“Trustwrap: The Importance of Legal Rules to E-Commerce and Internet Privacy”

1. “Trustwrap: The Importance of Legal Rules to E-Commerce and Internet Privacy” Professor Peter P. Swire Moritz College of Law The Ohio State University Enforcing Privacy Rights Symposium November 15, 2002

2. Overview • Tylenol and trust • Trustwrap & the E-Commerce winners • Implications for Internet privacy laws • Conclusion

3. I. Tylenol and Trust • The 1980s Tylenol episode • Johnson & Johnson response • Remove from shelves • Build trust into every transaction • Outside plastic wrap • Foil seal • Caplets, not capsules

4. Tylenol and E-Commerce • You’ve heard of “shrinkwrap” and “clickwrap” • Meet “trustwrap” • What sorts of trustwrap work for E-commerce?

5. II. Trustwrap & the E-Commerce Winners • What we used to think would win: • Online e-cash • Pure Internet plays • Unmediated matching of buyers and sellers • Lack of mediation worked: • “Left handed corkscrews” • 712 sites for them on Google

6. What really won? • Credit cards beat e-cash • $50 rule • Dispute resolution is built in • Our first example of trustwrap

7. Pure Internet plays? • Rise of the “clicks and bricks” • Brands, solidity, and trust • Trade-ins, complaints, customer service • All the same day • Or, can use the Net as with a pure play • Jurisdiction and choice of law favor consumers • Hard to deny local consumer protection laws if have a large store there

8. The end of intermediaries? • eBay as the big winner • The initial dream of community and feedback as sufficient

9. eBay as Shadow Legal System • Buyer protection against non-delivery • Seller protection against non-payment • Seller protection against outages • Rules for limiting free speech (feedback) • Anti-shill rules • Dispute resolution • Criminal enforcement against fraud • Lots more

10. The winners in E-Commerce • Johnson & Johnson created trustwrap • Tylenol priced much higher than generic • Trustwrap has helped online survival amidst the dot-bombs • Credit cards • Clicks and bricks • eBay

11. Winners in E-Commerce • The trustwrap that is winning in the marketplace has important legal guarantees to consumer • Credit card rules • Jurisdiction and consumer protection rules • All the eBay rules

12. III. Implications for Internet Privacy • Initial prophets of E-Commerce thought that legal rules: • Would descriptively not be important to E-Commerce • Would prescriptively be bad, causing more harm than good • Instead, legal rules have been associated with the big winners for Internet commerce

13. Was Internet Self-Regulation a Big Mistake? • Perhaps. Prof. Schwartz & others have argued from the start that E-Commerce would work better with legal guarantees for privacy • I suggest that the arguments for Internet privacy legislation are stronger now than in the late 1990s

14. Self-regulation and the 1990s • 15 % privacy notices in 1998 to 88% notices in 2000 -- fast progress • Less consensus and experience then with fair information practices • Less experience with laws and sensitive data. Now have HIPAA, GLB, COPPA • More risk of serious error during start-up phase of E-Commerce. Remember “push” technology?

15. Stronger Case Today for Internet Privacy Legislation • Greater consensus now on elements of good Internet privacy policies • Progress has stalled • Trustwrap and the surprising degree to which legal guarantees have been associated with the E-Commerce winners

16. Conclusion • The self-regulatory motto was “let the marketplace decide” • In a funny way it has • It has decided that enforceable legal guarantees are more important to successful E-Commerce than many would have expected • For a conference on enforcing privacy rights, that’s an important message