The GDPR is Coming

Paul_Revere's_ride
A very American icon for a very European law

The GDPR is coming, the GDPR is coming. At a recent offsite leadership meeting I attended with the business unit I support, I was dubbed Mr. GDPR. They all knew it was coming and because I am their lawyer, I became their GDPR guy.

To be honest, I am no GDPR expert and certainly don’t want to become one. I have these really great privacy lawyers who sit next to me. They answers my questions but more importantly help steer our company in the right direction to make sure that data privacy is one of the key value propositions we offer our customers.

Because the GDPR is coming, it is worth saying something about it here. Today I read eMarketer’s Western European Digital Trends for 2018 which gave an excellent summary of how the new law will affect companies and consumers:

GDPR requires that any entity collecting or handling consumers’ personal data must know how and where those processes take place, what data is kept, where it is kept, where it goes if it is distributed further, and how data integrity is preserved at every point where that entity is responsible—and be prepared to divulge those details. The rules also require digital devices and browsers to make consumers aware that their data is about to be collected, and let users make a single decision about how their data can be gathered and handled, which all companies, websites and apps must adhere to. Individuals will be able to refuse any entity access to their personal data. Individuals will also be empowered to access, manage and delete their personal data held in digital databases. Firms failing to comply face a fine of €20 million ($22.1 million) or up to 4% of global revenues, whichever is greater.

In a December 2017 blog post, Jean-Michel Franco, senior director of product marketing at Talend, wrote that “the stakes go well beyond regulatory compliance. In this data-driven world, trust has become the new currency. Now that insights and innovations depend on big data, there’s no option but to have total control [over] your data, otherwise, your customer won’t buy in. … Most of the privacy rules that come with GDPR were already expressed in former regulations, but the principle of accountability makes it game-changing.”

This will likely pose a challenge to companies like Google and Facebook who want you to give it away when using their platform. I mean give it all away: your photos, your posts, your instant messages with very limited ability to opt-out without having to forgo using the entire platform. This is from an article on how the GDPR will disrupt Google and Facebook from last summer:

Google and Facebook cannot confront their users with broad, non-specific, consent requests that cover the entire breadth of their activities. Data protection regulators across the EU have made clear what they expect:

“A purpose that is vague or general, such as for instance ‘Improving users’ experience’, ‘marketing purposes’, or ‘future research’ will – without further detail – usually not meet the criteria of being ‘specific’”.

A business cannot, for example, collect more data for a purpose than it needs and then retroactively ask to use those data for additional purposes.[4]

It will be necessary to ask for consent, or present an opt-out choice, at different times, and for different things. This creates varying levels of risk. We estimate these risks on the “GDPR scale”, shown below.

GDPR-scale_001-small-1

The scale ranges from zero to five. Five, at the high end of the scale, describes the circumstances that many adtech companies that have no direct relationship with Internet users will find themselves in. They need to get the consent of the people whose data they rely on. But they have no channel of communication through which they can do so.

Four, next highest on the scale, refers to companies that have direct relationships with users, and can use this to ask for consent. However, users have little incentive to “opt-in” to being tracked for advertising. Whereas a user might opt-in to some form of profiling that comes with tangible benefits, such as a loyalty scheme, the same user might not be willing to opt-in to more extensive profiling that yields no benefit. The extensiveness of the profiling is important because, as the note at the bottom of this page shows, users will be aware of the uses of their data when consent is sought. Thus adtech tracking across the web might rank as four, but a loyalty scheme might rank as three on the GDPR scale.

A slightly more attractive prospect, from Google and Facebook’s perspective, is to inform a user about what they want to do with the personal data, and give the user a chance to “opt-out” beforehand.[5] This is two on the scale. This opt-out approach has the benefit – from the company’s perspective – that some users’ inaction may allow their data to be used. The GDPR permits the opt-out approach when the purposes that the companies want to use the data for are “compatible” with the original purpose for which personal data were shared by users. In addition to the opt-out notice, users also have to be told of their right to object at any time to the use of their data for direct marketing.

One on the scale refers to activities that currently involve the processing of personal data, but that do not need to do so. With modification, these activities could be put beyond the scope of the Regulation.

