Seattle was once the gateway to the goldfields of the Yukon. Today, it was the setting for discussing the implications of a different kind of rush – the digital-content rush. Is consumer protection an anachronism in a time when vendors are rushing to explore new sources of revenues and selling electronic content to consumers? This was the theme of the conference that took place in Seattle on Friday, March 4 in 2005. Or, as the organizers themselves described the topic of the conference: "If technology can correct market failure better than regulatory intervention can, will consumer protection law be superseded by the growth of competition? Or does innovation merely create new mechanisms to exploit consumers that should be controlled with new legislation? This conference will consider the impact of technological innovation on the foundations of consumer advocacy, contracting behaviour, control over intellectual capital, and information privacy."

The organizers, among them Prof. Jane Winn, from the Shidler Center for Law, Commerce and Technology at the University of Washington (cf. sources for conference page) succeeded in drafting an inspiring agenda and bringing together an impressive range of excellent, mostly US but also European experts in matters of consumer protection in Seattle. The presentations pivoted around what Professor Iain Ramsay from York University, Toronto, Canada called the "Renaissance of consumer protection law". The speakers highlighted various consumer law issues in e-commerce. Although not specifically directed at DRM issues, the role of electronic content protection technologies for the distribution of creative content figured prominently. Moreover, one section was dedicated specifically to address the controversial relationship between innovators and consumers in intellectual property law.

Consumer protection is no anachronism in the information economy
Rob McKenna, Attorney General in the State of Washington answered in his key-note already the question that gave the conference its title. He left no doubt about his opinion that the information economy needs consumer protection law, and his intention to give more prominence to this subject matter in the future. In his opinion, technology does not make consumer protection abundant, however, consumer protection can benefit from technological developments. But the Attorney General did not restrict himself to statements; he came to Seattle with concrete suggestions. One was the suggestion to raise the budget for the consumer protection division of the State of Washington – its first budget rise since 1993. The additional resources should be invested, so said Rob McKenna, in hiring more attorneys who are specialized in technology and consumer protection matters, in the enforcement of consumer protection laws as well as in the education of consumers. Rob McKenna’s assessment of the role that consumer protection law has to play in the digital economy was shared by many of the subsequent speakers. The presentations that followed also demonstrated, however, that the devil has settled persistently in the "how" and "where".

Transparency is a controversial form of front-line defence
Even the issue of transparency – a fairly acknowledged interest in consumer protection law – and the statement that "education is a front-line defence" of consumers against fraud was discussed controversially. There was a broad agreement among participants that transparency is an essential element of facilitating the education of consumers on how to deal with digital content and how to protect themselves against fraud and disadvantageous business deals. As Professor Pamela Samuelson, University of California, Berkeley, pointed out, transparency is also an important instrument to stimulate competitive markets, a factor that again can contribute to enhancing consumer welfare. Professor Glynn Lunney, Tulane University, explained that transparency obligations can be an element not only of traditional consumer protection laws. Patent law, a form of intellectual property law, also includes elements of transparency obligations in the form of the requirement of proper attribution. The presentations and the discussion that followed revealed, however, that the opinions are still divided on how to achieve transparency, how much information consumers need and on how useful transparency actually is as an instrument to consumer protection. Professor Thomas Rubin, University of Pennsylvania, for example, intervened that in his opinion, the idea of using disclosure obligations to protect consumers can be inefficient for various reasons: the information provided is not comprehensible, there is too much information available, or transparency obligations pose unreasonable burdens on producers. Accordingly, he doubted, whether the increased availability of information would correct information asymmetries and thereby eliminate the problem of market failure. What consumer needed, so said Professor Rubin, was to be able to understand the essential features of competing products and select the product that offers the best terms. In other words, what consumers need in order to be effective market actors is, according to Professor Rubin, education and "wisdom". In this context, other conference participants pointed out that the effect of transparency obligations is to impose the burden of consumer protection on the shoulders of consumers themselves. In this sense, transparency obligations might be a rather convenient way for producers and service providers to rid themselves of eventual responsibilities regarding consumers (cf the reasoning in Helberger 2005).

