Consumer Law & Policy Blog

Intellectual Property Abuse, eBay, and Consumers

by Greg Beck

InfoWorld’s Ed Foster has an interesting piece on a growing problem for consumers: intellectual property abuse on eBay.  As I’ve previously written, some companies would rather if consumers did not have the option of buying less-expensive used products online. By taking advantage of the Digital Millennium Copyright Act's takedown provisions, companies claiming copyright infringement can automatically remove used or competing products from the Internet without having to go to court.  Foster correctly notes that wrongful claims of trademark infringement can be a bigger problem than copyright.  Unlike copyright claims, trademark claims provide the target with none of the DMCA's procedural protections for wrongful terminations. Thus, companies are able to terminate any eBay auction at will, leaving the target without any recourse short of filing a lawsuit and obtaining a declaratory judgment.

The examples of abuse are numerous. Last year, Public Citizen filed suit against a company targeting low-priced generic competition in this way.  The company agreed to reimburse the seller for his lost sales.

How Bad Patents Hurt Consumers

by Greg Beck

Carfax has a new patent on an "apparatus and method for perusing selected vehicles having a clean title history." Parsing the patent's jargon and legalese, the Electronic Frontier Foundation concludes that the patent covers the process of searching a database for a used car with a clean title. This idea is obvious, and one that many consumers could benefit from.  But, as the EFF points out: "The current state of patent law allows for all sorts of ridiculous claims that wouldn’t pass muster if basic common sense principles were applied."

Patents are government sponsored monopolies.  When a patent is handed out for an obvious idea, like searching a database for cars, the patent owner can prohibit competition that would create more options and lower prices for consumers.  Or, the patent owner can stay out of the marketplace entirely but extort licensing fees from those who wish to enter the market.  These "patent trolls" create higher costs of entry, meaning that fewer new competitors will enter the market, and those that do will charge a higher price to pass along the licensing fees to consumers.

Ronald Mann and Travis Siebeneicher on Internet Contracting

Ronald J. Mann and Travis Siebeneicher's Working Paper,  "Just One Click: The Reality of Internet Retail Contracting," can be read at:  http://ssrn.com/abstract=988788.  Here's the abstract:

Scholars for decades have noted the possibility that
standard-form contracts disadvantage consumers. For many years,
that literature focused on the idea that sellers with market
power draft contracts that are disadvantageous to consumers. Law
and economics scholars, however, have been skeptical about that
hypothesis, pointing out that a strategy of inefficient terms
rarely would be the optimal technique for exploiting market
power. In recent years, however, the debate has shifted as new
product distribution channels have changed the technology of
contracting. Now, even firms without market power can exploit the
cognitive failures of their customers through ?shrouding? of
terms and similar techniques.

That concern has become more prominent with the rise of Internet
retailing, where electronic standard-form contracts are used
extensively, often undermining the notion of assent on which the
contract paradigm traditionally depends. Scholars have worried
that Internet retailers obscure one-sided terms so that customers
will continue to shop at their sites, and do so more effectively
than their brick-and-mortar counterparts. This, among other
concerns, has led many to argue for a new contracting regime that
deals with electronic contracting. Indeed, because software is
often distributed online, this is a major topic in the ALI's
current project on Principles of the Law of Software Contracts.

Which ISPs Are Spying on You?

Frustrated by incomprehensible privacy policies, Wired asked the eight largest Internet Service Providers for straight answers about what records they keep on the Internet activities of their subscribers.  Four of them responded "with a mix of timeliness and transparency."  Only one answered the question, "How long do you retain records of the IP addresses assigned to customers?"  This information can be used to track  subscribers to particular Internet posts, emails, or other activities on the Internet.

The Spy Act Protects Corporations, Not Consumers

by Greg Beck

  Ed Foster at Infoworld analyzes H.R. 964, the Spy Act, Congress' latest response to spyware, and finds it seriously lacking.  The bill includes exemptions that would allow hardware and software vendors to spy on their customers and collect private information, without notice, "for network or computer security purposes, diagnostics, technical support, or repair, or for the detection or prevention of fraudulent activities."  Worse, the law explicitly preempts state laws regulating unfair or deceptive conduct similar to that covered by the law.  All private rights of action will be eliminated, and enforcement authority will be exclusively vested in the FTC and state attorneys general.

It is pretty apparent that the law is not designed to protect consumers, but to protect companies from liability for spying on their customers.  For example, it appears that Sony would be immune from liability under the law for its secret installation of its software "rootkit" on customers' computers, which in 2005 opened the computers up to attacks by viruses and sparked multiple lawsuits.

The bill was approved last week by a subcommittee of the Energy and Commerce Committee and now goes to the full committee for approval with strong bipartisan support.

More Google Privacy Fears

By Greg Beck

Google won at least partial praise from privacy advocates last month with its announcement that it plans to purge identifying information from its database of web searches after 18 to 24 months.  But recent news again raises concerns about Google's privacy policies.

