Legal Applications of Marketing Theory, part 3

Lorin Hitt, Vildan Altuglu, Samid Hussain, & Matteo Li
Bergolis, Wharton & Cornerstone Research, Cornerstone Research, Cornerstone
Research, Valuation of Privacy: Assessing Potential Harm from Unauthorized Access
and Misuse of Private Information in Consumer Class Actions: Disputes over use
of data allegedly beyond consented use and over data breaches. Need a method for
computing damages classwide if you’re going to have a class action.  Reliable, feasible, and common is required. 
Different methods have been proposed. Reliability is
determined by ability to address variation across consumers in nature of
private info and preferences about this info; ability to address unique aspects
of privacy (privacy paradox).
What is misuse of private info?  Consumers mostly don’t even look at their
contracts. Should it be dependent on what the contract says?  So should we do a cost-benefit tradeoff? Look
at expected uses v. unexpected uses? Consumers have different preferences over
things like retail loyalty cards in return for tracking, office surveillance
(54% would accept a camera on them to prevent theft), free social media (33%
think it’s acceptable in exchange for targeted ads even though 80% are on FB
which is that).
Theory 1: intrinsic value of privacy: inherent value to
society. Independent of consumer and type of info. As a nonmarket good, you’d
estimate value from surveys (e.g., contingent valuation). Issues: it’s an old
school concept, not so consistent w/class actions where harm is alleged to class.
Inconsistent w/heterogeneity in preferences & info; ignores cost-benefit
tradeoffs. Expressed preferences methods are especially unreliable for privacy
(privacy paradox).
Q: why isn’t there a market for this information?
A: it’s been tried and failed.  A lot of people will just give you permission
if asked, it turns out. You could try secondary markets as well (e.g., value to
landlords, to info aggregation services). Another answer: Other markets for
personal info do exist, but the big ones aren’t legal.  On the dark web, you can use secondary market
data to value privacy.  Highly volatile,
though in persistence, quality, price.
Data breaches have same problem with heterogeneity, but there’s
no compensating benefit to consumer. Weirdly, consumers sometimes feel safer
after learning of breach. But causality is difficult b/c there are so many
breaches—even if you experience identity theft, which breach led to that theft?
Possibilities: difference-in-difference analysis of rate of
identity theft incidences before and after breach; same for changes in credit
scores, credit lines, bankruptcies. There doesn’t seem to be much effect &
it’s shortlived; financial loss is small. 
But most studies have looked at small data breaches, not 140 million
people as w/Equifax.  Still remains a Q:
life cycle of effects.  Alternatives:
hedonic models.  Contingent/conjoint
valuation.  Q: is privacy actually an
attribute? (focalism bias; the privacy paradox) 
What is the price of a zero price good (given that zero price is
special)?  Privacy paradox makes expressed
preference methods unreliable. Existing studies show widely, perhaps implausibly,
varying results.
Increased consumer vigilance following breach is an
issue.  Studies also show that PII can be
inferred from other info: I can guess your SSN with reasonable accuracy if I
have other significant info about you. Main point: the research here is just
starting. In doing research must be mindful of heterogeneity/accounting for it.
Orly Lobel, Samuel Becher, & Yuval Feldman, San Diego,
Victoria University of Wellington & 
Bar Ilan University, Poor Consumer(s) Law: The Case of High Cost Credit
and Payday Loans
Marshmallow test/delayed gratification as predictor of
success. Revisited recently (w/more emphasis on what child’s world has already
taught them about trusting promises about the future).  What is poverty?  Hard to compare different countries. A
billion people by one metric count as wealthy (over $32/day, adjusted by cost
of living by country), while 2 billion are $8-32/day, 3 billion $2-8, 1 billion
less than $2 and in extreme poverty.  46
million people in the US.  Experience of
poverty has effects on the brain: poor mothers predictably have less emotional
regulation in response to baby’s cries. 
There are 5,500 Walmarts in the US, 14,000 McDonald’s, and 18,000 payday
loan places in the US. 12 million borrowers in the US w/ave. interest rate of
391% compared to credit card average of 15%. $9 billion in fees alone. 80% of
the loans are rolled over.