Activities at the zero end of the scale are outside the scope of the Regulation, because they use no personal data.

The more I think about it, the more I see the GDPR posing a problem for a Blockchain’s permanent, irreversible and inerasable ledger whenever any personal data (even when encrypted) is included in a node. Individuals will have the right to delete their data and be forgotten. If one of the values of Blockchain technology is that no one person or entity can modify a node, then the Blockchain will need to modify its architecture and governance to allow for such node modification. And if it is a public Blockchain with no centralized intermediation, then who is the data controller? And who will be able to delete your data upon your request and protect your rights? Will each miner become a data controller, potentially subject to fines?

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How Legal Teams Can Work in Agile

Scrum“Agile” or its sexier variation “agility” often seem like nothing more than buzzwords of the digital era. Everyone wants to be agile, everyone seeks agility.

We usually associate the terms with agile software development, as opposed to the more traditional waterfall methodology, where you define all of a project’s software requirements and milestones upfront and in great detail, and then you don’t deliver until the product is market ready, or as close to market ready as possible. The problem with this is that IT projects, like marriages, are works in progress and not everyone knows exactly what they’ve signed-up for until after they’ve said “I do”. Conditions change, technology evolves, and customers are impatient. Moreover, in long term projects developers tend to become further removed from the customer while the account managers lose track of the technical complexity of the project or have already moved on to the next opportunity.

Agile development tries to solve these problems by dismantling those silos where teams operate in isolation of each other and by delivering in short imperfect iterations known as sprints. Instead of focusing on the perfect, each sprint allows for customer feedback and correction, improving customer ownership and engagement in the project, permitting the supplier to show value right away, and empowering the development teams to be more innovative. In Agile, you are allowed to fail fast until you get it right. In waterfall, you fail hard and pay delay penalties.

The two major problems with Agile are: first scope creep where you lose control of the development costs in front of a customer with a fixed budget who keeps asking for modifications; and second Agile only works when your customer can reciprocate your agility. Agility requires both a shift in how you build your business case and how you interact with your customer.

scrum meeting

When most of us think of Agile, we think of a wall full of post-its and nerds without suits in stand-up meetings. But the concepts and best practices of Agile don’t need to be limited to R&D teams, and many other areas of business are looking at Agile to ameliorate some of the same challenges.

In particular, when a company grows, especially as it globalizes, it tends to suffer from silo-ization or the isolation of key internal stakeholders across a business unit, area of specialization or geography. These teams’ ability to interact is vital to convey and obtain the necessary input, not just for delivering a project but also for making informed decisions or improving communication.

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Sitting on puffs during my start-up days

So take a start-up as an example. At first, it is a small team that inhabits the same open-space. When you want to talk to marketing, operations or to the product manager, you pull up a chair. When I worked for a start-up, we’d literally take our laptops and puffs to a quiet corner of the office. In fact, I happened to sit between two web designers. I would bug them all day long with my ridiculous ideas for new marketing campaigns. In a normal company, no one would have paid any attention to me. But in a start-up, nobody cared that I wasn’t Marketing. We all gave our input and were able to try out lots of ideas quickly until we got one right.

Imagine that start-up (or a new business unit) scaling up very quickly. Suddenly you have a product management team of ten people, three regional sales teams, and operations and R&D located at separate sites from the business-facing teams. Next thing you know, your business has become very siloed, communication is strained, messages are lost in translation and teams become tribal. We’ve all seen this happen. Sales doesn’t understand what it is peddling and R&D doesn’t understand what the customer needs. The support functions, like Legal, HR or Finance, become their own centralized tribe out of sync with actual customer and market needs, and what they have to offer is many times too late, out of context, or one size fits all.

Also as companies grow exponentially and teams silo based on geography or subject matter, employee engagement often diminishes. Now one step removed from customers, other teams, or where decisions or products are made, employees lose perspective, rarely receive positive feedback or gain visibility for their work, cease seeing the value in their own output or their roles, and become more entrenched in the group think of their tribe or immediately surroundings. We fight our myopic battles and resort to finger pointing. Sales fights with Operations, Product Management with Strategy, R&D with Implementation, and everyone rolls their eyes at Legal.

