Professional Documents
Culture Documents
E-Commerce
SHAUN B. SPENCER*
INTRODUCTION
*Assistant Professor and Director of Legal Skills, University of Massachusetts School of LawDartmouth. I am grateful to the panelists and participants at the New England Law Reviews
Spring 2015 Symposium, What Stays in Vegas, and at the University of Michigan Technology and
Communications Law Reviews Spring 2015 Symposium, Privacy, Technology, and the Law, where
I presented earlier versions of this article. Parts I and II of this article will appear in Predictive
Analytics, Consumer Privacy, and E-Commerce, in RESEARCH HANDBOOK ON ELECTRONIC
COMMERCE LAW (John A. Rothchild ed., Elgar Publishing, forthcoming 2015).
629
630
I.
v. 49 | 629
ERIC SIEGEL, PREDICTIVE ANALYTICS: THE POWER TO PREDICT WHO WILL CLICK, BUY, LIE,
80 (2013).
OR DIE
2 See VIKTOR MAYER-SCHNBERGER & KENNETH CUKIER, BIG DATA: A REVOLUTION THAT
WILL TRANSFORM HOW WE LIVE, AND THINK 2425 (2013).
3
Id. at 6.
See id. at 13.
5 SIEGEL, supra note 1, at 88.
6 See MAYER-SCHNBERGER & CUKIER, supra note 2, at 5859.
7 SIEGEL, supra note 1.
8 Id. at 85.
9 Id. at 86.
10 Id.
4
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11 VIJAY KOTU & BALA DESHPANDE, PREDICTIVE ANALYTICS AND DATA MINING: CONCEPTS &
PRACTICE WITH RAPIDMINER 13 (2015); Testimony of Solon Barocas, FTC Workshop: Big Data: A
Tool for Inclusion or Exclusion, at 19 (FTC Sept. 15, 2014), available at
https://www.ftc.gov/system/files/documents/public_events/313371/bigdata-transcript9_15_14.pdf.
12 See KOTU & DESHPANDE, supra note 11, at xi (discussing prediction of customer defection
to a competitor); SIEGEL, supra note 1, at 83 (discussing prediction of loan repayment risk);
FEDERAL TRADE COMMISSION, OFFICE OF THE SECRETARY, DIRECT MARKETING ASSOCIATION
PUBLIC COMMENT, SPRING PRIVACY SERIES: ALTERNATIVE SCORING PRODUCTS 1, 45 (Apr. 17,
2014) available at https://www.ftc.gov/policy/public-comments/2014/04/17/comment-00011
(predictive analytics are used to predict a consumers likelihood of being interested in a
product or service and to tailor[] marketing materials to meet the preferences of
consumers).
13
See Ryen W. White et al., Web-scale Pharmacovigilance: Listening to Signals from the Crowd,
20 J. AM. MED. INFORM. ASSOC. 40408 (2012), available at http://jamia.oxfordjournals.org/
content/jaminfo/20/3/404.full.pdf (describing how web searches provide evidence of an
adverse interaction between two drugs, the antidepressant Paroxetine and the cholesterol
drug Pravastatin).
16
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17 Lior Jacob Strahilevitz, Toward a Positive Theory of Privacy Law, 126 HARV. L. REV. 2010,
2023 (2013).
18
21
Id.
Id.
23 See KOTU & DESHPANDE, supra note 11, at 2728.
24 Duhigg, supra note 14.
25 Id.
26 KOTU & DESHPANDE, supra note 11, at 2728.
27 See Duhigg, supra note 14. Although Duhigg does not mention testing the algorithm on
22
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Finally, once the model is optimized, the merchant applies the final
model to current prospects or customers.28 A Target employee illustrated
how Target might use this prediction with regard to a hypothetical
customer. Based on the customers purchase history, Targets algorithm
might assign an 87% chance that she is pregnant and due in August. Based
on other data about her shopping habits, Target may also know the most
likely marketing approaches to draw her to a Target store or website. For
example, email coupons may trigger her to purchase online, whereas direct
mail that arrives on a Friday may be likely to get her to a store over the
weekend. By applying those techniques to the tens of thousands of
consumers with high pregnancy prediction scores, Target hoped to reshape
their shopping habits to generate purchases at Target for years to come. 29
Targets implementation involved sending ads for maternity and baby
products to consumers with high pregnancy scores.30 Targets model
proved to be too accurate for its own good. One Minnesota father stormed
into his local Target complaining that his teenage daughter was receiving
maternity ads.31 The puzzled store manager could only apologize. A week
later, however, the father called to apologize, saying that there had been
some activities in my house I havent been completely aware of. Shes due
in August.32 Target had learned that the daughter was pregnant before her
father.