Bertrand et al.: a photo of attractive woman has the same effects
on demand for bank loan offers in an ad as reducing the interest rate by 5% in
the ad. Overoptimism can be a significant driver of excessive borrowing, but
poor people are less overoptimistic than non-poor people. Present bias: poor
suffer more from that—give too much weight to the present at the expense of the
future—they are very stressed.  Behavioral
economics: info overload as a problem; confirmation bias; the ostrich effect/information
avoidance.  [The Fyre Festival is a
prominent example of all of this happening, with the difference that a bunch of
people participating in the marketing or trying to attend weren’t poor and
therefore didn’t suffer catastrophic consequences—though the workers who were unpaid
suffered more and differently.] Financial worries, time pressure, negative
stereotypes, and emotional distress all take up cognitive resources leaving less
for evaluating offers. Poverty is punishment for a crime you didn’t commit.
Poor children also hear 30 million fewer words than wealthy kids—affects brain
development.  Poverty does not grant vacations,
so you don’t get a break.  And poverty is
expensive: fees and interest rates paid (or consider Desmond’s Evicted, which notes that rents in poor
areas are often about equal in dollars to rents in rich areas nearby, but the
properties rented are much different). 
Self-control in and of itself can’t overcome economic & social disadvantages.
Farmers in India: IQ test results were correlated with the harvest—after the
harvest they “gained” 9-10 points, a big difference.
We don’t argue that payday loans should be outlawed, as in
12 states.  Balance: these loans may
indeed offer some aid in extreme circumstances, especially with no other source
of credit. But: 70% of people who take payday loans don’t use it for
extreme/unforeseen circumstances, but for everyday bills.  Industry claims that these loans are
expensive b/c of low repayment, though some states already cap extensively w/no
real problem, as in Colorado.
Recommendation options: (1) Large scale policies like ex
ante fixes (e.g., Universal Basic Income); raising minimum wages. (2) Lender
regulation for responsible lending. (3) Improving borrowers’ financial decisionmaking.  We can try to manipulate system 1 with nudges,
encourage use of system 2. Personalization/differentiated regulation a
possibility. Nudges: default requiring payment of whole amount & not
rollover; to rollover requires counseling; or rollover that defaults to paying
80% of the whole next time.  Bank apps
offer reminders about saving—we could do the same with payday loans. Could
present information in other ways, not just interest rate but “dollars owed” to
evoke loss aversion.  Can compare the
rates to alternatives, e.g., credit cards or postal banking. System 2: one main
reason people say they choose payday loans is the ease: there’s little paperwork.
[This reminds me so much of Tressie McMillan Cottom’s Lower Ed.] But if it’s
too easy they don’t think about it enough. Create more roadblocks: video
tutorials, repayment plans that people would have to fill out, vanishing option
test (if you didn’t have this, what would you do?).
Q: how is this going to work for people who already are
stressed and depleted?
A: the point is to get them to stop and not just use system
1. We’re not expanding their bandwidth, but directing them to use whatever they
have in this situation. Can also test readability of disclosures.  Disclosure of rollover risks; ask people why
they think they’re different or what they’ll do if they have to roll over the
Marshmallow test: it wasn’t the ability to delay gratification
that predicted success, but environment and background of tested children.  Those who didn’t fear that it was now or never
for the marshmallow, who were confident that two marshmallows would appear
later, were more willing to wait. Without changes, people will not be able to
think clearly about taking payday loans.
Q: Why aren’t businesses competing with lower interest rates
to take market share?
A: the market is not competitive; these businesses are
centered around poor, minority consumers. 
Q: one of the options: offer people alternatives (online lenders)—make
that available.
A: Yes; sometimes people prioritize ease of getting the
money over searching.
Q: unfair to blame poor people for being stupid. People at
our income level are giving away trillions of dollars. It’s irrational for rich
people to vote, or to pick stocks instead of investing in Vanguard. Rich people
go to church, which is irrational.  [I
feel that the presenter was not blaming poor people for being stupid.]  We look at others’ bad choices. Why play on
our guilt by ignoring rich people’s errors? 
[Because rich people’s errors don’t immiserate them?]
A: I’m not saying that we’re smarter than them. There are
enormous positive benefits from getting poor people out of poverty, which is
hard to get out of without structures. 
Other market failures grounded on irrational behavior exist, but in this
case, even rich people should endorse helping poor people get not poor.
Q: but it has nothing to do with payday loans.  They have payday loans because no one will
sell them stocks. [?]
A: Payday loans are reinforcing poverty by trapping people
into loans they can’t pay. Let’s solve other problems too!
Q: Colorado example: what happened to the supply side in
A: many branches closed, but people still have access to
credit, with less interest and fees. 
Q: was there displacement into other states?
