Someone Got a Privacy Lawyer (or Didn’t)

LATIMES GDPR

This morning, on the day the GDPR came into effect, I tried to access the Los Angeles Times – one of the US’s leading newspapers – but found myself redirected to this landing page. Apparently, the LA Times is not prepared for the new law. At least they had the sense and seriousness to stop European access. Four percent global worldwide annual revenue or €20 million (whichever is higher) in fines for non-compliance is no joking matter.

So, did the LA Times have a privacy lawyer who said they weren’t ready, or a lawyer smart enough to know that until they got that privacy lawyer, they wouldn’t be ready? Or, did they simply make a business decision that their European market wasn’t big enough to justify the costs of compliance?

UPDATE:

ChicagoT

It looks like the La Times isn’t the only one. The Chicago Tribune has the exact same landing page, so it appears that all of the publications managed by tronc, inc. are following the same protocol.

What it Takes to Be an Effective In-House Lawyer

Talk for IE 2018

This week I gave a presentation about the life of an in-house lawyer in a global company to a group of masters students from the IE Law School . I spoke to them from the Amadeus headquarters where I work about our unique legal department and about what I believe it takes to be an effective in-house lawyer. Here’s my list:

What it takes

At law firms you have an arms-length relationship with your clients who you do not see on a regular basis. In-house, you live with your clients. You see them in the cafeteria, on the elevator, at the water cooler and at company events. They are your colleagues and peers. And more importantly, if they don’t succeed, you don’t succeed. To that end, as in-house counsel, you need to see the big picture, know when the deal is “good enough”. Most companies cannot wait for perfect.

Of course, you cannot be effective if you don’t have a general counsel who empowers you. Fortunately for me, our GC expects his lawyers to do all of these things. And you simply cannot be an effective lawyer, in-house or otherwise, if you haven’t gained your client’s trust, a subject that I hope to explore in greater depth in future posts.

A special thanks to Rocio Rico and Chiara Ausenda from the IE Law School management team for bringing their students over.

The Cryptocurrency Swindle

Arcade token The more I hear Blockchain evangelists preach about tokenization and how cryptocurrencies will democratize technology, the more I am convinced that cryptocurrencies are one big swindle. I have already discussed this more in depth here, but allow me to add a few more points.

As mentioned, the reasons for tokenizing Blockchains would be:

To incentivize developers/computer owners (aka, miners) to verify transactions on the Blockchain and support and maintain the platform
Financing of start-ups (ICOs)
To bring more transactions to a platform
To engage in unregulated transactions (ie, black money)
Speculation

With the exception of engaging in unregulated transactions, there already exist well established and extremely successful and effective means for meeting those objectives. Yet the crypto-pushers – other than rolling off catchy soundbites about democratization and oppressive regulators – haven’t made a compelling case why tokenization is so central to the success of Blockchain-based technologies.

So what makes a Blockchain start-up so uniquely different from any other tech venture? Weren’t Facebook, Google, Microsoft, and Apple all built from scratch without the need for raising capital through tokens or paying their developers in tokens? Why shouldn’t companies financing through cryptocurrencies be required to disclose to investors and consumers the same amount of information they would if they were issuing other types of securities? What is the benefit to investors, consumers and society from having less access to information or fewer legal protections against fraud?

And what is so democratic about paying your labor force in kind from the company store? That reeks of crypto-feudalism. It’s like a drug lord paying his corner dealers in product. The dealers can then decide whether to resell their cut of the product or to use it themselves. In fact, that is exactly how so many dealers become junkies or enter the game. So why not pay them with money they can freely exchange? And if the solution is to have one or two major cryptocurrencies, then how is that so different from just using US dollars or Euro? Or are the crypto-pushers too naïve to see that the most likely result of a successful cryptocurrency economy is that corporations end up issuing their own coins and control money supply? Instead of democratization and disintermediation, you are left with a Brave New Crypto World? FB Money

This is all reminiscent of the Web 2.0 bubble when VCs and entrepreneurs were trying to make a quick billion by selling user generated infrastructure. The idea was that if you had a big enough user base – to whom you gave stuff to for free in order to build your network – a big company would buy your user base even though your network was not profitable. The exit strategy was the entire business model. Now it seems like the crypto-pushers are looking to raise a quick million without having to build a sustainable or even convincing business model, while hoping they can get the open source developer community to finance, build and maintain their infrastructure, if not for free, with an I-owe-you executable at the company store.

It’s a shame because if you ask me, tokenization is a major distraction from the real value of Blockchain-based technologies. The major challenge for Blockchain is not how to tokenize or make bank, but how to find scalable use cases for a technology whose main value at the end of the day is the not very sexy back office task of processing and recording transactions.