Predictive analytics has myriad uses in e-commerce, but they can be
grouped into four common categories: (1) targeted advertising; (2) price
discrimination; (3) customer segmentation; and (4) eligibility
determinations for particular financial and insurance products.33 These
customers who had not signed up for the baby registry, Target had to include non-pregnant
customers in the test set to determine whether the model could predict the likelihood of
pregnancy. Id.
28
documents/public_events/182261/alternative-scoring-products_final-transcript.pdf (discussing
targeted advertising); FED. TRADE COMMN, COMMENTS OF THE SOFTWARE & INFORMATION
INDUSTRY ASSOCIATION ON THE FTC WORKSHOP ON ALTERNATIVE SCORING PRODUCTS 910
(Apr. 17, 2014), available at https://www.ftc.gov/policy/public-comments/2014/04/17/comment00010 (discussing price discrimination); CATALYSIS, BUILDING BEST PRACTICE CUSTOMER
SEGMENTATION USING PREDICTIVE ANALYTICS
(Feb.
10, 2012),
available
at
http://media.catalysis.com/prod/resources/files/articles/pdfs/Building%20Best%20practice%20
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Id. at 3.
Id. Contrast targeted advertising with contextual advertising, in which advertisers
place ads based on the content of the page, and therefore on inferences about the types of
consumers who will be reading that page. Jonathan R. Mayer & John C. Mitchell, Third-Party
Web Tracking: Policy & Technology, IEEE SYMP. ON SECURITY & PRIVACY (2012), available at
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Price Discrimination
See id.
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reported on companies:
consistently adjusting prices and displaying different product
offers based on a range of characteristics that could be discovered
about the user. Office Depot, for example, told the Journal that it
uses customers browsing history and geolocation to vary the
offers and products it displays to a visitor to its site. 43
Customer Segmentation
43 Jennifer Valentino-Devries et al., Websites Vary Prices, Deals Based on Users' Information,
WALL STREET J., Dec. 24, 2012, available at http://www.wsj.com/articles/SB10001424127887323
Id.
David Vergara, Database: Get a Little Closer: Use Effective Segmentation with Predictive
Analytics
to
Personalize
Customer
Relationships
(May
2009),
http://www.targetmarketingmag.com/article/use-effective-segmentation-predictive-analyticspersonalize-customer-relationships-406169/1.
48
49
Id.
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637
Eligibility Determinations
Id.
DIXON & GELLMAN, supra note 33, at 5152.
52 See IBM SOFTWARE, REAL WORLD PREDICTIVE ANALYTICS: PUTTING ANALYSIS INTO ACTION
FOR VISIBLE RESULTS 68 (2010), available at http://www.revelwood.com/uploads/whitepapers/
PA/WP_Real-World-Predictive-Analytics_IBM_SPSS.pdf.
53 Natasha Singer, Secret E-Scores Chart Consumers Buying Power, N.Y. TIMES (Aug. 12,
2012),
http://www.nytimes.com/2012/08/19/business/electronic-scores-rank-consumers-bypotential-value.html.
51
54
57
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Id.
IBM SOFTWARE, supra note 56, at 8.
60 Id. at 9.
61 Daniel J. Solove, Conceptualizing Privacy, 90 CALIF. L. REV. 1087, 1092 (2002) (identifying
varying accounts of privacy as the right to be let alone, limited access to the self, secrecy,
control over personal information, personhood, and intimacy).
59
62
Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 HARV. L. REV. 193 (1890).
ALAN F. WESTIN, PRIVACY AND FREEDOM 3132 (1967).
64 Solove, Conceptualizing Privacy, supra note 61, at 1093 (noting accounts of privacys
importance for freedom, democracy, social welfare, [and] individual well-being).
63
65
66
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Ruth Gavison, Privacy and the Limits of Law, 89 YALE L.J. 421, 423 (1980).