The idea of the active consumer – an anachronism?
One issue that is at the heart of the matter is the notion of the "informed consumer", and to what extent consumers can be reasonably expected to protect themselves. Enlightening was a study by Professors Robert Hillmann and Jeffrey Rachlinski from Cornell University titled "Consumer Standard Form Contracting Practices on the Internet" (Hillmann and Rachlinski. 2001). The authors studied consumer demand as a factor to discipline market power. Informed consumers would shape markets and generate market pressure, which again would motivate businesses to offer services at fair, reasonable terms. On the other hand, the authors had to admit that the potential power of consumers does not yet play a major role in practice. One reason to explain this is that most consumers do not even read contractual notices. Only 4 % of the 92 responding interviewees generally read contractual notices and 44 % never read them. The authors concluded that transparency obligations benefited in the best case a fraction of the consumer-base – the reading consumers – and left other parties aside, such as poorer and less educated consumers. This could be an argument against relying on transparency obligations alone and in favour of taking recourse to additional, stricter obligations for service providers. The study warned, however, against lawmakers failing to take into account the cost-benefit relation of legal interference. This was also a reference to the self-healing powers of the market. In this context, Professor Jean Braucher, University of Arizona, introduced an interesting project - the "Stop before you click campaign". This is a campaign by AFFECT (Americans for Fair Electronic Commerce Transactions; cf. sources) to promote fair business practices and to guide sellers, users of digital products and policymakers in developing balanced law to govern purchases of off-the-shelf software and digital products. The initiative is the result of co-operation between consumer advocates, industry representatives, non-governmental organizations and academics and has resulted in 12 principles for fair commerce in software and other digital products (cf. AFFECT).

Far away from idealizing consumer protection law
The need to approach consumer protection laws with a sound portion of critical consideration was another conclusion from this conference. Not all laws that are labelled consumer protection laws are indeed designed to take care of the interests of consumers. This was a point that was made, for example, very clearly by Professor Norman Silber, Hofstra University. Professor Silber demonstrated that consumer protection laws can be also pieces of rent-seeking-legislation-in-disguise, by formulating rules that respond in reality to the needs and interests of very different interest groups beside consumers. One consequence is that consumer protection rules, instead of protecting consumers, can have occasionally very detrimental effects on the position of consumers. This is not to say that there are no good and effective consumer protection laws. However, as Professor Silber pointed out correctly one should be aware of the difficulty of designing laws that respond to the real needs of consumers in an age that he described as one of "misinformation and widespread consumer victimization".

Other conference participants warned against overestimating the impact of information technologies on the position of consumers. Many problems that were identified as consumer-issues in the online sector were not new at all, but actually well-known already from the offline world. Professor Richard Epstein, University of Chicago, was a clear advocate of this point of view. He claimed that one result of the urge to protect consumers from the pitfalls of the online sector is that some laws contain even too much consumer protection. They are not based on a realistic assessment of who consumers are and how they behave in an information economy. The example that he gave was the Uniform Computer Information Transactions Act (UCITA), a proposed uniform law to create new rules for software licensing, online access and other transactions in computer information. Professor Epstein defended standard industry practices, such as click-wrap licenses and other standard-term contracts. However, they are target of many complaints from consumer advocacy groups (cf. AFFECT 2005b). Professor Jean Braucher from the University of Arizona referred to them as "sneakwrap" licenses that manipulate consumers to make purchases they might have otherwise avoided. In contrast, Professor Epstein claimed that consumer expectations actually support standard term contracts, and that such practices were economically and socially efficient.

On the question if consumer protection is a matter for general or sector-specific law
While some speakers claimed that consumer legislation does not necessarily respond adequately to the interests and needs of consumers, others demonstrated that laws that were, so far, not commonly thought of as consumer protection laws actually might serve this function rather well. This was a point Professor Pamela Samuelson made in her presentation. Professor Samuelson demonstrated that copyright law, which some experts claim is not designed to serve the consumer side, provides for a range of provisions that respond to important concerns of consumers. Examples brought by Professor Samuelson were the first sale doctrine, the fair use exception in US copyright law, the possibility to use ideas and information in copyrighted works and the provisions on privacy and the parental control privilege in the DMCA. Another question is to what extent these provisions are still effective in a DRM-ruled environment.

