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

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

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

Tylenol and E-Commerce n Youve heard of shrinkwrap and clickwrap n Meet trustwrap n What sorts of trustwrap work for E-commerce?

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

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

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

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

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

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

Winners in E-Commerce n 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

III. Implications for Internet Privacy n 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 n Instead, legal rules have been associated with the big winners for Internet commerce

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

Self-regulation and the 1990s 15 % privacy notices in 1998 to 88% notices in 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?

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

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