First, Google announced that it plans to acquire DoubleClick, Inc., which distributes Internet-based ads and tracks which ads web browsers click.  The merger raises fears that Google could combine its existing massive databases of its users' search habits with Doubleclick's equally massive database on users' behavior to create a combined database of Web users and their browsing habits. 

Google and DoubleClick claim that they will not merge the data in this way, but critics are not mollified.  The merger prompted three consumer groups, the Electronic Privacy Information Center, PIRG, and the Center for Digital Democracy, to file a complaint with the Federal Trade Commission raising privacy and antitrust concerns.  Although Google's privacy policy discloses that it saves personally identifying information, the objecting consumer groups argue that Google's practices are nevertheless deceptive because the disclosure is difficult to find and because survey data shows that most Google users don't know that Google stores personally identifiable data along with a user's search history.

Second, Google has announced a new service to track every website that web browsers click on from its search results.  The service includes one critical feature that is worthy of praise:  it is completely voluntary.  Google's privacy policy, however, doesn't rule out saving this data even without a user's consent, and, in fact, specifically provides that "Google may present links in a format that enables us to keep track of whether these links have been followed."  Google does store information about which websites users visit in at least some circumstances.  Moreover, when a user clicks on a link from Google's search results, the user's browser is sent to Google's own server before being sent to the requested web page, in a way that would allow Google to track which sites users click.  Google's policy raises concerns that it can link data on which websites its users visit with personally identifying information and that, once again, consumers might not realize the amount of privacy they are sacrificing whenever they search the web.

Economists Express Reservations About Net Neutrality Proposals

Sixteen economists have issued a statement expressing concerns about proposals to provide for network neutrality.  The abstract of their statement is as follows:

Network neutrality is a policy proposal that would
regulate how network providers manage and price the use of their
networks. Congress has introduced several bills on network
neutrality. Proposed legislation generally would mandate that
Internet service providers exercise no control over the content
that flows over their lines and would bar providers from charging
more for preferentially faster access to the Internet. These
proposals must be considered carefully in light of the underlying
economics. Our basic concern is that most proposals aimed at
implementing net neutrality are likely to do more harm than good.

Working Paper on Net Neutrality

Net neutrality continues to draw attention.  Nicholas Economides' paper working paper, "'Net Neutrality', Non-Discrimination and Digital Distribution of Content Through the Internet" can be found on SSRN at http://ssrn.com/abstract=977096.  The abstract is as follows:

The vast majority of US residential consumers face a monopoly or duopoly in broadband Internet access. Up to now, the Internet was characterized by a regime of net neutrality where there was no discrimination in the price of a transmitted information packet based on the identities of either the transmitter or the receiver or based on the application or type of content that it contained. The providers of DSL or cable modem access in the United States, taking advantage of a recent regulatory change that effectively abolished net neutrality and non-discrimination protections, and possessing significant market power, have recently discussed implementing a variety of discriminatory pricing schemes. This paper discusses and evaluates the implication of a number of these schemes on prices, profits of the network access providers and those of the complementary applications and content providers, as well as the impact on consumers. We also discuss an assortment of anti-competitive effects of such price discrimination, and evaluate the possibility of imposition of net neutrality by law.

FTC Roundtable on the Economics of Internet Auctions

SSRN recently posted "FTC Bureau of Economics Roundtable on the Economics of Internet
Auctions: An Executive Summary"  The abstract reads as follows:

On October 27, 2005, the Bureau of Economics at the Federal Trade Commission hosted a roundtable on the Economics of Internet Auctions. This one-day conference brought together academic experts, industry professionals and government economists to discuss and learn about Internet auctions. This paper is a brief summary of the papers presented and panel discussions at the conference. The conference covered three main issues: (1) fraud and information problems on consumer-to-consumer Internet auction sites like eBay, (2) competition between auction sites and amongst auction site users,
and (3) the data generated from auction sites and what inferences may be drawn from such data. The keynote address was given by Prof. Hal Varian. Varian discussed the auctions used by Google to sell keyword searches.

The full text can be found at  http://ssrn.com/abstract=912672

Wal-Mart Uses Digital Millennium Copyright Act Against Consumer Blog

by Greg Beck

A while ago I wrote about how companies use the takedown provisions of the Digital Millennium Copyright Act to demand removal of their Black Friday sales prices from the Internet.  The DMCA gives Internet service providers a strong incentive to comply with demands to remove information that a company would rather not have online.  Yesterday, Wal-Mart used the DMCA against the Consumerist blog, demanding removal of an internal Wal-Mart PowerPoint presentation sent in by one of the blog's readers.  The presentation classifies Wal-Mart shoppers into categories that are either "More Loyal to WM" or "Less Loyal to WM."  Among those classified as "less loyal" are fourteen percent of the population Wal-Mart classifies as "Conscientious Objectors."  On advice of counsel, the Consumerist has complied with Wal-Mart's demand, but not before the Associated Press covered the story and Wal-Mart admitted that the slide show was authentic.