What just happened?
The accelerated growth of new business patterns, the popularisation of the internet in rural areas and a 71.6% growth in mobile internet traffic in 2019 are just a few examples that demonstrate China’s capability in excelling in the digital markets.[1] Thus, paving way for Data gradually becoming the driving engine in Chinese industries, producing pricing algorithms that can harm consumer welfare.
What does this mean?
It potentially creates a situation where two people who are in the same room can be charged different prices on the same offerings based on large scale collection, aggregation, and analysis of the personal data which the online businesses receive on these individuals. It follows the usage of the pricing algorithm could also create a barrier on access for individuals to the market. For instance, a person that applies for a mortgage loan can potentially experience higher interest rates, because they live in a neighborhood that is mostly inhabited by a community of a racial or ethnic origin. The 64-million-dollar question then is, how are pricing algorithms produced? A pricing algorithm is produced through the datasets of a consumer who agrees to the terms and conditions of an online business. This online business can then secretly cooperate with its competitors by sharing its customer's profile and using this to allocate then the market for specific offerings based on different customer profiles.[2] Subsequently, a pricing algorithm could be produced for offerings, which will then vary depending on the personal information of the users to which the supplier of the offerings has access.[3] A recent example of developing an algorithm is demonstrated by the Chinese AI data service platform Longmao Software, who secured a RMB33 million Pre-B round of financing by KIP China and GSR Ventures. The company has gone to produce development tools that predict scenarios such as image semantic segmentation.[4]
How does this affect the legal industry?
Law firms with a presence in China will face a significant challenge in defending their client’s data from being tampered by the state. This is because in 2019 the Cyberspace Administration of China released its draft regulations on “managing the cyberspace ecosystem”. This purports to all Chinese online platforms that use algorithms to recommend or suggest content to their consumers which steers people towards material that adheres to mainstream values.[5] Meaning, if a law firm has a client with a global online platform (eg. Amazon) which conducts its business in a way that contradicts the mainstream values of the Chinese Government, they will have to pay a hefty fine or potentially cease operating a business in China. Defending such a client would be near impossible for that law firm who in addition, will risk itself from operating in the region if it defends the ‘culprits of the state’.
Written by Amarjit Tark
The Assessing Law Firms: #Allen&Overy #Ashurst #Baker&McKenzie #CliffordChance #Dentons #DLAPiper #EvershedsSutherland #FreshfieldsBruckhausDeringer #Linklaters #NortonRoseFulbright #Slaughter&May
References:
[1] Zhao Shiyue, ‘Data and internet services inject new vitality to China's telecom industry’ (Chinadaily.com, 28th February 2020)
[2] See example of the Cambridge Analytica in Carole Cadwalladr and Emma Graham-Harrison, ‘Revealed: 50 million Facebook profiles harvested for Cambridge Analytica in major data breach’ (The Guardian, 17th March 2018)
[3] Laura Drechsler and Laura Drechsler, ‘The Price Is (Not) Right: Data Protection and Discrimination in the Age of Pricing Algorithms’ (2018) 9(3) European Journal of Law and Technology
[4] China Money AI, ‘Chinese AI Data Labeling Startup Longmao Secures RMB33M’ (China Money Network, 28th February 2020)
[5] Nectar Gan, ‘China’s internet regulator orders online AI algorithms to promote ‘mainstream values’ (South China Morning Post, 11th September 2019)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.