FC: More on privacy-federalism and Kobayashi-Ribstein paper

[Declan McCullagh <declan () well com>]

Yesterday I sent out a note about a privacy-federalism approach suggested 
by Bruce Kobayashi and Larry Ribstein:
http://www.politechbot.com/p-01687.html

Below is a critical response from Nicholas Spampata and a reply from Larry 
Ribstein.

-Declan

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Date: Thu, 1 Feb 2001 13:22:44 -0800 (PST)
From: "Nicholas R. Spampata" <nrspampata () yahoo com>
Reply-To: nrs6 () cornell edu
Subject: Re: FC: Foes of privacy bills in Congress try new approach: Federalism
To: declan () well com

Hi Declan,

I have been observing your Politech list for about a month now.  I don't 
know if you accept unsolicited comments on these stories, but I have a 
comment I'd like to share anyway.

There are two main problems with state-only regulation of consumer 
marketing information gathered over the internet that spring immediately to 
mind.  The first is usually known as the "race to the bottom" effect.  The 
idea is that states compete with each other to attract businesses.  Any 
state that can offer businesses an advantage that other states cannot offer 
has a competitive advantage in attracting businesses (not to mention the 
competitive edge those businesses will have over businesses in other 
states).  That means this more competitive state will attract more 
businesses, thus having a stronger economy, happier and wealthier citizens, 
etc.  In the context of environmental regulation, the main reason why 
environmentalists opposed state regulation was this kind of problem.  An 
individual state would have no incentive to pass environmental regulations, 
because all the businesses would just leave and go to a state that had no 
regulations.&n!
bsp; In the context of consumer marketing information, states will have the 
same incentive (assuming that complying with privacy regulations is more 
costly than having no regulations, either in terms of outright expense or 
in the form of opportunity costs).  The second problem is unique to the 
internet.  How does a state regulate consumer marketing information 
gathering by an out-of-state company?  A state cannot regulate a company's 
activities that take place outside the state's borders.  Thus, it only 
takes one state to ruin it for everybody.  That is, if one state has lax 
privacy regulations, all the marketing research firms would locate in that 
one state, and then they would be out of the reach of and able to 
circumvent the privacy regulations of the rest of the states.  The only way 
to prevent this problem is to have the same privacy regulations apply 
across the country.  Therefore, the business of gathering consumer ! 
information over the internet is especially suited to uniform, nationwide 
regulation.

Of course, even with national regulation, how would we stop foreign 
companies (or former U.S. companies who simply relocate over the border) 
from gathering otherwise protected private information?

Regards,
Nicholas Spampata

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From: lribstei () gmu edu
Date: Fri, 2 Feb 2001 13:38:43 -0500 (EST)
To: Declan McCullagh <declan () well com>
Cc: bkobayas () gmu edu, lribstei () gmu edu

Firms stand to lose reputation and customers if the state law they
choose is notoriously lax, as long as firms must clearly disclose their
chosen law. The Internet market is notoriously sophisticated and able
to disseminate information rapidly.  One of the 51 U.S. jurisdictions
would not long be able to hide its failure to regulate either from the
market as a whole or from its own voters. Although firms may be able to
fool some of the consumers some of the time, they must choose the
applicable law in light of the impression they will make on their
average informed and sophisticated customers. As for the problem of out-
of-state companies, firms are subject to jurisdiction in states in
which they do business. Should we worry about the firms that can keep
their assets out of regulating states?  In general, it seems more
reasonable to worry about what some have referred to as a "race over
the top" -- that is, states that regulate too much. We argue that this
problem can be solved through contractual choice of law and
jurisdiction.

Larry Ribstein

GMU Law School  3401 N. Fairfax Drive
Arlington, VA 22201  lribstei () gmu edu
http://mason.gmu.edu/~lribstei/index.htm

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