August 11, 2009

"Privacy policies have become useless, the [FTC]'s standards for the cases it reviews are too narrow, and some online tracking is "Orwellian". Dear reader, I am not repeating myself but what "the new head of the Bureau of Consumer Protection at the Federal Trade Commission, David C. Vladeck" told Stephanie Clifford (*). I wish him much success. "A day of reckoning may be fast approaching", Commission Chairman Jon Leibowitz warned the advertising world last February. This appointment shows follow-through on his part.

These fillips have already given the FTC my best advice on how to make "an economy of rules". But perhaps David Vladeck will welcome further ammunition as he can expect the advertising industry to fight him from all possible angles.

Do not be surprised if he is painted as a threat to innovation. Yet he only needs to invoke legitimate defense, for it is successful innovation which is a threat to society. Not of course because it is intrinsically wicked but because it is prone to amplify heretofore innocuous behaviors. Can the advertising industry ignore the howls of the music recording industry about piracy? Yet today's pirates do no more than what time-honored tradition has allowed, albeit using innovation to achieve "remarkable efficiency".

Since innovation itself is a magnifying lens rather than the real source of the problem , the FTC would be wise, when targeting reviews, to cover traditional as well as emerging industry practices. Wouldn't it be time for instance to have a second look at consumer data bases? Stephanie Clifford has anticipated the call in a timely article on "Mediabrands, an ad-buying and planning division of the Interpublic Group" whose "analysis [...] relies on loyalty card data" (**). The issue though is that in the United States at least most political campaigns are deeply indebted to such pre-Internet data aggregators. David Vladeck, meet Lawrence Lessig.

When it comes to smear opponents with a catchy label, candidates running for office are quite resourceful but libel by label is not always intentional. You may have heard of the recent stock market controversy about so called flash orders. If you think speed must be the culprit, you are forgiven. Actually "a loophole from regulations allows marketplaces [...] to show traders some orders ahead of everyone else", Charles Duhigg tells us (***).

Here again, by enabling high speed trading, innovation has simply magnified the fact "there has never been equal access to information in the markets", a point well made by Michael Mackenzie and Jeremy Grant (****). It remains for Bob Greifeld, chief executive of the Nasdaq OMX Group, to conclude "as long as information is available on an equal basis for all, the increased speed at which transactions are executed provides tremendous benefits to investors by enhancing liquidity and cutting transaction costs" (*****).

This single stone hits many a bird. Beyond bad names and misspent innovation, our example illustrates both the value of privileged access to information and how innovation can increase market efficiency. Liquidity on oceanic scales gives us tsunamis, true enough. But put this small issue aside. In his review of behavioral advertising, David Vladeck must balance how to maximize the reward promised by innovation to society and how to ensure these benefits are shared equitably throughout society.

"Let people vote with their feet" is how David Vladeck intends to proceed. This of course is the principle behind free and open markets and, despite the current economic crisis, few people advocate doing away with them. The problem is, markets are rarely free and open.

If opt-in is the solution David Vladeck has in mind, he would be well advised to understand its limits. Forget the ravings of Matt Wise, an online marketing executive who holds it to be "a tremendous setback in innovation", his good name but another deceptive label. Rather David Vladeck ought to consider opt-in has been found to be toothless as long as bundling is allowed. Can consumers vote with their feet when they are effectively coerced into a data transaction for the sake of some desirable good or services?

As Randal Picker pointed out, enough competition among ad-supported services would amount to a virtual unbundling. But this does not account for economies of scale which makes an oligopoly the best result one can hope to achieve. But there is worse. How can the consumer decide whether an opt-in deal is fair if he or she does not know what confidential data is being collected ? New York Assemblyman Richard Brodsky did try to force the hand of the industry and mandate it gave consumers access to their profiles. His scheme should be improved but real transparency is at this price. Yet through its representative, the advertising industry simply makes fun of the idea. Do I smell the rot of privileged access?

Whether they were ever justified to begin with, privileges soon turn into an economic rent. But this is not the end of the story. "The commission would begin considering [...] whether [companies' violated consumer's dignity", David Vladeck indicated. This revolutionary language can only warm the heart of someone who called for the abolition of the nobility of the brand, not by eliminating all brands, but by extending their rights to all.

Dignity may not be the first word to come to mind when thinking about movie stars, but image rights can do nicely as long one understands image in the widest possible way. "Passport peeking" cost "Gerald Lueders, of Woodbridge, VA", a $5,000 fine according to an AP report (******). Averaged over "more than 50" files, the amount is not much but were companies fined a mere 50 dollars each time they look at a consumer profile, it would cut the US federal deficit quite noticeably.

Alone nobody is a star so what is the minimum audience size? Major League Baseball Advance Media sued to protect their rights to professional baseball players' statistics. Now, Katie Thomas reports (*******), it is the turn of a simple college student to sue Electronic Arts and the National Collegiate Athletic Association about exploiting his likeness. In elementary schools, everyone is a star. That's the spirit.

It is logical but perhaps worrisome MLBAM lost their case a year ago in view of a First Amendment defense, players' statistics being part of the public record (1). Could a company tracking consumers' behavior claim any such behavior is in fact public and hence could be redistributed at will? When violating privacy, companies like the First. Curious though. When their property rights are threatened by content reuse, companies hate the First. Aren't such inconsistencies a hallmark of abusing privileges? David Vladeck's personal expertise on the First might come handy one day.

Incidentally Electronic Arts only uses non personally identifiable information. When it comes to stars, anonymization is not enough to protect privacy. Everyone indeed is re-identifiable in one's own circle. See the Cheryl Smith affair.

Under the marketers' magnifying glass, will David Vladeck find us a hiding place?

Philippe Coueignoux

• (*) ............. Fresh Views At Agency Overseeing Online Ads, by Stephanie Clifford (New York Times) - August 5, 2009
• (**) ........... Measuring the Results of an Ad, Right Down to the City Block, by Stephanie Clifford (New York Times) - August 6, 2009
• (***) ......... Stock Traders find Speed Pays, in Milliseconds, by Charles Duhigg (New York Times) - July 24, 2009
• (****) ....... The dash to flash, by Michael Mackenzie and Jeremy Grant (Financial Times) - August 6, 2009
• (*****) ..... Exchanges should unite to end flash orders, by Bob Greifeld (Financial Times) - August 7, 2009
• (******) ... Employees Fined $5,000 for Passport Peeking, (AP) (New York Times) - July 9, 2009
• (*******) . College Stars See Themselves in Video Games, and Pause to Sue, by Katie Thomas (New York Times) - July 4, 2009
• (1) see an analysis of the Eight Circuit decision in the Harvard Law Review, March 2008
  ... decision which the Supreme Court declined to review in June 2008