ABA Antitrust Section Consumer Protection Conference Recap

By Eric Goldman

Last month I attended the ABA Antitrust Section’s Consumer Protection Conference. This post recaps some highlights from the event.

A few overarching themes:

* in light of the country’s economic malaise, the FTC is focusing its enforcement on economic harms. This is both to combat those who prey on victims of the economic downturn as well as curbing some of the excesses that contributed to the economic downturn.

* there was significant confusion, and some apprehension, about the proposed new Financial Product Safety Commission and how it will affect other government agencies, including the FTC. If nothing else, the proposed new agency creates some turf wars and might send an implicit message that the FTC somehow wasn’t up to the job (a characterization I wouldn’t necessarily agree with).

* not exactly news, but the FTC is itching to do something different about regulating online privacy.

* on a related theme, there is widespread hand-wringing about the failures of consumer notices to effectively educate consumers and improve their decision-making. I agree with this, and in fact I’ve noted before that we are experiencing a “crisis of contracts.” While some UI improvement can be made in how information is presented to consumers, we are also stuck with the bigger problem that some consumer decisions are more complicated than consumers are able to handle, no matter how effectively the complexity is disclosed. There is no clear regulatory solution to this problem.

David Vladek’s Opening Remarks

David Vladek, the new director of the Bureau of Consumer Protection, outlined some things to expect from the FTC going forward:

1) The FTC will keep up/step up its aggressive pace of litigation, education and policy-making. In particular, the FTC will have to do more on economic fraud.

2) He expects the FTC will look more at privacy regulation. He said he did not find the notice/consent and harm paradigms for regulating privacy convincing. Regarding the notice/consent paradigm, he said it is hard to know what a person is consenting to. Notices are unintelligible, and they don’t address secondary uses. The harm paradigm doesn’t address harms we feel but can’t quantify. So he is wondering, how the FTC can rationalize privacy approach going forward?

3) He expects the FTC to take a hard look at Internet behavioral advertising and ads directed to vulnerable sub-populations.

4) Echoing proposals that have been floated before, he said that the FTC should be on equal footing as other government agencies, including better rule-making authority, civil penalty authority and independent civil litigation authority.

More on Vladek’s presentation from Arnold & Porter, Perkins Coie and Rebecca Tushnet. While there, make sure to look at Rebecca’s introductory remarks, which were excellent but came before I was ready to take notes!

Former Chairmen’s Panel

John Villafranco moderated a panel of Bob Pitofsky and Tim Muris, both former FTC chairmen. The panel’s overriding theme is how much Bob and Tim agree with each other, even though they come from opposite sides of the political spectrum.

Villafranco asked some questions about the FTC’s past. He noted that 40 years ago, the FTC was derided, and there were calls to shut it down. Bob explained that the FTC was viewed as the “Little Old Lady on Pennsylvania Avenue” because it was preoccupied with trivial cases, hired experienced lawyers who weren’t very accomplished, didn’t take advantage of its broad mandate, and was widely regarded as weakest agency in Washington. Bob and Tim also explained why there were deep divisions between commissioners and between commissioners and staff at that time.

Villafranco asked about the biggest misconception by outsiders. Bob said that staff runs the place; Tim said that antitrust lawyers can do consumer protection.

Villafranco also asked about the staff’s biggest misconception about companies they investigate. Tim said that staffers deal with pathologies, so sometimes they assume every business is bad actor. Bob said that the FTC’s rules are on the vague side, so good-intentioned companies can get into trouble because they didn’t understand the rules.

Rebecca’s recap of this panel.

Privacy/Behavioral Advertising Panel

Eileen Harrington of the FTC: Disseminating content online means that the sender surrenders control over that content, even when not wanted or intended. Categories of content dissemination:

* blogging/microblogging

* social networking sites

* first party collection/behavioral advertising (ex Amazon, NetFlix). In these contexts, data collection/use is intuitive, and the consumer can always leave if he/she doesn’t like the site’s practices.

* Gmail ads, which she distinguishes from first party collections. Google discloses its ad practice but buried in a big privacy policy. Also, consumers may expect greater privacy in email. [Eric’s note: I really didn’t understand how Gmail is different from Amazon in this regard, and I didn’t get a chance to push Eileen about this. Having used Gmail for a very long time, the value proposition and the ad presentation is unambiguously clear to me.]

* Third party collection practices. She further broke these down into:

– Third party ad networks. Websites are unrelated and no relationship between consumer and ad network. Consumer may not understand why they receive ads. Also, data sharing increases risks.

– Researchware. Improper disclosures that consumers won’t understand.

– Deep packet inspection. May be less transparent/voluntary. Consumers don’t know to look at their contracts with their connectivity suppliers. Deleting cookies won’t help.

In response to a question about whether there is there a different way to communicate privacy to different generations/subcommunities, Eileen expanded on David Vladek’s comments by saying that it’s time to look again at the commission’s privacy framework. For a time, the FTC followed Fair Information Practices. Then, the FTC moved to a framework focused on harm. The FTC still thinks notice-and-choice can work in some circumstances, but it fails in other circumstances. There is concern that notice hasn’t prevented harm. The FTC wants to develop a better framework, but business practices are constantly changing around the FTC.

I asked Eileen how companies can decide what is important enough to be disclosed. I pointed out that Sears’ privacy policy fully disclosed its researchware practices but only deep within its privacy policies. Eileen responded that Sears wasn’t a close call because their disclosures were completely inadequate and the pop-up ads offered consumers a different value proposition.

