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Category: Consumer Protection Law

1

A Guide to Lobbyist Arguments on Consumer Protection

deck-cards.jpgChris Hoofnagle (Berkeley’s Samuelson Clinic) has posted on SSRN his paper, The Denialists’ Deck of Cards: An Illustrated Taxonomy of Rhetoric Used to Frustrate Consumer Protection Efforts. From the abstract:

The Denalists’ Deck of Cards is a humorous illustration of how libertarian policy groups use denialism. In this context, denialism is the use of rhetorical techniques and predictable tactics to erect barriers to debate and consideration of any type of reform, regardless of the facts. Giveupblog.com has identified five general tactics used by denialists: conspiracy, selectivity, the fake expert, impossible expectations, and metaphor.

The Denialists’ Deck of Cards builds upon this description by providing specific examples of advocacy techniques. The point of listing denialists’ arguments in this fashion is to show the rhetorical progression of groups that are not seeking a dialogue but rather an outcome. As such, this taxonomy is extremely cynical, but it is a reflection of and reaction to how poor the public policy debates in Washington have become.

The Deck is drawn upon my experience as a lawyer working on consumer protection in Washington, DC. Where possible, I have provided specific examples of denialism, but in many cases, these arguments are used only in closed negotiations. Some who read them find the examples humorous, while others find it troubling. But all who read the Washington Post will recognize these tactics; they are ubiquitous and quite effective.

This taxonomy provides a roadmap for consumer advocates to understand the resistance they will face with almost any form of consumer reform. I hope to expand it to include retorts to each argument in the future.

The paper is quite humorous and well-done — essential reading for any policy wonk.

4

Best and Worst Internet Laws

[Preface: I've already overstayed my guest visit, but before I go, I want to say thanks to the Concurring Opinions team for the opportunity to blog here, and thanks to all of you for the great comments and stimulating dialogue. A complete index of my guest blog posts. Meanwhile, I'll keep blogging on technology and marketing law at my main blog and on all other topics at my personal blog. Hope to see you there!]

Over the past dozen years, the lure of regulating the Internet has proven irresistible to legislators. For example, in the 109th Congress, almost 1,100 introduced bills referenced the word “Internet.” This legislative activity doesn’t always come to fruition. Still, in total, hundreds of Internet laws have been passed by Congress and the states. This body of work is now large enough that we can identify some winners and losers. So in the spirit of good fun, I offer an opinionated list of my personal votes for the best and worst Internet statutes in the United States.

[Keep reading for the list]

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9

What Exactly Is a “Spammer”?

email2a.jpgI’m coming a little late to the party, but the case of Omega World Travel, Inc. v. Mummagraphics, Inc., (4th Cir. Nov. 17, 2006) raises some interesting issues about the Controlling the Assault of Non Solicited Pornography and Marketing Act of 2003 (“CAN SPAM Act”), 15 U.S.C. §§ 7701 et seq.

Omega World Travel sent 11 emails to an email address owned by Mummagraphics, a web host company. The emails each advertised a travel “E deal.” Mark Mumma, head of Mummagraphics, called John Lawless, the general counsel of Omega and instructed him to stop sending email. Lawless said the emails would stop. They didn’t. Mumma then sent a letter threatening Omega with a suit under CAN SPAM and state anti-spam laws. The emails finally stopped.

Mumma demanded payment from Omega, which refused, so Mumma posted photos of Omega’s founders and accused them of being spammers. Omega and its founders sued for defamation and a variety of other claims. The district court granted summary judgment on all claims but the defamation claim, which is proceeding to trial.

Mummagraphics raised a few counterclaims, including a violation of the CAN SPAM Act. The district court granted summary judgment against the counterclaims.

The 4th Circuit, in an opinion by Judge Wilkinson, affirmed, holding that there was no CAN SPAM Act violation. Why? Because the CAN SPAM Act really doesn’t stop spam. It stops only certain kinds of fraudulent spam. The Act basically allows for the sending of unsolicited commercial email so long as people are provided with a way to opt out. For this to work, the sender must provide valid contact information. Specifically, the Act provides: “It is unlawful for any person to initiate the transmission, to a protected computer, of a commercial electronic mail message … that contains, or is accompanied by, header information that is materially false or materially misleading.” 15 U.S.C. § 7704(a)(1).

