Category: Consumer Protection Law

4

Politics, Private Space, and Total Persuasion

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A lunch today with a colleague at another school, coupled with an article in the Wall Street Journal, has brought me to back to a topic I blogged about back in January: Total Persuasion. As I suggested, there are analogies to be drawn between the government’s defunct secret possibly ongoing program to gather reams of information about its citizens and corporations’ desire to grab consumer mind-share by every persuasive avenue possible. Indeed, we’re rapidly approaching a time when it will be exceedingly difficult for the law to draw lines between advertising and not-advertising; between fraud and persuasion; and between censorship and consumer protection.

These claims are easy to overdraw, so let me give you an example and a theory to help set the stage for the discussion. In today’s Journal, John McKinnon has a interesting article about Sara Taylor’s decision to leave her job as the White House’s political director to join the private sector. Taylor is an expert in microtargeting, a marketing technique developed by corporations to segment their consumer markets by mining data to learn more about the structure of consumer’s preferences. According to McKinnon, microtargeting was “honed” by political operations to “more effectively zero in on voters’ emotion triggers,” and uncover groups of voters that are susceptible to future efforts. Taylor sees a “big future” for taking such political lessons back to the corporate world by “helping corporations focus on potential customers’ . . . feelings about buying a product or service.”

There are some roadblocks in this prosperous path, as the article points out. Most salient, businesses are “more constrained in the claims they can make” than politicians, presumably by the law of fraud (in its various guises). But there is a solution to this problem: encourage consumers to make their own persuasive advertising by creating “social networks around products and brands . . .” In the future, we should anticipate that such social persuasion will become an increasingly prevalent aspect of corporate marketing efforts, just as politicians have worked to co-opt social networking sites for their own ends.

Why? Because consumers have fewer defenses to social persuasion, and aren’t cynical about it yet. Moreover, social persuasion is probably less subject to legal sanction in the general case (indeed, it may be immune under circumstances where the same language if spoken by the corporation would be actionable). It is also, obviously, cheaper to produce. The downside (loss of control over message) is probably something that corporations will learn to live with. (I thank my lunch companion for pointing this problem out to me!)

What’s wrong with a society in which most speech that you hear is designed to persuade you to consume? When framed that way, some might immediately respond: nothing! After all, no one is being compelled to any particular purchase. If the consumer market is efficient, and consumers had a taste not to consume, wouldn’t savvy marketers satisfy the taste with a unpersuasive campaign? (The idea is silly on its face, but isn’t it sort of what Saturn and Berkshire Hathaway were/are up to?) Even assuming that the consumer product market is somehow irrational, marketers would presumably compete to satisfy whatever inefficient desires are extant.

But I doubt that market rhetoric is going to provide satisfying answers to whether the law should work to hinder a total persuasion society. I haven’t fully thought this issue through, but my starting point is an essay by Jonathan Franzen called Imperial Bedroom, in his book How to Be Alone. Franzen attacks privacy advocates for focusing on privacy as just problem of being from free from others’ (corporations, the government, space aliens, the U.N., etc.) prying eyes and grasping hands.

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Milking The Secret

It looks like pressure from the Physicians Committee for Responsible Medicine (via the Federal Trade Commission) has gotten the Dairy Industry to stop touting milk as a diet food. They need to provide more substantiation of the link between “dairy consumption and weight loss.”

So what about The Secret? For those unfamiliar with this self-help phenomenon, here’s a nice summary from Emily Yoffe:

There are now 5.3 million copies of the book in print in the United States. . . .[i]t is a No. 1 best seller in Australia, England, and Ireland, and it is scheduled to be translated into 30 languages. . . There’s no secret to The Secret. The book and movie simply state that your thoughts control the universe. Through this “law of attraction” you “manifest” your desires. “It is exactly like placing an order from a catalogue. . . . You must know that what you want is yours the moment you ask.” “See yourself living in abundance and you will attract it. It works every time, with every person.”

Even Oprah is buying it . . . despite the fact the book contains such extraordinarily irresponsible claims as “You cannot ‘catch’ anything unless you think you can, and thinking you can is inviting it to you with your thought.”

Could the FTC do anything to stop the marketing of The Secret? At first this case reminded me of the not-so-clairvoyant Miss Cleo, but it turns out her transgressions were mainly of rules regarding 1-900 numbers. A quick perusal of Rebecca Tushnet’s fantastic blog led me to this post about a big fine against makers of the Q-Ray bracelet for “infomercials . . . falsely representing that (1) the bracelet provides immediate, significant or complete pain relief and (2) scientific tests prove the pain-relief claims.”