A: doesn’t know. 
Online lending is also a Q.  But
payday loans are still available in Colorado, capped at 35%.
Q: predatory practices generally are a problem: studies
about microloans in India & interest rates being quite high given low default
Tom Wesson, Mark Pelofsky, David Heller, & Erich
Schaeffer, York University, Global Business Experts Group, Voluble Insights,
Voluble Insights, Social Media Evidence in Commercial Litigation
Social media are useful for lots of reasons: (1) contemporaneous
reactions, not harmed by decay of memory; (2) don’t have to distort the
environment with a survey question.  You
can also risk losing control of a narrative where the other side uses social
media evidence and you don’t.  Complements
consumer surveys. Already being used by attys and experts in all kinds of
cases; courts are still figuring out how to make sense of it, but most courts
have found it probative. USPS sued Lance Armstrong for violating his agreement
by using performance enhancing drugs.  Harmed the Post Office instead of helping.  Challenge: show that goals of partnership, which
ended in 2004, were harmed by 2014 confession. 
We looked at social media (Twitter) for posts that talked about
Armstrong & doping, and found spikes corresponding to timing of events. Can
also get data for industry-specific bulletin boards. For Armstrong, peak
activity was much more than for Alex Rodriguez & Maria Sharapova who had
similar scandals.
Do people connect that to USPS?  Some do—and it’s timestamped.  Even two and three years after the interview,
people are still mentioning USPS in connection w/his doping.
Q: [but does it matter how many people talk about Armstrong
& doping without mentioning the
USPS?  OK, it turns out I misinterpreted
that question, which I now have.]  The
question asked was really whether there was any connection to negative events and the mention of the
USPS. For example, if he has a new girlfriend, does that cause a spike in
attention?  And do people mention USPS
when talking about that?
A: could look. But there are also memes featuring Armstrong
in USPS gear, so the negative association continues to be enforced.
Social media evidence from both sides: pink slime, or lean
finely textured beef, made by centrifuging beef trimmings.  Safe, leaner, cheaper and gets 20 lbs more
meat per cow; or a cheap filler used only in dog food at first that didn’t
belong in people food.  Spring 2012: ABC
ran a bunch of stories about it.  BPI,
the major maker of pink slime, took exception and sued for defamation, claiming
$1.9 billion in damages subject to trebling because of South Dakota’s Agricultural
Food Products Disparagement Act.  Blamed
ABC for the term “pink slime.”
Social media for BPI: very clear increase of use of the term
b/c of ABC’s reporting. Stories on ABC’s FB page received a lot of consumer engagement;
they were very popular ABC stories in terms of number of comments received
relative to other ABC stories.  Allegedly
false claims: not nutritious; not meat or beef; BPI committed fraud/impropriety
in acts w/USDA; not safe for consumption. 
All these claims were repeated/discussed 1000s of times on social
However, before ABC news mentioned pink slime, there were
more than 18,000 posts in the first three months of the year mentioning the term,
such as when McDonald’s and other restaurants announced they weren’t using it.
The line starts to go up the day before ABC’s report, b/c a number of other
outlets reported that USDA bought 7 million pounds of pink slime for use in
school lunches.  Hard to say all the
negative attitudes were driven by ABC’s reporting. Nor was an alternative for
the phrase: LFTB wasn’t used to identify this product in social media before;
98% of mentions used “pink slime.”
Q: correlation w/sales?
A: BPI closed 3 of 4 plants.
We work to clean the data: false positives, spam, irrelevant
posts, duplicates. Standards are evolving. Newness of field offers us
opportunity to apply cutting edge techniques.
One issue: expert may equate social media w/survey evidence,
but there are important differences. Not asking the same Qs, like what percentage
of overall population is confused—represents people on social media.  Other challenges: distinguish sarcasm from
truth; you have to read them.  Social
media is heterogeneous in a lot of ways.
RT: I wonder about the relationship between the use of this data
and courts’ already troubling tendencies to rely on anecdotes over data. Consider
for example the Armstrong fans or antifans or Armstrong-indifferent people who
don’t tweet even if they aren’t mad at the Post Office; how many people talk
about Armstrong & doping without
mentioning the USPS; and related baseline questions seem to me to make this
stuff extra risky, which is not in any way to say it shouldn’t be done.  Teach people the differences from surveys!
A: look for correspondences w/other evidence.  And sometimes using search with words won’t
work given how much is done online w/images.