Professor Jean Braucher, University of Arizona, explained some of the drawbacks of general consumer protection law: most consumer protection laws still apply to products and thereby cause legal uncertainty on whether, for example, download or subscription services qualify for protection. Moreover, often, general consumer protection law provisions are kept very general, which is another reason why they do not provide for much legal certainty. On the other hand, as Professor David McGowan, University of Minnesota, pointed out: using sector specific laws to protect consumer interests would also bear the risk of overstretching such laws and interpreting them too narrowly and in a biased way. This was a reason why, as Professor McGowan claimed in response to Professor Samuelson’s presentation, interpreting consumer protection rules into copyright law is "at odds with basic principles of copyright law". He also pointed out that the notion of the consumer is not homogenous. Rules, such as a prohibition of reverse engineering might benefit certain parts of the consumer base; whereas the effect of the prohibition was neutral as far as other consumers, notably the group of passive or technically less skilled consumers, were concerned. This point re-emphasised another aspect that was brought forward during the conference, namely that in order to draft effective rules to protect the interests of consumers when contracting for and consuming digital content, it was crucial to know who are the consumers, and how the different segments of the market are characterized. Having said this, Professor McGowan also acknowledged that copyright law is not exclusively designed to stimulate creators, as already demonstrated by Professor Samuelson. He also suggested that a utilitarian view of copyright law must not preclude interpreting aspects of consumer protection into copyright law. The decisive factor, so said Professor McGowan, is the total surplus, not only consumer or service provider surplus.

Consumer protection is far from being an anachronism in the information economy. Consumer protection is "hot" for various reasons. There is a strong social interest in consumer protection in order to prevent social exclusion (cf. e.g. European Council 2002) and to safeguard or restore the balance between distributors and consumers of digital content. Guaranteeing a strong and independent role of consumers can be important for economic reasons, too, to promote consumers as market drivers and controlling instances. Protecting consumers in the digital economy can be hence a way to further both public and economic interests at the same time.

Still, the matter is not as simple as that. Existing consumer protection regulations are not always drafted to protect the weaker party in commercial dealings. They can also be the result of rent-seeking and industry interests. This finding further emphasizes the need to learn more about the way consumers use digital content, what legitimate consumer interests and expectations are and how they can be best protected. This is not an easy task due to the lack of homogeneity of the group called “the consumers” as well as due to the difficulty of striking a balance between sometimes rather conflicting positions, even on the part of consumers themselves. This is why the next conference to address the consumer issue should more strongly involve consumer representatives and consumer organizations. Moreover, the Seattle conference again demonstrated that consumer protection is not a legal issue only, but also a matter of adequate technical solutions and business models, thereby stressing the advantages of a more interdisciplinary approach.

One important question that needs further discussion in both the US and in Europe is to what extent consumers can be reasonably expected to protect themselves, and when a more paternalistic approach in the form of regulatory intervention is needed. On the one hand, the new technologies offer consumers new opportunities to express their preferences, to benefit from interactivity, choice and more differentiated service offers. On the other hand, factors such as the existence of technical and contractual lock-in situations, vigorous standard battles, the gap between highly educated and technically skilled and badly informed or poor consumers, render the vision of “the” consumer who is able, ready and willing to protect himself an illusion. This is why more clarity is needed on where the responsibility of consumers shall end, and where liability of service providers shall begin.

Another question that deserves future attention is whether, once it is decided that more elaborate provisions on consumer protection are needed, this is a matter for general consumer protection law, competition law or sector specific laws, such as copyright, patent and banking law. One key question in this context is whether the relevant sector specific laws, such as copyright law, are also designed to protect the consumer side and offer, among others, the procedural means to enforce the rights and interests of consumers. Also this is an issue that is far from being settled yet.

Bottom line
All speakers were well aware of the fact that most of the issues discussed that day in Seattle were not US specific problems. Currently, similar issues are on the agenda in Europe. In some fields, this was at least the impression one got from the discussion, Europe is regarded as an example when it comes to addressing consumer issues. Accordingly, there was lively interest during the conference for the way Europe is dealing with questions such as privacy, consumer policy and standardization. Many agreed with the presentation of Professor Peter Swire from the Ohio State University and former Chief Privacy Counselor, who emphasized the importance of comparative research and information exchange. In such an exchange, both the US and Europe could not only learn from each other but also inspire the discussion on both continents.


About the author: Natali Helberger is senior project researcher at the Institute for Information Law, University of Amsterdam. She specialises in the regulation of converging media- and
communications markets, electronic control of access to information and the interface between
technique, media and intellectual property law. Contact: + 31 20 525 3646,

Status: first posted 30/05/05; included in INDICARE Monitor Vol. 2, No. 3, 30 May 2005; licensed under Creative Commons