Perhaps The Secret lacks the “immediacy” prong of that accusation. But it does rely pretty heavily on both scientific and religious rhetoric. Consider this little tidbit from Yoffe, describing its author:

She asserts that “the discoveries of quantum physics … are in total harmony with the teachings of The Secret.” To prove this, she explains, “I never studied science or physics at school, and yet when I read complex books on quantum physics I understood them perfectly because I wanted to understand them.”

And I want to devise a perpetual motion machine! I’ll just envision it working and it’ll come true, right?

A few more thoughts beneath the fold….

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6

Fiduciary Duty and Financial Aid

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The financial aid scandal, sparked by NY Attorney General Andrew Cuomo’s investigation (and possibly a shut-out competitor) has already led to some settlements with lenders and universities. The basic thrust of Cuomo’s investigation is that if lenders pay administrators referral fees (whether direct or indirect) to steer students to take certain loans, that conduct is a deceptive trade practice, “in violation of New York Executive Law ‘ 63(12) and General Business Law 349 and 350 and other relevant state law.”

Universities are falling over themselves to settle with NY, as is the lending industry, in light of some bad facts: the companies have sought to influence financial aid administrators with stock, Broadway tickets, and other goodies. So this question is, literally, academic: is the alleged conduct by the university employees a violation of a fiduciary duty (loyalty) owed to students?

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2

The Free Credit Reports That Aren’t Free

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You’ve probably seen the commericals, which run incessantly on CNN and other cable channels. A happy young man says: “I’m thinking of a number . . . ” That number is a credit score, which you can obtain at a website called FreeCreditReport.com. You probably have heard that under a new federal law, credit reporting agencies are required to provide each person with a free credit report once a year. That website, however, has the much more obscure name AnnualCreditReport.com. I previously blogged about my experiences using AnnualCreditReport.com. One of the problems is that if you don’t know that the correct website is AnnualCreditReport.com, then it is very easy to go to the FreeCreditReport.com website. After all, it is featured quite prominently in a Google search for “free credit report.”

But there’s one catch — it ain’t free. Far from it. From the fine print:

When you order your free report here, you will begin your free trial membership in Triple AdvantageSM Credit Monitoring. If you don’t cancel your membership within the 30-day trial period, you will be billed $12.95 for each month that you continue your membership.

ConsumerInfo.com and Freecreditreport.com are not affiliated with the annual free credit report program. Under a new Federal law, you have the right to receive a free copy of your credit report once every 12 months from each of the three nationwide consumer reporting companies. To request your free annual report under that law, you must go to www.annualcreditreport.com.

FreeCreditReport.com is run by Experian, one of the credit reporting agencies. Experian also has another website offering free credit reports: ConsumerInfo.com. Recently, the FTC settled a case against ConsumerInfo.com website. According to an FTC news release:

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15

The Rise of Customer Blacklists

hotel1a.jpgBlacklists appear to be the rage these days. With the ease of storing and sharing personal information — coupled with lax privacy law restrictions on such activities — companies can increasingly create blacklists of bad customers. In this article from the Ottawa Citizen, hotels in Australia and Canada (and soon the United States) are signing up for a service that compiles a blacklist against “bad” hotel guests:

Blacklisting everyone from the whisky-swilling scoundrels whose partying sabotaged your last vacation to the louts who channel Pink Floyd by dismantling their rooms, the new Australian database — which is expected to expand to Canada and the U.S. by year’s end — helps prevent unsavoury individuals from obtaining short-term accommodations.

“People are becoming less considerate of the space they’re staying in,” says Josh Ginty, project manager of the Guests Behaving Badly registry.

“What we hope to do is proactively advertise to those people … that their details will be recorded if they breach house rules. That in itself is often a strong enough deterrent.”

Accessible only to operators of hotels, motels and vacation homes, the membership-based registry tracks five levels of guest misconduct. These range from “lower-level blatant disregard” for regulations, such as smoking in non-smoking rooms or swimming in the pool after hours (several staff warnings must be ignored before the activity is reported on the registry) to higher-level infractions such as non-payment of the hotel bill, assault or vandalism.

“If you steal a couple of towels, we’re interested in tracking that,” says Mr. Ginty. “But it doesn’t compare to someone who has verbally or physically abused the night manager.”