Perkins Coie’s recap of Eileen’s remarks.

Wendy Seltzer’s presentation did a nice job summarizing the privacy advocate’s view. What’s new online = more data + better data crunching. Most responses have been self-regulatory and focus on notice and choice. Self-regulation works only if there an effectively functioning market for privacy. Market failures:

* information costs of reading privacy policies.

* Behavioral economics/psychology. Consumers have difficulty evaluating near vs. distant events (i.e., hyperbolic discounting). Consumers are too optimistic that they won’t experience harm, even if disclosed to them. Technology moving too fast, so consumers can’t anticipate future developments (such as better deidentification).

In response, Leslie Harris of the CDT added that the latest generation of kids may value its privacy, they just may not have been faced with privacy challenges yet. We don’t know what we don’t know, and we shouldn’t assume people don’t care about privacy.

Leslie also lauded the FTC behavioral advertising principles because it discourages distinctions between PII and non-PII. Also, self-regulatory efforts have been shaped by FTC’s intervention. But she is not persuaded that self-regulation works.

Rebecca’s recap of this panel.

Research on Consumer Decision-Making

Alan Levy from the FDA. Regulators’ biggest mistake is thinking consumers read labels to learn more information about the product. Instead, consumers read labels when they have specific Qs that the label can answer. But framing the Q requires consumers to have lots of domain knowledge already, and consumers often don’t know enough to ask the Qs.

The function of label-based product claims is to ease consumers’ information search. Consumers want to make good decisions, but they satisfice. They look for products that can meet minimum adequacy standard and won’t embarrass them if asked to justify their decision. Most decisions aren’t life-and-death, and consumers usually can fix most bad decisions with their next purchase. Product claims work because they are convenient for consumers and help satisfice.

Consumers assume advertiser claims signal unique attributes of their products compared to their competitors. Consumers don’t generalize claims to the product class. Consumers want new and relevant information. The most effective marketing tells consumers something they do not already know. So claim effectiveness depends on heterogeneous consumer experience and knowledge.

Consumers need reliable information to satisfice. Consumers will accept information if it’s consistent with what they already know and legitimate on its face (i.e., not seemingly manipulative). Disclaimers about product claims can actually make claims more effective or are just ignored.

Health claims on package label front truncates a consumer’s product search—when a claim is on front, consumers won’t read the back of the package label.

Policy-makers focus too much on trying to perfect claim language, and not enough on helping frame the decision for consumers. This is based on mistaken assumption that claims don’t work well enough at educating consumers, but the real risk is that claims work too well at motivating consumer decision-making.

Michael Mazis of American University. Lessons:

* disclosure medium matters. Disclosures are more effective in media that give consumers more time to review them.

* Consumer motivation matters to the efficacy of disclosures

* Marketing claims trump other disclosures/disclaimers

Broadcast ads: text disclosures don’t work.

Print ads: consumers aren’t in search mode, so disclosures aren’t relevant

Web ads: consumers are in product search mode, so disclosures are more likely to be effective

Ways to improve disclosure effectiveness: proximity, prominence, easy to find, comprehensible, no legalese (consumers discount these disclosures), no repetitive “throw away” disclosures.

Findings from a research study about testimonial ads:

* when consumers see testimonials in ads, they assume that results are typical

* general disclosures that “results aren’t typical” aren’t effective

* specific disclosures about lack of typicality are somewhat more effective than general disclosures, but still aren’t very effective

Rebecca’s recap of this panel.

Role of Consumer Surveys in Enforcement/Litigation

Chris Cole of Manatt Phelps said that in every false advertising case, parties disagree about whether claims are literal or implied. Courts vary widely about what constitutes a literal claim; much depends on advocacy quality and the judge’s intuition (results-oriented judgment). There is no uniform standards for survey admissibility. There is a trend towards accepting non-traditional evidence such as internal brand tracking surveys not specifically prepared for the litigation.

Chris also talked about the difficulty designing a defensive survey because it’s hard to prove a negative (i.e., the absence of consumer confusion). To do so requires lots of directed (but not leading) questions to present enough evidence to convince the judge. Further, the other side often tries to reinterpret survey results, which is another reason not to conduct a defensive survey in the first place.

He also said there is no reason to give FTC or State AGs’ interpretation of ad claims any extra deference. The government should have to prove its case.

Finally, Chris discussed problems with trying to do surveys over the Internet, which may be more representative of consumers in practice than mall intercept surveys—who goes to a mall any more? However, he noted that the screen display may not be the same (ex: TV ads shown on a computer monitor may be harder to read), and there may be questions about the motivation and representativeness of panelists who are incented to participate.

Lee Peeler, a long time FTC staffer, said that years ago, FTC was perceived as not using extrinsic evidence because surveys might prove defendant’s case or get tossed out. Now, FTC looks at extrinsic evidence, but non-exclusively.

Patricia Conners of the Florida AG’s office said that state AGs don’t like to do consumer surveys because (1) they are not statutorily required, (2) they are expensive and time-consuming, (3) they distract the case from substantive issues to focus on survey methodology, and (4) many cases are against really bad actors, so survey evidence isn’t necessary to prove the case. On the flip side, defendants often overclaim their extrinsic evidence when trying to avoid regulatory intervention, which makes the regulators skeptical.

Rebecca’s recap of this panel.

More on the Conference

* Rebecca on financial products safety

* Rebecca on green marketing and internet issues. Arnold & Porter on the green marketing panel.

* My post on my talk on 47 USC 230 and consumer protection law.