According to the court, the emails sent by Omega had the following inaccuracies:

First, each message stated that the recipient had signed up for the Cruise.com mailing list, but Mummagraphics alleges that it had not asked that inbox@webguy.net receive the company’s offers. Second, while each message listed Cruise.com as the sending organization, each also included the address “FL Broadcast.net” in its header information, even though Mummagraphics alleges that “FL Broadcast.net” is not an Internet domain name linked to Cruise.com or the other appellees. In addition, the messages contained the “from” address cruisedeals @cruise.com, even though Cruise.com had apparently stopped using that address.

Nevertheless, the court concluded:

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20

Shylock and Article 9 of the U.C.C. (with some thoughts on bankruptcy)

shylock.gifShakespeare’s A Merchant of Venice (1598) is often misidentified as an anti-Semitic play about a contract. This is not technically correct, as the transaction at the heart of the drama seems to be a secured loan. (Albeit an anti-Semitic one.) Furthermore, contrary to Shakespeare’s conclusion, I believe that the security agreement is most likely enforceable, at least under Article 9 of the Uniform Commercial Code, a point that I hope to make to my secured transactions class. Here is Shylock’s description of the loan agreement between himself and Antonio, a Venetian merchant:

SHYLOCK: This kindness will I show; go with me to a notary; seal me there your single bond, and – in merry sport – if you repay me not on such a day, in such a place, such sum or sums as are expressed in the condition, let the forfeit be nominated for an equal pound Of your fair flesh, to be cut off and taken In what part of your body pleaseth me. (I.3.141-149)

It seems fairly clear from the passage that there is a debt. Antonio promises to pay “such sum or sums as are expressed in the condition.” However, without a valid security interest Shylock has only a personal right of action against Antonio. Indeed, even if Antonio promises the pound of flesh, all that Shylock gets in the event of a failure to deliver the bloody bond is a right to money damages. Section 9-109, however, teaches us that Article 9 governs “a transaction, regardless of form, that creates a security interest in personal property . . . by contract.” Such seems to be the case here. Indeed, Shylock casts the transaction in the form of a bond, ie a promise to deliver the pound of flesh, with a condition, ie payment of the debt, that defeats the bond, a classic pre-Code security arrangement, and the “pound of . . . fair flesh” falls under 9-102(a)(44)’s definition of “goods” (“all things that are moveable when a security interest attaches”), bringing it within the personal property requirement of 9-109.

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12

IP and Development

rhino.JPG

Greetings from Namibia! (Do I win the contest for posting from the most far flung place?) I am in Namibia (of Brad & Angelina fame) for a conference organized by IIPI on “IP Used in Support of Culture Based Industries.” The main question being addressed is whether IP (especially copyright & trademark) can help improve the markets for African art. The problem is that although the US is the major market for African art, US consumers are not willing to pay enough for the art in order to support the communities that create it. Beautiful, hand-crafted pieces made of indigenous materials using ancient techniques are sold at bargain prices that reflect tiny sums paid to the artisans that created them. We buy these pieces at places like World Market because they look nice, but we learn nothing about their origin and significance. If that’s all we value why not buy even cheaper versions made in China? These artisans are hopeful that they can stop that type of competition by asserting IP rights in the art. Many obstacles exist of course, including the current absence of appropriate legal mechanisms and the fact that much art is already in the public domain. namibian art.pngBut the audience and participants at this conference were optimistic and very creative. One idea: could certification marks be used to prevent others from appropriating the terms used to describe the places and techniques used to create the art? Of course that won’t prevent others from copying the works; it just prevents them from using the terminology. It’s a start, but it will only be effective where it is accompanied by an education campaign about the art. The hope is that consumers will come to value the authentic, once they know what it is.

6

Legal Scholarship and the Nixon Effect

nixon.jpgLegal thinking often seems to be cyclical. Constitutional law scholarship provides (to my ignorant outsiders perspective) a clear example of this. In the 1960s and 1970s the law reviews were filled with articles exalting the role of the courts as guardians of liberty and searching for various jurisprudential philosophers’ stones that would allow the courts to bestow items from the liberal wish list upon the nation e.g. constitutionally mandated rights to welfare payments, etc. The country, however, had the bad manners to proceed along its own political path without reference to the concerns of the legal academy and five GOP presidents to two Democratic presidents later, the federal judiciary is filled with conservatives. Academic panegyrics to judicial modesty and minimalism according sprout like mushrooms. There is, of course, the temptation to see such a cycle in crassly political terms, and perhaps have the bad manners to suggest that left-of-center constitutional law professors are simply modifying their jurisprudential theories in the face of right-of-center election results.