More than 1,000 properties have signed up for the service since it launched in December 2006. Expansion to other continents is planned to begin in six months, depending on how easily the database can be adapted to each country’s privacy laws.

Customers have the ability to rate hotels with websites such as TripAdvisor.com. So why shouldn’t hotels be able to rate customers?

I don’t view the situations as symmetrical. Customers have long been spreading their opinions about hotels and other businesses — this is how the market produces good products and services. Word about bad hotels gets out and it leads to less business, thus creating an incentive for hotels to improve their service. But what happens when a similar process works against customers? True, some hotel guests are obnoxious and destructive, but do we really want to live in a country where people find themselves routinely blacklisted from various hotels and other businesses (stores, etc.)? In a Seinfeld episode, Elaine once found herself on a blacklist by doctors for being a bad patient. Perhaps this is the trend of the future. I sure hope not.

1

A Guide to Lobbyist Arguments on Consumer Protection

deck-cards.jpgChris Hoofnagle (Berkeley’s Samuelson Clinic) has posted on SSRN his paper, The Denialists’ Deck of Cards: An Illustrated Taxonomy of Rhetoric Used to Frustrate Consumer Protection Efforts. From the abstract:

The Denalists’ Deck of Cards is a humorous illustration of how libertarian policy groups use denialism. In this context, denialism is the use of rhetorical techniques and predictable tactics to erect barriers to debate and consideration of any type of reform, regardless of the facts. Giveupblog.com has identified five general tactics used by denialists: conspiracy, selectivity, the fake expert, impossible expectations, and metaphor.

The Denialists’ Deck of Cards builds upon this description by providing specific examples of advocacy techniques. The point of listing denialists’ arguments in this fashion is to show the rhetorical progression of groups that are not seeking a dialogue but rather an outcome. As such, this taxonomy is extremely cynical, but it is a reflection of and reaction to how poor the public policy debates in Washington have become.

The Deck is drawn upon my experience as a lawyer working on consumer protection in Washington, DC. Where possible, I have provided specific examples of denialism, but in many cases, these arguments are used only in closed negotiations. Some who read them find the examples humorous, while others find it troubling. But all who read the Washington Post will recognize these tactics; they are ubiquitous and quite effective.

This taxonomy provides a roadmap for consumer advocates to understand the resistance they will face with almost any form of consumer reform. I hope to expand it to include retorts to each argument in the future.

The paper is quite humorous and well-done — essential reading for any policy wonk.

4

Best and Worst Internet Laws

[Preface: I’ve already overstayed my guest visit, but before I go, I want to say thanks to the Concurring Opinions team for the opportunity to blog here, and thanks to all of you for the great comments and stimulating dialogue. A complete index of my guest blog posts. Meanwhile, I’ll keep blogging on technology and marketing law at my main blog and on all other topics at my personal blog. Hope to see you there!]

Over the past dozen years, the lure of regulating the Internet has proven irresistible to legislators. For example, in the 109th Congress, almost 1,100 introduced bills referenced the word “Internet.” This legislative activity doesn’t always come to fruition. Still, in total, hundreds of Internet laws have been passed by Congress and the states. This body of work is now large enough that we can identify some winners and losers. So in the spirit of good fun, I offer an opinionated list of my personal votes for the best and worst Internet statutes in the United States.

[Keep reading for the list]

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9

What Exactly Is a “Spammer”?

email2a.jpgI’m coming a little late to the party, but the case of Omega World Travel, Inc. v. Mummagraphics, Inc., (4th Cir. Nov. 17, 2006) raises some interesting issues about the Controlling the Assault of Non Solicited Pornography and Marketing Act of 2003 (“CAN SPAM Act”), 15 U.S.C. §§ 7701 et seq.

Omega World Travel sent 11 emails to an email address owned by Mummagraphics, a web host company. The emails each advertised a travel “E deal.” Mark Mumma, head of Mummagraphics, called John Lawless, the general counsel of Omega and instructed him to stop sending email. Lawless said the emails would stop. They didn’t. Mumma then sent a letter threatening Omega with a suit under CAN SPAM and state anti-spam laws. The emails finally stopped.

Mumma demanded payment from Omega, which refused, so Mumma posted photos of Omega’s founders and accused them of being spammers. Omega and its founders sued for defamation and a variety of other claims. The district court granted summary judgment on all claims but the defamation claim, which is proceeding to trial.