Re Facebook, Cambridge Analytica, the GDPR and CSR

Messi CR — When you know they are watching

A political data firm, Cambridge Analytica, was able to access the private information of 50 million Facebook users for marketing campaigns during the 2016 presidential election without the knowledge of those users. Facebook is now under pressure to explain “what the social network knew about the misuse of its data ‘to target political advertising and manipulate voters’”.

Last week on Linkedin, I saw a post written by Miguel Benavides, calling for data use to be deemed part of companies’ corporate social responsibility policies:

It took decades of pressure for social agents to persuade businesses and regulators that companies should be responsible for their impact on society and on the environment. The idea of Corporate Social Responsibility (CSR), with all its variances in names and forms, established the principle of ethics and accountability of companies as social agents. That caused all sorts of watchdog agencies to emerge. Businesses even included CSR as a permanent component in their strategy, allowing it to move towards stronger concepts like Corporate Citizenship, Shared Value…

Well, if we talk about data being “the new oil”, shouldn’t we need new Environmental Protection Agencies watching data leaks, new Labor Protection Agencies to ensure new labor models meet the minimum social protection criteria. What about Community Protection Agencies to watch how using all that data affects communities, social life, or even human behavior?

Along these same lines, tech writer Zeynep Tufecki wrote recently in the New York Times that

Data privacy is not like a consumer good, where you click “I accept” and all is well. Data privacy is more like air quality or safe drinking water, a public good that cannot be effectively regulated by trusting in the wisdom of millions of individual choices. A more collective response is needed.

In theory this is what the new GDPR hopes to achieve (at least in Europe), but will that be enough?

It will be interesting to see not just how legislators and regulators react, but more importantly how consumers’ online behavior and expectations of privacy will change, if at all. Will we become more demanding or more resigned? Regardless of whether you are a wanting online exhibitionist, the unavoidable truth is that we consumers are getting played. Sure there is a huge benefit in getting personalized offers and content, but consumers give it all away for free to companies who are laughing all the way to the bank.

Maybe the GDPR Isn’t So Bad for Blockchain After All?

In two recent posts, thinking that I was really smart and clever, I questioned whether the GDPR posed a major hurdle for Blockchain-based technologies. Again, thinking that I was so smart and clever, I proudly took my arguments to one of my favorite privacy lawyers, confident I was about to impress her.

And as is often the case when I am feeling smart and clever, I was quickly put in my place by someone who actually knew what she was talking about. First, let’s be fair to me. The GDPR does pose challenges for Blockchain-based technologies, as it does for any service whether on or offline that stores personal data. Data controllers will need to procure consent from data subjects and storage of data will need to be limited in time based on the purpose for which it is being stored.

The concern I originally raised was the conflict between Blockchains’ main feature of creating a permanent and unalterable record with the legal rights of a data subject to be able to modify or delete her personal data upon request (aka, the right to be forgotten). But a much smarter and more clever colleague – let’s call her Jane – explained to me that the right to be forgotten is not absolute.

Imagine you buy property. The local property registrar records the purchase with your name listed as the property owner. You may later sell that property, but you do not have a right under the GDPR to have your name removed from the public records relating to your purchase and ownership of that property. The purpose of registering property ownership is to have a permanent record of chain of ownership.

To the same extent, should you consent to making a transaction through a Blockchain-based service where you have knowledge that the record of that transaction will be permanent, your right to delete your personal data only comes into play when the purpose for retaining your data ceases to exist. For a Blockchain, that will likely be never.

power article

Think of a newspaper that publishes an article which features my name. The newspaper circulates thousands of copies. Like a Blockchain, the newspaper is distributed amongst thousands of people who have copies of the exact same story. We can verify that a single copy of that story has not been manipulated because we can compare it with thousands of other ones. Fake news aside, newspapers have the goal of being official accounts of events or newspapers of record. We should not then expect that upon request, every library and individual who has a copy of that newspaper article be required to destroy it or remove my name. Besides not being practical, it is contrary to the reason for having newspapers in the first place.

This morning I read a recent Grant Thorton report written by the Spanish lawyer Sara Esclapés Membrives on how the GDPR actually presents an opportunity for Blockchain-based technologies. The report corroborates Jane’s interpretation of the law, stating that the challenge for a Blockchain is to find methods for the future removal of an individual’s personal data “when the purpose for which the data were collected has finished.” But as with the newspaper example, the purpose of storing data in the Blockchain is permanency, which means that unless the Blockchain ceases to have activity and a reason for remaining in existence, it should be allowed to continue storing my name without me being able to invoke the right to erase my personal data.