Private law scholarship is also prone to its own intellectual cycles. In the 1970s, Grant Gilmore was confidently predicting the Death of Contract and Farnsworth and his associates were putting the finishing touches on the second Restatement, which confidently set out to deliver us from the horrid formalism of Williston’s work. The gentle establishment liberal sanity of the Legal Process movement seemed to reign supreme, troubled only by the pesky legal economists, whose influence Morton Horton Horwitz assured us peaked in about 1980. Fast forward twenty-five years, and one can read defenses in the Yale Law Journal of formalistic contract interpretation that Williston never imagined of in his headiest pre-Realist dreams. Of course here too, there are crassly political explanations. Flinty-hearted Chicago-school economists are no doubt more attracted to private law subjects like contracts or corporations rather than the intricacies of substantive due process. Furthermore, more than one aspiring conservative legal academic has been advised to go into business law by Federalist Society elders on the grounds that it constitutes a kind of safe preserve for right wingers. Finally, the results at the elections have given ambitious projects for say consumer protection the same surreal feel as articles arguing that the courts should announce a constitutional right to welfare payments. It ain’t going to happen, so why bother?

For all of the fun involved in spinning out political stories to account for the cycles of legal thought, however, there is a simpler academic imperative at work. There is a sense in which young scholars have no choice but to slay their elders. Writing an article saying “amen” to the reigning theoretical consensus is probably not the route to tenure and academic fame. Hence, the discredited ideas of one generation are going to inevitably find their champions in the next generation for the simple reason that no scholar wants to write articles saying “Me too.”

Think of it as the Nixon effect. When he left office the intellectual consensus on Nixon was overwhelmingly negative. Not surprisingly, Nixon’s reputation has risen with time for the simple reason that no one is interested in a new book suggesting that Nixon is a crook, but a book suggesting that Nixon wasn’t so bad after all will get some attention. Not to worry. In the fullness of time, a consensus in favor of a more positive view of Nixon will develop, and some young Turk historian will make his reputation by pointing out that at the end of the day Nixon was a lying, paranoid, un-indicted co-conspirator.

2

Immunizing Apple Against (Viral) Damages

Today, Apple announced on its tech page that it shipped some iPODs with an unwelcome pest nesting inside.

Apple said [that] . . . less than 1 percent of Video iPods — pocket-sized devices that can play music files and video clips — left its contract manufacturer carrying the virus RavMonE.exe, which affects computers running Microsoft Corp.’s Windows operating system.

‘So far we have seen less than 25 reports concerning this problem. The iPod nano, iPod shuffle and Mac OS X are not affected, and all Video iPods now shipping are virus free,’ the company said on the site.

A few thoughts.

First, it’s always fun to see Apple take a shot against the guys at Redmond. Said Apple:

As you might imagine, we are upset at Windows for not being more hardy against such viruses, and even more upset with ourselves for not catching it.

In standard L&E talk, the question here is who is the cheaper risk avoider of viral infection through portable music devices. There is at least one book on the law and economics of computer security, but I’m not sure how the analysis would play here. Putting liability on Microsoft for viral problems would produce broader social benefits, but might produce solutions that are inelegant. Apple, by contrast, can solve this problem with better monitoring. Which leads me to…

Second, the reference to a “contract manufacturer” suggests that Apple outsourced its software package integration outside of the States. I wonder what kind of policies (failed to) exist to deal with quality control at the contract plant? This issue reminds me of the agency cost problem with outsourcing that concerns George Geis.

Third, in case you were worried, Jobs’ lawyers have tried to immunize the company against this very scenario. According to the contract that Apple sent me with my (now defunct) mini, using iPOD software, my only remedy for software defects is a “refund of the purchase price”. Apple sternly warns that:

“TO THE EXTENT NOT PROHIBITED BY LAW, IN NO EVENT SHALL APPLE BE LIABLE FOR PERSONAL INJURY, OR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES WHATSOEVER . . . ARISING OUT OF OR RELATED TO YOUR USE OR INABILITY TO USE THE APPLE SOFTWARE . . . [More confusingly] In no event shall Apple’s total liability to you for all damages . . . exceed the amount of fifty dollars ($50.00). The foregoing limitations will apply even if the above stated remedy fails of its essential purpose.”

