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Unit 12: Customer Privacy

law. Common law, in contrast, has recognized transactions from the beginning. Indeed, the Notes
original legal cases which established the tort of privacy were not based on a finding that the
plaintiff had a right to privacy, but instead that the plaintiff had a right to be adequately
compensated.
For privacy transactions to occur, however, there are several prerequisites. They include:

1. Sufficiently low transaction costs.
2. A legal environment that permits transactions to be carried out.
3. An industry structure which permits transactions to occur.
4. Symmetry of information among the transacting parties.

5. No “market failure,” i.e., no growing instability in the market.
6. The ability to create property rights, or to exclude.
Courts have been reluctant to grant property rights to personal information outside of the case

of luminaries. In one case, Avrahami vs. U.S. News & World Report, a gutless courtmanaged to hold
for two organizations that exchanged subscriber name lists without permission, even though
Virginia Code 8.01-40 (Michie 1999) clearly provided that “Any person whose name, portrait, or
picture is used without having first obtained written consent of such person for advertising
purposes or for the purposes of trade, such person may maintain a suit to prevent and restrain
the use thereof.” The statute also permitted the aggrieved party to recover actual and punitive
damages. The court held that the inclusion of a name was “too fleeting and incidental,” and that
a person’s name was not personal property. An appeal may be brought before the Virginia
Supreme Court.
This reluctance of courts (and probably of legislatures) to recognize property rights in residual
information s not surprising in light of the role of direct marketing in the economy. However,
property is only not established from above by formal statutes or court decisions, but also from
below, by the simple mechanism of an individual’s ability to exclude others. Good fences create
good neighbours and good transactions as well. Electronics makes this increasingly possible.
Such access control creates the possibility of bargaining, by transforming information from a
“public good” (like a light house’s flashing) to a private good (like a flashlight).

12.2.2 Examples of the Market Approach

Telemarketing

As we discussed, because privacy and access are of value to parties in a telemarketing transaction,
exchange transactions will emerge once they become technically feasible. How could this happen
on a practical level? Signalling technology and telecommunications equipment provide now
the capability to select among incoming calls electronically. This creates the precondition for
access control by individuals, namely information about the calling party, which until now
enjoyed the stealth of anonymity. Information is power; or rather it is worth money. Once this
choice of avoiding calls is available to the called party without loss of important incoming calls,
callers must offer incentive to be admitted. Friendship, family ties, reciprocity, useful information
business – or a financial payment. What will therefore inevitably emerge is a system of
individualized access charges.
Such a system might be described as Personal-900 Service, analogous to 900-service in which the
caller pays a fee to the called. The caller would be automatically informed that the customer
charges telemarketers for his time and attention.

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