The idea behind business agility is that by better defining your customer’s needs and your deliverables, you can build cross-functional squads that work together on the same goal whose output (ie, sprint) can be shared very quickly with the customer. You break down both geographical and subject matter barriers, create a vehicle for communication, promote risk taking in a controlled environment, and empower squad members, giving them greater visibility of customer needs while allowing them to earn recognition for a job well done.

Okay, Eric, got it. Now what does this have to do with lawyers and in-house counsel?

In many in-house legal departments, you have the same issues. You are either organized regionally, by area of expertise, business unit or all of the above. So you have transactional lawyers who are customer-facing and negotiate commercial deals, and you have subject matter experts like competition, privacy or tax lawyers who have their day job of helping the company meet its regulatory obligations, but also need to support the transactional lawyers on the drop of a dime. You may also have other related teams like Risk & Compliance, Industry Affairs, and Information Security (as we do in Amadeus). This means that the Legal Department tends to work in silos as well, and when I am the transactional lawyer in a large deal where I need input from subject matter experts, I become the bottleneck. The business unit that I support wants to quickly get a new product to market and I need to chase the privacy or competition lawyer because I don’t know the answer, I become the bottleneck.

Luckily, I work with some very forward thinking colleagues who made me sit through basic Lean and Product Management training. In a very simplistic nutshell, Lean teaches you to define your output (ie, the “work”) so that you can remove unnecessary tasks (“don’t improve what needs to be removed”) and become more efficient. In Project Management training, I had the revelation that we lawyers – whose inclination is to go at it solo, office door closed or earplugs in, and draft away in silence — should start treating major negotiations as projects with predefined tasks, processes and the coordinated collaboration of others.

And luckily, I also get to work with very smart and capable internal business process consultants who I have recently harassed about working in Agile. What I really wanted to know was how we could design efficient, silo-busting teams in Legal to work in project mode on specific, timely initiatives. These very smart and capable colleagues kept bringing me back to reality. Agile is just a buzzword, they’d tell me, unless you can define your deliverable and the customer need that justifies an Agile solution. So this is what I came up with:

First I don’t want to give myself or anyone else added or unneeded work. People are busy, and if my goal is to build a squad from across different teams within the Legal Department, I need buy-in from the squad members’ bosses. I won’t get them on board if I am wasting people’s time. For this I need to choose projects:

  • that relate to new initiatives that the business has prioritized
  • that require a holistic legal perspective
  • where the team can provide real, tangible deliverables, and
  • that are timely, meaning we can help out the business right away

For my company, this would generally mean projects relating to new technologies or products, and in most cases, the deliverables would be either holistic legal guidance on the new product – including on product design from a privacy, security, regulatory and customer relationship perspective (including how you would contract with and charge your customers) – or on producing the contract templates for sale of the product. For other companies it may not be so tech focused, but may mean new lines of business or entering new markets. The key is that you are looking into novel opportunities where you don’t have an off-the-shelf solution at hand. Moreover, you want to avoid scenarios where the business gets your input too late and has to go back and start all over after they have already invested time, effort and resources on the new venture.

Imagine that your company has developed a new service which they have already pitched to a couple of customers. The Sales team is very excited as are the perspective customers. They call you up and ask you for the contract. You say, “a contract for what?” They explain and you use a preexisting template, hoping that making a few changes here and there will do the trick. For the data protection provision, you show it to your privacy lawyer who raises an eyebrow as it looks like data may be stored in various data centers around the world. She asks a bunch of questions and points you in the direction of the information security office. No one ever told them about the project, and they never analyzed the service’s architecture. You are almost too afraid to ask the Tax team whether the locations of the databases presents a permanent establishment risk, and you realize that maybe the IP team wasn’t put in the loop either. Houston we have a problem. The customer is ready to go, but we will likely need to rewire a chunk of the work, losing weeks of effort and resources. Everything from the product architecture to the business case needs to be reevaluated. Worst of all, the business thought that you were the lawyer who solved all their problems, but now you’re the guy who causes havoc and panic. And the worst kind of lawyer is the one who doesn’t have the situation under control.