Ultimately Blockchain-based technologies that store personal data need to focus on privacy by design, meaning developing an architecture that maximizes the individual’s ability to grant consent and opt-out of the service while providing the appropriate level of security for the storage of the data. But more importantly to be commercially viable, these technologies need to gain consumers’ confidence and trust. Otherwise consumers will not be comfortable sharing their data and will simply not use the service.

The Future of Money

FB Money

Last year CNN asked “What if Companies Issued their own Currency” where printed money bore the images of corporate celebrities instead of George Washington or European landmarks. Although neither George Orwell or Aldous Huxley’s dystopian futures predicted a world governed by corporations as opposed to authoritarian governments, it may be more plausible to imagine a world where corporations control the money supply, not with coins and bills but cryptocurrencies. In fact, the fad amongst many technologists today is to encourage the disintermediation (or deregulation) of money by moving to Blockchain-based cryptocurrencies like Bitcoin. But instead of removing the middleman, we are more likely – contrary to the idealists’ ambitions — to open the door to empower big tech companies like Amazon, Facebook and Google to tokenize their platforms, replacing one currency regulator with corporate ones. Let me explain.

At the beginning of the year, the encrypted messaging system Telegram announced plans to issue its own cryptocurrency. Telegram’s vision was to create its own Blockchain-based cryptocurrency around its chat-service where its users could engage in all sorts of transactions and make payments through Telegram’s own digital platform. By leveraging the mass hysteria around Bitcoin, Telegram hoped to raise tens of billions of dollars in financing from its ICO.

An ICO (or Initial Coin Offering) is the process of raising capital through the use of cryptocurrencies, instead of issuing debt or equity. For those new to the concept, cryptocurrencies (to paraphrase Wikipedia) are digital assets designed to work as a medium of exchange (generally through a Blockchain) that use cryptography to secure transactions, control the creation of additional units (ie, the monetary supply) and verify the transfer of assets.

Arcade token Think of cryptocurrencies as those tokens at a video arcade where in exchange for hard currency (or services), you are given tokens that can be used at the arcade. The tokens would generally have no value outside of the arcade, unless there is demand for exchanging goods, services, or other currencies for those tokens.

With an ICO, an investor acquires those tokens, which may be either the issuer’s own (often newly) minted token or another existing one like Bitcoin or Ether. As mentioned, the tokens acquired through the ICO are not debt or equity. They are digital claims to future rewards or services. Investors acquire the tokens in expectation that there will be a dynamic market to buy, sell, or transact using those tokens. Because the tokens are exchanged on a Blockchain, each transaction is logged and permanently traceable (though encrypted). In theory, an ICO is more cost effective than a traditional securities offering because it does not require the efforts of a VC or financial institution and is not regulated.

Well, we thought ICOs were not regulated. According to the Wall Street Journal, a number of companies that issued ICOs are currently being investigated by the US Securities and Exchange Commission.

The sweeping probe significantly ratchets up the regulatory pressure on the multibillion-dollar U.S. market for raising funds in cryptocurrencies. It follows a series of warning shots from the top U.S. securities regulator suggesting that many token sales, or initial coin offerings, may be violating securities laws.

One might cynically say that regulators are predisposed to dislike cryptocurrencies because they cannot control them. On the other hand, if ICOs are not regulated, then there will always be a risk to the consumer, something that the 1933 and ’34 Securities Acts were designed to address with significant success over the past century. As mentioned in the article:

Many of the coin offerings happen outside the regulatory framework designed to protect investors. Hype around last year’s bitcoin bubble led to many cryptocurrency offerings for startup projects. Some of them had little, if any, basis in proven technologies or products, and many were being run outside the U.S. In some cases, investors caught up in schemes that turn out to be fraudulent may have little hope of recovering their money.

A soon-to-be published Massachusetts Institute of Technology study of the ICO market estimates that $270 million to $317 million of the money raised by coin offerings has “likely gone to fraud or scams,” said Christian Catalini, an MIT professor.

Overall, there are a number of reasons for dealing in cryptocurrencies:

To incentivize developers/computer owners (aka, miners) to verify transactions on the Blockchain and support and maintain the platform
Financing of start-ups (ICOs)
To bring more transactions to a platform
To engage in unregulated transactions (ie, black money)
Speculation

As mentioned, companies like Telegram and many technologists (even some investors) may also find the use of a cryptocurrencies attractive because they have largely been outside of the control of governments and regulators. But this raises the question about whether fiat money is actually more stable than cryptocurrencies and therefore in the long run better suited for investors and society. One of the foremost concerns of any investor is that she has a viable exit, meaning that she is investing in a liquid market where she can put in and take out her money easily. So the question is whether a cryptocurrency can give the same stability that a government-backed currency can.