I think it’s fair to say that clauses like these are likely to be enforced by a small number of judges, but that it seems unlikely that were a virus to do real damage to a user’s computer, Apple woudl easily escape with a refund + $50.00 remedy. Unlike, say, the purchase of ordinary software, end users buying iPODs don’t reasonably expect the product to cause infection – they believe (rightly or wrongly) that the major component they are buying is the hardware. To protect itself from damages, Apple should try to push viral protection to its Microsoft users through iTunes, if that is a technically feasible solution, rather than relying on users to remedy the problem themselves through self-purchased (and additional) software.

[Regular readers will know that I’m mildly obsessed with the economics of iPOD’s disfunctionality. I should disclose that I’ve had my nano for four or so weeks now, and it is working well. I suppose. The last week I haven’t been able to use it because the iMAC died for lack of power. Luckily, I’d bought the extended warranty. That will show you, Mr. Jobs.]

13

Tin Men

As a follow-up to my post about an apparently sleazy car sales tactic a few days ago, I thought I’d point you to a fascinating undercover look at the world of car sales from Edmunds.com. The reporter spent 3 months as a new car salesman, part of it at a high-pressure showroom dedicated to a Japanese brand, and the other at a “no-haggle” dealership for an American brand. In general, the article reminds me of the movie Boiler Room, as well as my own brief career in high-pressure sales (don’t ask). The traditional car lot is a shark pit of deceptive maneuvers aimed at separating marks from their money. The “no-haggle” lot seems much better, but it also seems like it’s not doing a lot of business.

There’s evidence the Internet is changing the whole business:

I was already beginning to see the impact of the Internet because of something that happened during my first few days there. [The reporter talked to a man waiting in the maintenance area, who tells him he got an "awesome deal" on one of the dealership's new SUVs -- $300 below invoice.] I asked how he did it. He said he checked prices on the Internet. He then called the fleet manager and made the deal over the phone.

I had a schizophrenic reaction to this. Part of me admired the fact that he had outfoxed the dealer. But the car salesman side of me was angry that I never “got a shot at him.” It seemed like just a matter of time before people who, in the past, walked onto our car lot, would be on the Internet making deals.

The salesmen are only vaguely aware of this developing trend. I was standing on the curb next to George and we saw one of these high-demand SUVs ready for delivery.

“Another damn Internet sale,” George said. “Why don’t they turn that car over to us? We’d get a grand over sticker. Instead they’re selling it at invoice. Does that make sense?” As the days passed I noticed more and more cars marked “carsdirect.com.” And as I approached people on the car lot they often informed me that they were here to see the fleet manager. More Internet customers.

This indicates that wealthier, computer-savvy customers may be circumventing the sleazy sales tactics, leaving the sharks to prey only on poorer, less-informed customers. It could develop into yet another element of the “poor tax.”

HT: Consumerist

13

Claim of Unilateral Mistake Confers Right to Repossess Non-Financed Car?

A quick contracts/property/tort/consumer law hypothetical for incoming first-year law students (and their professors) to ponder over:

Car dealer sells a used pick-up truck to Buyer for $8,100 and a trade-in. Buyer pays the full amount by personal check and drives the truck off the lot. Dealer then calls Buyer at home and tells him that they looked up the wrong number in their book; the truck actually costs $10,000 more. Dealer tells Buyer that either he has to return the car and they’ll pay him $500 for his trouble, or he needs to cough up the extra $10,000. Buyer refuses.

In the middle of the night, the Dealer comes and “repossesses” the truck from Buyer’s driveway. Buyer’s trade-in is returned to him. Buyer’s check is not cashed.

Dealer claims that the contract was invalid because “one party ma[de] a mistake, and the other party knew or should have known that a mistake was made.” (See here for more details from WTVF-Nashville, and note the video link on the upper right. The file-dropping bit seems right off the Daily Show.) Assume that the Blue Book value of the truck is $21,240, and the trade-in was worth only a nominal amount.

Discuss; was there a valid contract? What claims does Buyer have, and even more important, what remedies should he get?

