Data collection and data intermediaries present new challenges

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Adam Smith’s economic concept of the invisible hand expresses the idea that great social benefits and the public good come from everyone acting in their own best interests. However, Adam Smith did not anticipate the internet and its power imbalances or how collective action can address it. When markets misallocate resources or produce an unintended outcome, Smith called it a market failure. The current market for personal data is a clear example of market failure due to collective action and power imbalances.

The idea that consumers should be paid by businesses for the right to collect and use their data, a data dividend, is not new. Is the reason consumers don’t get paid because consumers seem happy to give it away for free? The stake is collective action. It is unrealistic to think that consumers could band together, implement drastic measures to prevent companies from collecting their data until their compensation claims are satisfied. It is also unrealistic to think that businesses would pay consumers for their data when the consumer would forgo a lot of information in exchange for a rewards program that offered them $ 10 off for every $ 1,000 spent.

While the invisible hand has failed, that doesn’t mean the economic fundamentals are missing. The economy is all about the incentives. The higher the incentive, the more people will be attracted. If data intermediaries are structured to align with consumer incentives, a payment system may be possible; without regulation.

It is important to pause and understand the opposition to this concept. Obviously, the companies that currently get the data for free wouldn’t be in favor of the idea, but I don’t think there’s a lot of sympathy for it. The real challenge comes from those who have the same underlying mission of providing consumers with control over their data. These challengers argue that not only is data collection a perverse practice, but no business should put a price on their privacy. Not only does this argument come from a place of economic privilege, but it is a logical error for several reasons: (1) it assumes that absolute confidentiality is achievable; (2) it assumes that everyone wants absolute privacy; and (3) he argues that people should not be able to sell their data when the main argument is that people should be in control of their data. Even if you don’t agree with someone’s choices, that doesn’t mean they shouldn’t be able to make them.

Let’s talk business now.

Suppose consumers prefer to receive monetary compensation for their personal data rather than waive compensation. We are starting a data intermediary company, called Data Dollars, with the mission of paying people for the exclusive right to collect their data. Data Dollars offer a reverse subscription model where the more information consumers collect, the more money they receive per month. For example, the more basic version only collects browser data and the deluxe version, among other things, collects geolocation data and allows review of credit card statements. By nature, this business model provides consumers with transparency in data processing activities.

While it may seem invasive, consumers are already providing this data to businesses for free, knowingly or unknowingly (but maybe full disclosure is what scares people). However, based on the above assumption, consumers cannot sign up quickly enough and Data Dollars is reaching a critical mass of people. In addition, given the evolution of privacy laws, Data Dollars is able to collect more data than other companies due to the contract with the consumer and the explicit consent of the consumer.

Data Dollars now has a wealth of consumer information, making it arguably one of the most valuable datasets. Data sets may be licensed or sold to companies who wish to use this information for marketing, advertising, trend detection, investing or other purposes. Data Dollars has a vested interest in protecting the information contained in the datasets because, if the datasets are made public, the entire business model would collapse; not to mention the damage to reputation. Consumers also want their information to be protected, and for the first time, business and consumer interests are aligned.

In addition, Data Dollars not only can financially compensate its customers, but it can negotiate the terms of use. For example, did you buy a product or service that didn’t perform as you expected? Then you look at the terms and conditions only to find that the company has denied everything, basically saying that if it doesn’t work, nothing here said it would. On behalf of its clients, Data Dollars negotiates different terms because this company needs robust data sets to help it drive its analyzes. The company is likely to offer more favorable terms, giving Data Dollars leverage to fight for better consumer rights.

At the heart of the Invisible Hand concept is the idea that when business interests align with consumer interests, everyone wins. Aligning the interests of data intermediaries and consumers could lead to monetary compensation and more consumer protections. In addition, consumers are transparent in data processing activities and provide informed and affirmative consent. A market structure and business model exist to help address current power imbalances and resolve for collective action.

Copyright © 2021 Womble Bond Dickinson (US) LLP All rights reserved.Revue nationale de droit, volume XI, number 231


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