When you start thinking about Telegram creating its own private market of tokens for transactions through its chat platform, remember going to the video arcade to play PacMan and having to convert your money into tokens. Now imagine a future where Amazon does the same thing. It issues its tokens that become the only currency available for transactions on amazon.com. Then imagine trying to download apps, stream music, movies or other content on your Apple devices and having to use Apple tokens. Maybe each major platform will have its own tokens, and its developers and maintenance crews (aka miners) will get paid in their employer’s respective cryptocurrency. Workers will only be able to spend their hard earned salary at the company store. We can call it the digital hacienda or crypto-feudalism. Welcome to the new crypto-world order.

When you were a kid at the arcade you had no problem spending all of your tokens at once before your parents dragged you home. But as an adult, if you have your money tied up in Amazon tokens, WeChat tokens, or Facebook tokens, what happens when that company goes bankrupt? Or what is the conversion rate from one token to the other? Wasn’t the advantage of using US greenbacks that they were backed by the U.S. Fed, were easily exchangeable and that US government wouldn’t go under? Will these companies have to create their own monetary departments to control the supply of their tokens, and fight against inflation? In other words, instead of removing the role of central banks, companies would become central banks themselves. In fact, the more I read about cryptocurrencies, the more the macroeconomic fundamentals behind hard currencies makes sense. Or I am just old fashioned?

Hey Mr. Blockchain, the GDPR is Coming at You Fast

etch a sketch

Last week I wrote about the upcoming GDPR and mentioned that it posed a potential risk for Blockchain-based technologies:

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?

Just now I read that Blockchain is on a collision course with the new GDPR, making my same exact point:

The bloc’s General Data Protection law, which will come into effect in a few months’ time, says people must be able to demand that their personal data is rectified or deleted under many circumstances. A blockchain is essentially a growing, shared record of past activity that’s distributed across many computers, and the whole point is that this chain of transactions (or other fragments of information) is in practice unchangeable – this is what ensures the reliability of the information stored in the blockchain.

For blockchain projects that involve the storage of personal data, these two facts do not mix well. And with sanctions for flouting the GDPR including fines of up to €20 million or 4 percent of global revenues, many businesses may find the ultra-buzzy blockchain trend a lot less palatable than they first thought.

€20 million is a great incentive for technologists to find creative ways to keep personal data outside of their Blockchain aspirations. Start the brainstorming now!

Challenges Blockchain May Face

Sara Pavan We keep hearing that governments will kill cryptocurrencies or at least regulate them to death. They fear what they cannot control (or tax). I tend to keep a more open mind.

But according to my colleague Sara Pavan, Blockchain currently has other pressing challenges:

Scalability is a major concern: most existing blockchains (Bitcoin, Ethereum, etc.) have significant scalability challenges. For example, the Bitcoin network can only process about 7 [transactions] per second. In comparison, Amadeus processes 100,000 end-user transactions per second in peak times.

Transaction cost will be another issue to consider. Blockchains typically require a lot of computing resources given that data is held multiple times and there is significant cryptographic computation to be undertaken.

In systems like Bitcoin and Ethereum, this means there is often a prohibitive fee associated with each transaction, which can represent several percentages of the value being exchanged, making them inappropriate for many use cases.

Finally, integration with existing systems will be another major hurdle. Today it is hard to make blockchain interoperable with existing IT systems.

If a hotel booking is made on a blockchain system, how will it integrate with a system that isn’t on blockchain?

Even if Blockchain technology could eventually be faster and less expensive, one of Blockchain’s key raisons d’être – to squeeze out the middleman – may have its own challenge. From what Sara says intermediation isn’t going anywhere and will continue to be central to the value chain in a Blockchain world. Beside needing someone to establish and evolve a Blockchain’s governance and drive critical mass, you will always need someone to build interfaces and applications, and support, maintain and enhance them. It’s like the Internet. We love it, not because it has value in and of itself, but because of the Facebooks, Amazons, and millions of other intermediaries that deliver content, products and services to our screens (or with Siri, Alexa etc to our ears).

And what happens when Blockchain’s other key selling point of secure and trusted transactions is blown to smithereens by faster encryption-busting technologies? What if what we are hearing about quantum computing is true?

. . . the advent of quantum computing will jeopardize the security of all existing cryptographic encryption methods, including RSA tokens. Quantum computers will affect the security of the entire finance and banking industry, not just the blockchain.

Even so, I’m surprised that security is not a more common conversation throughout the blockchain community. For a group deeply rooted in futurism, this seems shockingly shortsighted. It feels as if we’re building the blockchain for the next 50 years, but what if we only get to the next five or 10? What can be done to ensure that blockchain is dynamic enough to outlive quantum computing?

I tend to be an optimistic skeptic, meaning that I don’t trust the hype but trust that there is always a solution to every problem. As a lawyer, though, the solution is usually an imperfect negotiated one.

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.

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?