(HT: Consumerist)

8

Setting the Bar, and the Limits of Empirical Research

Larry Ribstein and Jonathan Wilson are debating the merits of a strong, exclusionary, state bar.

Wilson’s position is pro-Bar:

Deregulating lawyers as punishment or retribution for a profession that has lost its way would be a recipe for disaster. Deregulating the practice of law would open the floodgates to fraud of every conceivable variety and would only compound the problems that the readers of these pages see in our civil justice system.

Ribstein, naturally, is pro-market:

Big law firms provide a strong reputational “bond” . . . Lawyers can be certified by private organizations, including existing bar associations, which can compete with each other by earning reputations for reliability. . . .We could have stricter pleading rules, or require losers to pay winners’ fees. Or how about this: let anybody into court, but adopt a loser pays rule for parties that come into court represented by anything less than a lawyer with the highest possible trial certificate . . . Even if only licensing would effectively deal with this problem, the licensing scheme should be designed specifically to protect the courts. Instead of requiring the same all-purpose license to handle a real estate transaction and to prosecute a billion-dollar class action, we could have a special licensing law for courtroom practice, backed by tight regulation of trial lawyers’ conduct – something like the traditional barrister/solicitor distinction in the UK.

Josh Wright has picked up the thread of the discussion at TOTM, and suggests that empirical evidence would inform this debate. Unfortunately, as both Larry and he note, there is a paucity of useful studies on point:

If I recall, the Federal Trade Commission has recently been involved in some advocacy efforts in favor of limiting the scope of unauthorized practice of law statutes. My sense is that a number of states must have relaxed unauthorized practice of law restrictions (I think Arizona is one), or similarly relaxed restrictions on lawyer licensing, such that one could directly test the impact of these restrictions on consumers in terms of prices and quality of service. There must be work on this somewhere.

Solove and I have gone around on this question before (see here for the powerful pro-licensing position, and here and here for Solove’s “response”).

Generally, I like Josh’s intuition. It would be quite useful to look to Arizona, or other natural experiments, to help us to answer the problem of the utility of the Bar Exam and other licensing barriers. Surely, there is no reason in the abstract to preserve an ancient system that keeps lawyer fees artificially high, diverts millions of dollars from law students to Barbri, and causes no end of mental anguish simply because it provides a new jurisprudential lens!

But I’m quite skeptical that this is an answerable question, at least in the short term. My thinking is informed somewhat by the new Malcolm Gladwell New Yorker essay about basketball. Although Gladwell extols the virtues of statistical analysis (instead of anecdote, judgment, and valuing the joy of watching Allen Iverson triumph despite his height), the lesson I took from the piece was that:

Most tasks that professionals perform . . . are surprisingly hard to evaluate. Suppose that we wanted to measure something in the real world, like the relative skill of New York City’s heart surgeons. One obvious way would be to compare the mortality rates of the patients on whom they operate—except that substandard care isn’t necessarily fatal, so a more accurate measure might be how quickly patients get better or how few complications they have after surgery. But recovery time is a function as well of how a patient is treated in the intensive-care unit, which reflects the capabilities not just of the doctor but of the nurses in the I.C.U. So now we have to adjust for nurse quality in our assessment of surgeon quality. We’d also better adjust for how sick the patients were in the first place, and since well-regarded surgeons often treat the most difficult cases, the best surgeons might well have the poorest patient recovery rates. In order to measure something you thought was fairly straightforward, you really have to take into account a series of things that aren’t so straightforward.

I know how I would test the direct cost of legal service in Pennsylvania, and I’ve no doubt that it would go down if I (by fiat) abolished the state bar. But I have no good idea of how we can measure lawyer “quality”. To take something as obvious as criminal defense, some really good public defenders will lose every case for a year, but take comfort in having not lost on the top count of a single indictment. Saying that a public defender who went 0 for 50 in 2005 was a less “good” attorney than a prosecutor who went 50-0 would be a real problem. Facts drive litigation, and make empirical investigation of lawyer quality as a quantitative matter hard. And that is for attorneys who perform in public. How do you evaluate the relative strength of deal counsel on a gross level? Count the typos in the document? Talk with the business folks, and ask who got in the way less? [Obviously, deal counsel can be very good and very bad: the point is we need metrics that are easily coded by, say, research assistants.]

So here is the question for our readers. Can you design an empirical project that measures both litigation and transactional practice quality as a function of licensing?