Again, Eric, we got it. So just tell us how you are going to work in Agile.

Here’s the plan:

Once we have identified the project, we can then assemble our squad. The squad will be composed of six to eight members of the Legal Department, each from different teams. Ideally, I would have:

  • One lawyer who supports the business unit who owns the new product
  • Another lawyer who supports a different business unit that may use the product or a similar product in the future and who can provide a different perspective
  • One privacy lawyer
  • One information security member
  • One intellectual property lawyer
  • One tax lawyer/team member

Depending on the nature of the project, for example if it relates to an area that is self-regulated by industry stakeholders, where the regulations are unclear, or where we are heavily dependent on a supplier, we would then want to include:

  • One regulatory lawyer
  • One person from Industry Affairs
  • One procurement lawyer, or
  • One person from Risk & Compliance

Once we have identified our squad members, we set up a meeting with the new product owner who will present us with the initial product plan, prototypes or sales pitches. In this session, we can ask questions and gather information to prepare our first sprint. The product owner becomes our customer, and the purpose of the sprint will be to deliver our initial holistic guidance. These sprints occur over relatively short periods of time, so that we can provide our input quickly to the customer. The process is repeated regularly with new sprints until the squad and the customer are comfortable that the product is ready for market.

In parallel, squad members will report back to their individual Legal teams, informing them of how the new product is developing and sharing information. Throughout the project, we will have:

  • Reduced silos
  • Gained more across-the-department knowledge of the business
  • Learned more about our colleagues and taught our colleagues more about ourselves
  • Given ourselves the opportunity to take active roles in the development of new business and ownership in the success of those ventures
  • Empowered team members outside of their normal activities
  • Built stronger relationships
  • Provided more holistic iterative legal guidance, in a more efficient, faster to market way, and
  • Hopefully increased overall engagement.

So will it work? I will let you know. But in order for it to work, we need to have very good networking abilities across the business to identify opportunities for collaboration and customers willing to engage with Legal on these projects. If we don’t have good interlocutors or don’t select projects that can deliver real value, then the squad members will quickly lose interest and the customers will lose faith in our ability to deliver. Then we’re back to square one. For now, my plan is to start one project at a time.

Of course there is nothing stopping in-house counsel from proactively participating in squads that are managed by other teams. In fact, we should encourage our lawyers to play more leading roles as business partners, including taking a seat at the table in our internal clients’ Agile projects. Because at the end of the day, if you aren’t invited or going to the party, you aren’t having any of the fun!

Do We Want our IDs Verified on a Blockchain?

pexels-photo-786801.jpegOne of the use cases most commonly discussed today for Blockchain is identity verification  or authentication. This could come in the form of storing bits of encrypted data on a Blockchain that would facilitate identifying individuals for any number of purposes from buying groceries to making online purchases, validating a state issued ID (like a passport or driver’s license), checking in at a hotel, passing security at an airport, or voting in an election.

The argument, as always with Blockchain, is that by having a distributed database of encrypted and validated entries, you are able to create trusted and secure transactions, avoid fraud, reduce errors, save money, and leave an indelible trace of activities.

Personally, I think that the Blockchain use case for identify verification is fantastic for voting, especially where we can quickly validate a citizen is authorized to vote while avoiding revealing how she voted.

But what about other types of transactions? One area where I am struggling with is whether consumers will be comfortable leaving immutable traces of their movements and activities on a Blockchain, even if their ID is revocable (meaning that the individual could change her passport, ID, or biometric). From a consumer-centric standpoint, one would think that a person would want to be able to remove, not just revoke, her biometric or public ID. Will consumers want the right to have their bad biometric selfies or other transactions “forgotten”?

Just because it can go into a Blockchain, doesn’t automatically mean it should.

What do you think?

Location Location Location

Last week, I read this article in the New York Times about Amazon’s search for a second North American headquarters, being dubbed HQ2. For both large and small, tech and non-tech companies, where you put your headquarters is a key strategic decision. It helps you attract, hire, maintain and train talent. It helps you be close to distribution and travel hubs, close to customers, and it may help better place you politically or improve your regulatory and tax outlook.