See, e.g., TruSignal, Leading Life Insurance Broker Case Study: Firm Reaches New High Value
Customers Through Targeted Display Advertising, TRU-SIGNAL.COM, http://www.trusignal.com/wp-content/uploads/2014/11/TruSignal-Leading_Life_Insurance_Broker.pdf (last
visited Sept. 13, 2015) (describing a model using more than 100 predictive factors to identify a
lookalike audience of over 8 million high value prospects).
68
69
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personal data that are Facebooks lifeblood. The data valuation challenge
arises because most of datas value lies in unknown future secondary uses,
rather than the original purpose of collection. 70 If merchants cannot value
data easily and consistently, consumers can hardly be asked to value
unknown future uses of their own data.
C. Predictive Analytics and Personal Autonomy and Dignity
Predictive analytics also harms personal autonomy and dignity in
several ways. One type of harm arises from the nature of predictive
algorithms and their secret e-commerce status. Another arises from the risk
that predictive algorithms can institutionalize latent societal
discrimination.
1.
70
privacy_report_may_1_2014.pdf.
72 See Danielle Keats Citron & Frank Pasquale, The Scored Society: Due Process for Automated
Predictions, 89 WASH. L. REV. 1, 27 (2014) (discussing how secret scoring systems affecting
credit, housing, employment, and other opportunities threaten human dignity); Strahilevitz,
supra note 17, at 2028 (discussing dignitary harm from service discrimination).
73 See Testimony of Solon Barocas, supra note 11, at 2021; KOTU & DESHPANDE, supra note
11, at 1719, 2729.
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79
82
TruSignal Unveils High Value Consumer Audience Targeting Segments on the BlueKai
Exchange, TRUSIGNAL (Feb. 16, 2012), http://www.tru-signal.com/press-releases/trusignalunveils-high-value-consumer-audience-targeting-segments-on-the-bluekai-exchange.
83
Id.
Data
Activation:
The
Audience
Data
Marketplace,
ORACLE |
BLUEKAI,
http://www.bluekai.com/audience-data-marketplace.php (last visited Sept. 13, 2015).
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car buying sites. In contrast, the African-American sounding names all saw
at least one ad related to bad credit card loans or used car purchases. The
Latino-sounding names saw a mix. When the test accounts sent emails with
the term education in the subject line, the white-sounding names saw
more ads for graduate education, while the non-white names saw more ads
for undergraduate and non-college education.85
Predictive analytics may also reinforce class-based discrimination. A
Wall Street Journal investigation showed that geographically-based price
discrimination can reinforce patterns that e-commerce had promised to
erase: prices that are higher in areas with less competition, including rural
or poor areas. It diminishes the Internets role as an equalizer.86 The
Journal found that Staples offered discount prices to ZIP codes with
weighted average income of about $59,900, but offered higher prices to ZIP
codes with weighted average incomes of about $48,700. 87
III. Implications for Regulating Predictive Analytics
Any regulatory response must balance potential harm against the
commercial benefits of predictive analytics.88 Predictive analytics can
maximize revenues by improving marketing efficiency, improving
customer retention, attracting high-value customers, preventing fraud, and
avoiding credit risks. It can also improve the consumer experience by
providing consumers with more relevant ads, offers, and products.89
In addition, regulation must avoid stifling innovation. Legislating
technology can have unintended consequences, and legislators may have
difficulty keeping pace with developing technologies. For example, there is
near-universal agreement that the Electronic Communications Privacy
85 Nathan Newman, Racial and Economic Profiling in Google Ads: A Preliminary Investigation
(Updated), HUFFINGTON POST (Nov. 20, 2011, 5:12 AM), http://www.huffingtonpost.com/
nathan-newman/racial-and-economic-profi_b_970451.html, noted in PASQUALE, supra note 76,
at 40. For a similar study finding statistically significant discrimination in ad delivery based
on searches of 2,184 racially associated personal names. See Latanya Sweeney, Discrimination
in Online Ad Delivery, ACM QUEUE (Apr. 2, 2013), https://queue.acm.org/detail.cfm?id=
2460278 (cited in PASQUALE, supra note 76, at 236).
