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Is it Time to Cash Out on Your Data? California Governor Proposes that Companies Pay a Dividend in Exchange for Access to Consumers’ Data.

By Michael A. Shapiro, Attorney at XPAN Law Group, LLC

In his first State of the State Address on February 12, 2019,  California Governor Gavin Newsom proposed that tech companies pay a dividend to California residents in exchange for access to their data.  “California’s consumers should . . . be able to share in the wealth that is created from their data,” declared Newsom. “And so I’ve asked my team to develop a proposal for a new Data Dividend for Californians, because we recognize that your data has value and it belongs to you.”  

At first blush, this sounds appealing.  As the Governor noted in his speech, technology “companies make billions of dollars collecting, curating and monetizing our personal data.” In addition, third-party data brokers, a rapidly growing multi-billion industry, seek to capitalize on the convergence of consumer big data and artificial intelligence.  Shouldn’t consumers in California and elsewhere share in their spoils? Indeed, forty five percent of California voters already support the idea of tech companies paying them a share of the profits from using their data.

The idea of paying consumers for their data has been around for some time.   In the early 1990s, New York University economist Kenneth Laudon argued that the cost of invading privacy was far lower than its true social cost.  In order to fix this imbalance, he suggested that consumers should be allowed to sell their data.   Facebook co-founder Chris Hughes recently proposed creating a new tax on the revenues of companies that collect and store meaningful amount of information and data about individuals.  The revenue from this data tax, in turn, would fund a data dividend to every American, similarly to the oil dividend paid to Alaska residents.  Economists Eric Posner and Glen Weyl even suggested establishing data unions that would represent and negotiate on behalf of Facebook and Google users and cut off data flow to companies if they refuse fair monetary compensation for the consumers’ personal data.  

Saadia Madsbjerg of the Rockefeller Foundation proposed taxing data brokers and using tax revenues to improve privacy of information on the internet, countering identity theft, and improving connectivity and internet literacy.  Washington State recently toyed with the idea of taxing receipts from sale of personal data relating to Washington residents, but the proposed bill never made it into law.

The idea of a data dividend also has its share of sceptics and opponents.  For example, recently published research suggests that the monetary value consumers place on free online services – like internet maps, email, and search engines – far outweighs the revenue per consumer received by companies like Facebook and Twitter, suggesting that the value of benefits consumers receive might outweigh the value of their data to these companies.  Imposing a data dividend in that case might result in economic inefficiency.

Some experts argue that structuring a dividend as a royalty payment will not work as long as consumers cannot take ownership of their data.  Although the recently enacted California Consumer Privacy Act (CCPA), like the European Union’s General Data Protection Regulation, allows consumers to control their data, it remains unclear how effective that would be in practice.  

A digital rights group Electronic Frontier Foundation (EFF) opposes any “pay-for-privacy” scheme on the grounds that privacy is a fundamental human right and expressly guaranteed by the California Constitution.  EFF argues that paying people for privacy would discourage them from exercising their privacy rights and lead to unequal classes of privacy “haves” and “have-nots,” depending upon the income of the user.  Furthermore, it would arguably contradict Section 1798.125 of the CCPA which forbids companies from discriminating against consumers based on the exercise of their privacy rights.

At this time, it is unclear how a new data dividend law will be structured and applied.   There is a draft bill prepared by economist Glen Weyl, which apparently advances his idea of data unions, but the Governor professes to be open to all constructive input.  In the meantime, the proposal itself signifies the policymakers’ evolving way of thinking about privacy and open up a new chapter in the debate over the future of U.S. privacy and data protection framework.  

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Nothing contained in this blog should be construed as creating an attorney-client relationship or providing legal advice of any kind. If you have a legal issue regarding cybersecurity, domestic or international data privacy, or electronic data discovery, you should consult a licensed attorney in your jurisdiction.