Mummagraphics raised a few counterclaims, including a violation of the CAN SPAM Act. The district court granted summary judgment against the counterclaims.

The 4th Circuit, in an opinion by Judge Wilkinson, affirmed, holding that there was no CAN SPAM Act violation. Why? Because the CAN SPAM Act really doesn’t stop spam. It stops only certain kinds of fraudulent spam. The Act basically allows for the sending of unsolicited commercial email so long as people are provided with a way to opt out. For this to work, the sender must provide valid contact information. Specifically, the Act provides: “It is unlawful for any person to initiate the transmission, to a protected computer, of a commercial electronic mail message … that contains, or is accompanied by, header information that is materially false or materially misleading.” 15 U.S.C. § 7704(a)(1).

According to the court, the emails sent by Omega had the following inaccuracies:

First, each message stated that the recipient had signed up for the Cruise.com mailing list, but Mummagraphics alleges that it had not asked that inbox@webguy.net receive the company’s offers. Second, while each message listed Cruise.com as the sending organization, each also included the address “FL Broadcast.net” in its header information, even though Mummagraphics alleges that “FL Broadcast.net” is not an Internet domain name linked to Cruise.com or the other appellees. In addition, the messages contained the “from” address cruisedeals @cruise.com, even though Cruise.com had apparently stopped using that address.

Nevertheless, the court concluded:

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20

Shylock and Article 9 of the U.C.C. (with some thoughts on bankruptcy)

shylock.gifShakespeare’s A Merchant of Venice (1598) is often misidentified as an anti-Semitic play about a contract. This is not technically correct, as the transaction at the heart of the drama seems to be a secured loan. (Albeit an anti-Semitic one.) Furthermore, contrary to Shakespeare’s conclusion, I believe that the security agreement is most likely enforceable, at least under Article 9 of the Uniform Commercial Code, a point that I hope to make to my secured transactions class. Here is Shylock’s description of the loan agreement between himself and Antonio, a Venetian merchant:

SHYLOCK: This kindness will I show; go with me to a notary; seal me there your single bond, and – in merry sport – if you repay me not on such a day, in such a place, such sum or sums as are expressed in the condition, let the forfeit be nominated for an equal pound Of your fair flesh, to be cut off and taken In what part of your body pleaseth me. (I.3.141-149)

It seems fairly clear from the passage that there is a debt. Antonio promises to pay “such sum or sums as are expressed in the condition.” However, without a valid security interest Shylock has only a personal right of action against Antonio. Indeed, even if Antonio promises the pound of flesh, all that Shylock gets in the event of a failure to deliver the bloody bond is a right to money damages. Section 9-109, however, teaches us that Article 9 governs “a transaction, regardless of form, that creates a security interest in personal property . . . by contract.” Such seems to be the case here. Indeed, Shylock casts the transaction in the form of a bond, ie a promise to deliver the pound of flesh, with a condition, ie payment of the debt, that defeats the bond, a classic pre-Code security arrangement, and the “pound of . . . fair flesh” falls under 9-102(a)(44)’s definition of “goods” (“all things that are moveable when a security interest attaches”), bringing it within the personal property requirement of 9-109.

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12

IP and Development

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Greetings from Namibia! (Do I win the contest for posting from the most far flung place?) I am in Namibia (of Brad & Angelina fame) for a conference organized by IIPI on “IP Used in Support of Culture Based Industries.” The main question being addressed is whether IP (especially copyright & trademark) can help improve the markets for African art. The problem is that although the US is the major market for African art, US consumers are not willing to pay enough for the art in order to support the communities that create it. Beautiful, hand-crafted pieces made of indigenous materials using ancient techniques are sold at bargain prices that reflect tiny sums paid to the artisans that created them. We buy these pieces at places like World Market because they look nice, but we learn nothing about their origin and significance. If that’s all we value why not buy even cheaper versions made in China? These artisans are hopeful that they can stop that type of competition by asserting IP rights in the art. Many obstacles exist of course, including the current absence of appropriate legal mechanisms and the fact that much art is already in the public domain. namibian art.pngBut the audience and participants at this conference were optimistic and very creative. One idea: could certification marks be used to prevent others from appropriating the terms used to describe the places and techniques used to create the art? Of course that won’t prevent others from copying the works; it just prevents them from using the terminology. It’s a start, but it will only be effective where it is accompanied by an education campaign about the art. The hope is that consumers will come to value the authentic, once they know what it is.