to online privacy decisions.

It appears consumers and merchants alike may be missing out on fully cultivating a very valuable commodity.  According to the World Economic Forum, “personal data represents an emerging asset class, potentially every bit as valuable as other assets such as traded goods, gold or oil.”  Rethinking Personal Data:  Strengthening Trust, at 7, World Economic Forum Report (May 2012).  Before this asset class can ever be completely exploited and fully commercialized, however, its constituent value components must be correlated by all in the privacy food chain.

Over three decades ago, it was recognized that the three pillars of privacy – the very foundation of personal data – secrecy, anonymity, and solitude, were distinct yet interrelated.  See Gavison, Ruth, Privacy and the Limits of Law, 89 The Yale Law Journal 421, 428-429 (1980) (“A loss of privacy occurs as others obtain information about an individual, pay attention to him, or gain access to him. These three elements of secrecy, anonymity, and solitude are distinct and independent, but interrelated, and the complex concept of privacy is richer than any definition centered around only one of them.”).

Current OBA has made it so these three privacy pillars may be confusing for consumers to value, manage, and isolate when online – it is not generally up to consumers whether they will be fed an ad based on previous website visits or purchases – it will just happen.  Indeed, according to a survey of 1,000 persons conducted by Ipsos Public Affairs and released by Microsoft in January 2013, forty-five percent of respondents felt they had little or no control over the personal information companies gather about them while they are browsing the Web or using online services.  This view may not be unfounded given that data routinely gathered online, e.g., operating system, browser, IP address, persistent cookies, last used server, can be used to divulge the activity of individual devices.

The privacy trade-offs being researched by Mr. Acquisti and others offer insight into the true value of these data constituents.  Consumers who try to “shut off” or render anonymous access to their device’s data or settings, would not only likely fail in their attempt at being anonymized, they would also lose out on access to most social media and other websites requiring browsers to accept cookies as well as product offers that may presumably are of interest.  Indeed, this coordinated tracking of consumers is not even unique to the Internet.   See generally Bibas, Steve, A Contractual Approach to Data Privacy, 17 Harv. J. Law & Public Policy 591 (Spring 1994) (“Although the ready availability of information helps us to trust others and coordinate actions, it also lessens our privacy. George Orwell presciently expressed our fear of losing all privacy to an omniscient Big Brother.  Computers today track our telephone calls, credit-card spending, plane flights, educational and employment records, medical histories, and more.  Someone with free access to this information could piece together a coherent picture of our actions.”).  There are even companies that bridge the gap between offline and online activities by taking in-store point of sale purchases and converting such data to an anonymous online cookie ID that will eventually be used online by clients.  Such use of in-store data is generally permissible under a retailer’s loyalty program.

Current law does not generally prevent someone from collecting public information to create consumer profiles – nor is there the right to opt out of having your public record information sold or shared.  And, when one wants to self-determine whether data will be disclosed or whether he or she will be “untraceable”, “anonymous” or “left alone”, there may not always exist the ability to easily curtail these rights from being exploited – there is certainly no way to obtain a direct financial gain in return for the relinquishment of such privacy rights.  Instead, there has generally been a “privacy for services” marketing/advertizing arrangement that has been accepted by consumers – which, in fact, has helped pay for and fuel the growth of the commercial Internet.

The current OBA ecosystem does not posit a “loss of privacy” as much as it offers a bartering system where one party feels the value of what is being bartered away while the other party actually quantifies with cascading/monetizing transactions what is only felt by the other party.  In other words, it is not a financial transaction.  Those who are able to find an entertaining online video or locate a product online using a search engine don’t really mind that an ad will be served to them while visiting some other website given they feel this loss of privacy is worth the value of the services being provided.

Ironically, the interactive advertising industry itself may believe it is collecting too much sensitive consumer data.  According to a study conducted by the Ponemon Institute, 67 percent of responding online advertisers believe “limiting sensitive data collection for OBA purposes is key to improving consumer privacy and control when browsing or shopping online.” Leading Practices in Behavioral Advertising & Consumer Privacy:  A Study of Internet Marketers & Advertisers, at 2, The Ponemon Institute (February 2012).

As recognized by privacy researchers, “[e]mpirical evidence on the behavioral effects of privacy is rather scarce.”  Regner, Tobias; Riener, Gerhard, Voluntary Payments, Privacy and Social Pressure On The Internet: A Natural Field Experiment, DICE Discussion Paper, No. 82 (December 2012) at 6.  Although “some consumers are willing to pay a premium to purchase from privacy protective websites”; there is no measure of what that premium should be or how widespread a factor it is for consumers as a whole.  Id. at 7.

More often than not, consumers have been “often willing to provide personal information for small or no rewards.”  Losses, Gains, and Hyperbolic Discounting: An Experimental Approach to Information Security Attitudes and Behavior, presented by Alessandro Acquisti and Jens Grossklags at the 2nd Annual Workshop on Economics and Information Security, College Park, Maryland, May 2003, at 4.

This does not mean researchers have not tried to quantify a “privacy valuation” model.  In 2002, a Jupiter Research study found 82% of online shoppers willing to give personal data to new shopping sites in exchange for the chance to win $100.  See c.f. Tsai, Janice; Egelman, Serge; Cranor, Lorrie; Acquisti, Alessandro; The Effect of Online Privacy Information on Purchasing Behavior: An Experimental Study, Information Systems Research (February 2010) at 22 (describing survey results which concludes that “people will tend to purchase from merchants that offer more privacy protection and even pay a premium to purchase from such merchants.”); Beresford, Alastair; Kübler, Dorothea; Preibusch, Sören, Unwillingness To Pay For Privacy: A Field Experiment, 117 Economics Letters 25 (2010) (“Thus, participants predominantly chose the firm with the lower price and the more sensitive data requirement, indicating that they are willing to provide information about their monthly income and date of birth for a 1 Euro discount.”).

In his 1994 paper, A Contractual Approach to Data Privacy, Steve Bibas suggests that individual contracts may provide the best solution to the privacy compensation dilemma:  “In the hands of the contracting parties, however, flexibility allows people to control their lives and efficiently tailor the law to meet their needs. Flexibility is the market’s forte; the pricing mechanism is extremely sensitive to variations in valuation and quickly adjusts to them.”  Bibas, 17 Harv. J. Law & Public Policy 591 (Spring 1994).   Mr. Bibas, however, recognized the limitations in what could be accomplished with privacy transactions that relied only on static privacy trades.  In other words, a model that might be effective is one that customizes the financial rewards to consumers are based on a continuous exchange of information between the consumer and merchant.

One problem most consumers face when using commonly marketed solutions that are meant to safeguard their privacy is that they fail to also create an acceptable value proposition for merchants.  As well, those recently formed companies promising a private web experience will not be able to – nor should they even try – to curtail firms from using OBA to reach consumers.  For the foreseeable future, OBA will continue to drive the Internet and “pay” for a much richer and rewarding consumer experience than would otherwise exist.  It may one day be determined, however, that an even more effective means to satisfy all constituent needs of the OBA ecosystem (consumer, merchant, publisher, agency, etc.) will be to find a means to directly correlate between privacy rights, consumer data, and a merchant’s revenue.