May 02, 2007
Utah's "Don't Email the Kids" Registry a "Financial Failure"
By Eric Goldman
A couple of years ago, Utah and Michigan adopted laws creating "don't email the kids" registries (called the "Child Protection Registry"--see Utah's and Michigan's). These laws allow parents to register email addresses held by kids and requires marketers sending email/spam that's inappropriate for kids to check the registry and screen out the kids' addresses.
Policy-wise, these laws are broadly appealing. First, everyone hates spam, so anything that might reduce spam is ipso facto a good thing. Second, this law is designed to protect kids from Internet evils—a politician’s nirvana!
However, I don’t think either of these rationales (reduce spam or protect kids) capture the real reason why these laws were enacted. Instead, I suspect pure-and-simple economic opportunism. In practice, the law is just an email tax. Legitimate companies concerned about legal compliance will pay to check the registry, creating a stream of new tax revenues mostly generated from out-of-staters. (Naturally, illegitimate spammers won’t comply with the law under any circumstance). You can imagine how politicians would eagerly leap at the opportunity to get a couple farthings' tax on email traffic. CA-CHING!
Meanwhile, only one company--Unspam, a for-profit company--operates a "don't email the kids" registry. I can imagine how this could be a great sales pitch to generate demand for Unspam’s services: Hey legislators, enact the law, generate new tax revenues on email traffic, you get an economic windfall, we get a cut, and EVERYONE WINS!
Despite this seductive pitch, we’ve learned that the "don't email the kids" laws are riddled with problems. For example, mechanically Unspam's registry doesn’t try to authenticate that registered emails are associated with kids, turning the registry into an across-the-board do-not-spam registry (something I think isn’t good policy). The law also suffers from the sheer illogic of trying to erect geographic borders on email traffic; a federal district court didn't agree with this concern, but we may not have heard the final word on this point.
Plus, there's the challenge of protecting the privacy of kids' email addresses in the database. As Wendy Davis of MediaPost reported last Fall:
It's now come to light that several weeks ago, a state employee in Utah released the e-mail addresses of four minors to the Email Sender and Provider Coalition. That gaffe occurred even though Unspam--the private agency managing the list--said it was inconceivable that the list would ever be divulged. "Even if ordered by a court or held at gunpoint, there is no feasible way that I, any Unspam employee, or any state official could provide you even a single address that has been submitted for compliance by any sender," Prince reportedly said in an affidavit.
Even more problematically, according to the Salt Lake Tribune, the law has been a "financial failure": the law was projected to bring $3-6M in revenues to the state, but gross revenues have been $187,224, split 80% to Unspam and 20% to Utah—netting Utah a grand total of $37,445. Worse, the law has cost Utah a lot of money, including the following directly attributable expenses:
* $58,000-a-year in prosecutorial fees (estimated cost in original law--not sure if this money has been spent)
* $75,000-a-year for a full-time Department of Commerce investigator (estimated cost in original law--not sure if this money has been spent)
* $100,000 for a private lawyer to defend the law in court (under a contract that could cost up to $200,000). Utah undertook this expense only after Unspam incurred $70,000 of defense costs itself and then cried “no mas,” although the Salt Lake Tribune article indicates that during pre-passage discussions, Unspam may have suggested that it would solely bear the defense costs.
I'm sure this law imposes other "soft" costs throughout the Utah governmental system, plus there are the transaction costs and deadweight losses inherent in any tax. But ignoring these indirect costs and evaluating the law strictly on a cash basis, this law still looks like a bad economic decision for Utah.
There is a meta-lesson here: legislatures rarely can add to state coffers via Internet regulation. Unfortunately, Utah hasn’t yet internalized this lesson despite two highly visible failures. First, in 1995, Utah enacted a digital signature law designed to capture a little piece of the e-commerce pie by becoming the safe haven for digital signature vendors--but there were no takers, so the law sat on the books unused for a decade before Utah repealed the law last year. Second, Utah tried again with this "don't email the kids" law and appears to have struck out financially as well.
Amazingly, despite these precedents, Utah keeps trying! Its latest attempt to get a little Internet gravy is the Utah Trademark Protection Act, where Utah plans to tax (mostly out-of-state) keyword advertisers. As Sen. Eastman told BNA, “Utah can be the trademark registration capital of the country, just as Delaware is the incorporation capital.” Not only would the registration fees flow back to Utah and perhaps to a Utah-based registry vendor such as Unspam (which expressed some interest in bidding on the registry contract), but Sen. Eastman thinks the law may stimulate demand for Utah’s trademark lawyers. However, there are good historical reasons to believe that the Utah Trademark Protection Act isn’t likely to fulfill these dreams of prosperity. This is yet another good reason for the Utah legislature to reconsider the law.
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