86 Valentino-Devries et al., supra note 43.
87 Id.
88 For a discussion of how existing law may apply to predictive analytics in e-commerce,
see Shaun B. Spencer, Predictive Analytics, Consumer Privacy, and E-Commerce, in RESEARCH
HANDBOOK ON ELECTRONIC COMMERCE LAW (Elgar Publishing, John A. Rothchild ed.,
forthcoming 2015) (discussing application of the FTC Act, Childrens Online Privacy
Protection Act, Equal Credit Opportunity Act, Fair Housing Act, and state laws prohibiting
discrimination in insurance and public accommodations).
89
See MAYER-SCHNBERGER & CUKIER, supra note 2, at 58; SIEGEL, supra note 1, at 23.
644
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Online Behavioral
Price
Customer
Eligibility:
Advertising
Discrimination
Segmentation
Commercial
General
Eligibility:
Credit,
Transactions
Housing,
Insurance
Harm
Error Rate
Minimal
Minimal
Minimal
Minimal
Moderate
Secrecy
Minimal
Minimal
Minimal
Minimal
Moderate
90 See, e.g., Charles H. Kennedy, An ECPA for the 21st Century: The Present Reform Efforts and
Beyond, 20 COMMLAW CONSPECTUS 129, 129, 14553 (2011) (discussing the challenges in
applying ECPAs outdated framework to unanticipated technologies).
91 Id. at 15361 (discussing reform efforts). For recent attempts to amend ECPA, see
Electronic Communications Privacy Act Amendments Act of 2015, S. 356, 114th Cong. (2015);
Electronic Communications Privacy Act Amendments Act of 2013, S. 607, 113th Cong. (2013);
Electronic Communications Privacy Act Amendments Act of 2011, S. 1011, 112th Cong. (2011).
92
Lothar Determann, Internet Freedom and Computer Abuse, 35 HASTINGS COMM. & ENT. L.J.
429, 42930 (2013) (quoting Tim Wu, Fixing the Worst Law in Technology, THE NEW YORKER
(Mar. 18, 2013), available at http://www.newyorker.com/news/news-desk/fixing-the-worst-lawin-technology).
2015
Poverty
645
Moderate
Moderate
High
High
High
High
High
High
High
Discrimination
Discrimination
Against
Traditionally
Protected Classes
646
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135 S. Ct. 2507, 251415, 2525 (2015). The Court emphasized several limitations on disparateimpact liability to ensure that regulated entities can make practical business choices and
profit-related decisions essential to free enterprise. Id. at 2518. First, the plaintiff cannot
establish a prima facie case based solely on a statistical disparity. Instead, the plaintiff must
also identify the defendants policy or policies causing that disparity. Id. at 2523. Second, the
Court emphasized that defendants facing FHA disparate-impact claims have a defense
analogous to the business necessity defense in Title VII cases, and that the defense allows
defendants to state and explain the valid interest served by their policies. Id. at 2522. Third,
the Court emphasized that, to refute the defendants stated business need or government
interest, the plaintiff must show an available alternative practice with less disparate-impact
that still serves the defendants legitimate needs. Id. at 2518. Finally, the Court stressed that
the defendants policies are not contrary to the disparate-impact requirement unless they are
artificial, arbitrary, and unnecessary barriers. Id. at 2524 (quoting Griggs v. Duke Power
Co., 401 U.S. 424, 431 (1971)).
97 In fact, discovering disparate impact in the first place may be challenging, because
consumers will not know why the merchant refused to do business with them or whether
other consumers in the protected class were excluded.
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CONCLUSION
Predictive analytics promises substantial benefits for merchants and
consumers alike, but can harm consumer privacy. Balancing these benefits
and harms requires careful attention to the nature and degree of the harm,
as well as the risk that regulatory intervention may stifle innovation. This
article proposes that regulators allow the market to police areas of minimal
harm flowing from the error rates and secrecy inherent in predictive
analytics. For more significant harms involving discrimination against the
poor and against traditionally protected classes, regulators and legislators
should intervene, either using existing legal tools or through new
legislation targeted at potential discriminatory impact from predictive
analytics.
100
See Spencer, supra note 88 (discussing how disparate impact claims under ECOA and
FHA regulations may apply to predictive analytics); Solon Barocas & Andrew D. Selbst, Big
Datas Disparate Impact, 104 CALIF. L. REV. (forthcoming 2016) (discussing how disparate
impact claims may be applied to predictive analytics).