Scott Hemphill & Jacob Gersen, NYU Law School &
Harvard Law School, Evergreening and the Coca-Cola Bottle
Bottle was introduced in 1917 when CC was really struggling
with copycats/fraud like Coke-Ola, Koke, etc. 
Sold at the pharmacy soda fountain, the syrup was often replaced
w/something cheaper/sweeter.  First, they
go to court a lot—it created and distributed three volumes that look like court
reporters of the Coca-Cola cases! 
Inherent vulnerability was the initially descriptive name from the coca
leaf and kola nut, which appeared on the label at first.  By 1903-05, the cocaine had mostly been
removed and the kola nut was only used in trace amounts.  So the suit against Koke led to claims of
unclean hands.
The bottle might help—Coke’s legal department came up with that,
not the marketing department, so go legal! 
There used to be just a diamond-shaped label, which was easy to emulate.  Contest chose a new bottle in 1915, then they
used a bunch of design patents in 1915 (ungainly and prone to tip), 1923, 1937
(looks more like a modern Coke bottle).  According to lore, they decided to use cocoa
pods to inspire the ridged/bulgy design. 
If true, sort of misdescriptive. 
1915 design patent and production 1916 model

Eventually, 1960, PTO allows registration of container shape as a mark.  Two forms of evergreening: additional patents
w/later expiration dates; trade dress protection as an end run around patent
protection.  May be either bad or good.
There are some additional design patents of doubtful validity.  1916 production bottle looks a lot more like
the 1923 patent than the 1915 design, so is the 1923 patent valid? (see this great article on tracking
the shape of the bottle
 from which the pictures above are taken).  It’s
possible, though also a stretch, to think that the 1916 bottle would infringe
the 1915 design if unauthorized.  But
once that 1915 patent expired, shouldn’t folks have been free to sell their own
bottles in that shape?  [I was expecting
a discussion of the on sale bar, maybe anticipation; that 1916 bottle sure
looks like it ought to trigger the on sale bar for the 1923 bottle.]
Evergreening is a common strategy in other areas, such as
pharma. Is there a link?  It may depend
on what we think we’re protecting. Aesthetic features of a bottle? Brand investment/source
identification? Exclusivity on attractive design?
Should Kellogg
treatment for functionality be applied to expired design patents as well as expired
utility patents?  Courts have
unhesitatingly said no, but perhaps they should hesitate.
Q: we have no idea what optimal incentives are in any IP
field.  Better to say: isn’t it interesting
to look at how law evolves when it has no idea what the welfare answer is?
Perpetual exclusivity was probably not what Congress wanted
under utility patent system; what about design/TM systems?
RT: [Role of incontestability is really significant here.  If you convince the PTO once to register your
design and wait five years, you can get perpetual protection even without actual
secondary meaning persisting over time. 
Congress wasn’t thinking about trade dress & incontestability’s
interactions (in part b/c it’s pretty clear they didn’t expect registration of
trade dress) and that creates a significant “perpetual patent” problem.] [And
by the way, you can get a registration through a presumption of secondary
meaning from showing five years of substantially exclusive use … which a design
patent will have given you, plus more years beside.  The PTO need not accept exclusive use as sufficient
evidence of secondary meaning, and it does not necessarily apply the
presumption in all product design cases, but the statute gives it a bunch of
[my love of TerraCycle as an example: TerraCycle puts its
fertilizer in recycled bottles, including recycled Coca-Cola bottles.  It’s an example of defendant-side
functionality; even if the bottle isn’t functional for people who are making
their own new bottles, it is for the business model that incorporates
Q: from this morning: look at internal and external evidence
about their intent to create secondary meaning and their success in doing so.
Q: possible rule providing that you can’t register a TM for
a design patent for five years after the expiration of patent protection?  [Also would have to know, as Sarah Burstein
has emphasized: What is the patented design?]
A: yes, that would affect incentives. The hesitation is that
maybe it’s ok to allow registrations. 
Source identification is often a good thing. The anxiety is that one form
of transient/temporary protection turns into something else.
Q: the problem is strategic behavior where a party seeks the
first right (design patent) to secure the second (TM).
A: does it distort claims made about the product during the
period you’re seeking protection? That would be a reason to try to avoid this
Q: related to whether there’s intent—are firms trying to
earn a return on investment on brand? 
One should perhaps not be allowed to fall into trade dress protection,
but should have to show investments were made. 
[This would be an easier rule for courts to tolerate if we recognized a separate
role for unfair competition.]

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