So, for example, if you area tech company looking to recruit young talent: you want to be close to universities with quality students, and you want to be located where qualified talent want to live when they’re done with college or when they start raising a family. If you think it’s cheaper to build your headquarters in the boondocks, then you are going to have to pay your team more, and keep paying them more each year to retain them.

Just think about the wars between Google, Apple and Microsoft to entice the best talent. It’s a competetive world.

All of these issues are what Amazon is thinking now. The article lists the leading contenders, and happily for me, among the 20 finalists there are three sites – Northern Virginia, Washington DC, and Montgomery Country MD – all within the Washington Metropolitan Area where I am from. The area has great universities, lots of diversity, domestic and international airports, an urban setting, and is the nation’s capital.

Similarly, I read today in TechCrunch that Google will open its AI headquarters in Paris, France. Paris is a great urban setting for young professionals, has access to universities and business schools, is the center of French political power, but more importantly as mentioned in the article:

In recent years, Google faced a huge $1.3 billion fine for tax noncompliance in France. A court in Paris canceled the fine in July 2017. But it’s clear that France represents an important market and a regulatory risk for big tech companies. Hiring people in France, investing in France and “training” people about Google’s services is a great way to lobby the French government using a bottom-up approach.

That is smart politics especially when the Europeans are giving U.S. tech companies the stink-eye.

Finally, if I were looking for inexpensive, quality developers, I would be focusing on smaller cities in Spain. Spain is full of great young talent who are willing to stay local if the opportunities are right. They are also much cheaper than other EU nationals and likely easier to manage than their counterparts in developing markets. Plus Northern Europeans are looking for any excuse to move to Spain. They just need a job. If I were the regional government in places like Zaragoza, Murcia, Alicante or Valencia, I would be bending over backwards to find the right incentives to bring tech employers to my neck of the woods.

The Legal Implications are Not My First Concern

home aloneWhenever I look at a new product, business model or technology, the legal implications are never my first concern. I prefer to focus on whether there is a viable business model, whether we can actually deliver the product or service, and how end users will feel about the product or services.

This short article lists the main legal implications of using Artificial Intelligence:

  • Personal Data
  • IP
  • Liablity

To be honest, for us who are working with these issues every day, this article isn’t particularly informative. Whether we’re talking about AI, Blockchain, Biometrics or some other new service, I would argue that I am much less concerned about those issues than the article is, mainly because I work with very capable privacy and IP specialists and know that both of those issues can be addressed in the product’s design and contract drafting.

For privacy what is very important, is not so much the law, but that if your product involves processing personal data, that the end users’ interests are at the heart of the design (ie, what is called privacy by design).

With regards to liability, we will have worked closely with the business to define our risk profile, factoring it into the business case and then reflecting that in the liability clauses. In other words, the liabilities and indemnities clauses will look pretty much the same as they do in any other IT supply agreement.

What I will be most concerned about is reputation. Will our service actually work? Will end users whose data is being processed through our service feel comfortable with their data being used? Assuming we have leverage, we can draft circles around our contractual risk to protect our intellectual property, limit our liability in case of our service failure, and define our privacy obligations. But what happens if our service doesn’t meet up to expectations or if users find it creepy? Will anyone want to contract with us in the future?

That’s reputation, pure and simple. And nothing you draft in a contract is going to save a bad reputation. So first figure out if you can deliver, put the end user at the center of the product architecture, get your business case in order, and then you can do the easy part which is to put together the contract.

Ten Things: Making Legal the Department of Yes

My boss just recommended that I check out the Ten Things You Need to Know as In-House Counsel blog, written by Sterling Miller who is a General Counsel with over 25 years in-house experience. I am not from the West Coast, so I don’t use “awesome” lightly, and this blog is “awesome”.

So far my favorite post (which I immediately shared with my own team) was his “Ten Things: Making Legal the Department of Yes“.  My team has, without making a list and without knowing that such a list existed, consciously made an effort to implement each of those recommendations. We started this two years ago and have largely succeed, but it is very important to go back, remind ourselves what we are doing and refresh our efforts.