Unfair and Deceptive Data Trade Practices

Do you know what your data did last night? Almost none of the more than 27 million people who took the RealAge quiz realized that their personal health data was being used by drug companies to develop targeted e-mail marketing campaigns.

There’s a basic consumer protection principle at work here, and it’s the concept of “unfair and deceptive” trade practices. Basically, a company shouldn’t be able to say one thing and do another: sell used goods as new, lie on ingredients lists, advertise prices that aren’t generally available, claim features that don’t exist, and so on.

Buried in RealAge’s 2,400-word privacy policy is this disclosure: “If you elect to say yes to becoming a free RealAge Member, we will periodically send you free newsletters and e-mails that directly promote the use of our site(s) or the purchase of our products or services and may contain, in whole or in part, advertisements for third parties which relate to marketed products of selected RealAge partners.”

They maintain that when you join the website, you consent to receiving pharmaceutical company spam. But since that isn’t spelled out, it’s not really informed consent. That’s deceptive.

Cloud computing is another technology where users entrust their data to service providers. Salesforce.com, Gmail, and Google Docs are examples; your data isn’t on your computer — it’s out in the “cloud” somewhere — and you access it from your web browser. Cloud computing has significant benefits for customers and huge profit potential for providers. It’s one of the fastest growing IT market segments — 69% of Americans now use some sort of cloud computing services — but the business is rife with shady, if not outright deceptive, advertising.

Take Google, for example. Last month, the Electronic Privacy Information Center (I’m on its board of directors) filed a complaint with the Federal Trade Commission concerning Google’s cloud computing services. On its website, Google repeatedly assures customers that their data is secure and private, while published vulnerabilities demonstrate that it is not. Google’s not foolish, though; its Terms of Service explicitly disavow any warranty or any liability for harm that might result from Google’s negligence, recklessness, malevolent intent, or even purposeful disregard of existing legal obligations to protect the privacy and security of user data. EPIC claims that’s deceptive.

Facebook isn’t much better. Its plainly written (and not legally binding) Statement of Principles contains an admirable set of goals, but its denser and more legalistic Statement of Rights and Responsibilities undermines a lot of it. One research group who studies these documents called it “democracy theater“: Facebook wants the appearance of involving users in governance, without the messiness of actually having to do so. Deceptive.

These issues are not identical. RealAge is hiding what it does with your data. Google is trying to both assure you that your data is safe and duck any responsibility when it’s not. Facebook wants to market a democracy but run a dictatorship. But they all involve trying to deceive the customer.

Cloud computing services like Google Docs, and social networking sites like RealAge and Facebook, bring with them significant privacy and security risks over and above traditional computing models. Unlike data on my own computer, which I can protect to whatever level I believe prudent, I have no control over any of these sites, nor any real knowledge of how these companies protect my privacy and security. I have to trust them.

This may be fine — the advantages might very well outweigh the risks — but users often can’t weigh the trade-offs because these companies are going out of their way to hide the risks.

Of course, companies don’t want people to make informed decisions about where to leave their personal data. RealAge wouldn’t get 27 million members if its webpage clearly stated “you are signing up to receive e-mails containing advertising from pharmaceutical companies,” and Google Docs wouldn’t get five million users if its webpage said “We’ll take some steps to protect your privacy, but you can’t blame us if something goes wrong.”

And of course, trust isn’t black and white. If, for example, Amazon tried to use customer credit card info to buy itself office supplies, we’d all agree that that was wrong. If it used customer names to solicit new business from their friends, most of us would consider this wrong. When it uses buying history to try to sell customers new books, many of us appreciate the targeted marketing. Similarly, no one expects Google’s security to be perfect. But if it didn’t fix known vulnerabilities, most of us would consider that a problem.

This is why understanding is so important. For markets to work, consumers need to be able to make informed buying decisions. They need to understand both the costs and benefits of the products and services they buy. Allowing sellers to manipulate the market by outright lying, or even by hiding vital information, about their products breaks capitalism — and that’s why the government has to step in to ensure markets work smoothly.

Last month, Mary K. Engle, Acting Deputy Director of the FTC’s Bureau of Consumer Protection said: “a company’s marketing materials must be consistent with the nature of the product being offered. It’s not enough to disclose the information only in a fine print of a lengthy online user agreement.” She was speaking about Digital Rights Management and, specifically, an incident where Sony used a music copy protection scheme without disclosing that it secretly installed software on customers’ computers. DRM is different from cloud computing or even online surveys and quizzes, but the principle is the same.

Engle again: “if your advertising giveth and your EULA [license agreement] taketh away don’t be surprised if the FTC comes calling.” That’s the right response from government.

A version of this article originally appeared on The Wall Street Journal.

EDITED TO ADD (2/29): Two rebuttals.

Posted on April 27, 2009 at 6:16 AM • 35 Comments