Data Agreements for Analytics Organizations: What You Need to Know
Data is omnipresent. It is created constantly, during every interaction and on every device. It is used by every type of company, regardless of its size, business model, or industry sector. It also informs nearly every type of business decision, from supplying inventory and pricing goods to placing advertising, predicting trends, and interacting with customers.
As data has grown in importance, new industries have been created to support its use in today’s information economy, and new products and services are flourishing. Amongst the most important and fastest growing of these industry sectors are data analytics. Originally limited to companies that provided research and reports, data analytics companies now take many different forms. Indeed, the diversification of the data analytics business has led to an explosion in profits, with industry-wide revenue expected to reach $210 billion by 2020, according to market research firm IDC. Along with the traditional market research companies, data analytics businesses now include a broad array of businesses from companies that create their own data segments for resale, to companies that clean and process data, to companies that provide matching and database services.
Perhaps unsurprisingly, the varied form of data analytics firms creates a complex set of legal and regulatory requirements. In fact, data analytics firms frequently find themselves between a proverbial rock and a hard place. On one hand, data analytics firms routinely take in data from third parties, and thus must worry about data collection and consumer protection laws. On the other hand, data analytics companies routinely provide data and analysis to third parties, and in doing so, they must be careful to protect their intellectual property and the security of their data. Increasingly, data analytics companies are coping with these complexities by entering into data agreements to set parameters around data usage and ensure legal compliance. But how should data analytics firms utilize these agreements? What rights and protections should they require? In this article, we offer advice for avoiding common pitfalls in data agreements to better protect and grow your businesses.
The most common pitfall in any data agreement is the failure of both business and legal personnel to understand the deal. Given the immense variation and complexity of data agreements, it is therefore critical to at least ask the following questions. The answers will inform the structure of any eventual contract.
In recent years, there has been a spate of lawsuits alleging the improper and deceptive collection of information from consumers. For example, in several ongoing lawsuits that were filed within the last year, a number of “smart television” manufacturers and downstream data analytics companies have been named in putative class actions that allege that the manufacturers failed to disclose their collection of television viewing data for purchasers of their smart televisions and their sale of this data to third parties. Some of these lawsuits — like many class actions — have also gained the attention of the Federal Trade Commission and state attorneys general.
In order to avoid this sort of legal exposure — which can potentially total in the millions of dollars, as well as significant legal fees — every data agreement should probe into how the data was collected. For example, the Federal Trade Commission requires that consumer data collection practices not be unfair or deceptive, e.g., that data collection practices on websites be disclosed on that website’s terms of use and privacy policies. Similarly, certain types of data collection, e.g., collection of financial information in states such as California, require either the opt-in of the consumer, or the option to opt-out. In addition, the Digital Advertising Alliance and the Network Advertising Initiative have self-regulatory codes.
