More "Specific Consent" Gloss, On the New EU Privacy Directives Applicable To Mattersight's EU Business Model

Allow me to amplify one point I made about the above topic, in passing, most recently here.

I think the biggest stumbling block to a pan-EU rollout of Mattersight's Behavioral Analytics^TM offering is going to be getting a comprehensive, but also purposes-specific, consent from each customer interaction (needed for each interaction by phone, or by any electronic communication -- e-mail, SMS or text). The general consent that Mattersight is entitled to rely upon in the United States, Canada and Mexico is not going to be even remotely close to adequate under the new EU Privacy Directives. The law could change, but for now it requires that each consent must be specific for the different purposes that the voice, location and text data is collected, used or otherwise processed (e.g., profiling or behavioral targeting), i.e., it cannot be lawfully obtained through general terms and conditions check-boxes or consents. In addition, an opt-out mechanism does not constitute an adequate mechanism to obtain informed user consent under the EU law.


Moreover, if the purposes of the processing (by Mattersight) change in a material way, the data controller (i.e., the entity that determines the purposes and means of collecting, using or processing the data -- here, Mattersight) must seek renewed specific consent of the individual EU member state citizen, before proceeding with the new analysis/purpose. [Of course, should a citizen of any EU member state request, Mattersight has to stand ready to both "erase" and "forget" what it learned. Daunting.]

As a US citizen, I actually think this EU requirement is over the top, and I am helping clients address it everyday -- including seeking changes to the Directives' formal interps -- but for now, were I the GC of Mattersight, I'd be decidedly-nervous about my Behavioral Analytics' business model in Europe. Why? Because the fines for violations are clearly set at punishing levels. Levels that would wipe any net margin on the business off of Mattersight's books -- and eat into its cash-flow.

So, as ever, be careful out there.

Of DMCA Notice Excesses -- And "Transforming" Parodies, Under US Copyright Law

File this one under "be careful what you wish for" -- as an in-house corporate general counsel. [Preliminary editorial note, here: please understand that these rules only apply to public figures, and only when acting in their "public" capacities -- as in being the CEO of a public company.] For the moment, at least, the Wordpress.com version of this site has been disabled, due to the request of the General Counsel of Mattersight. She filed a DMCA "Takedown Notice" at Wordpress, related to my old bannerhead. If you enlarge the image at right (click on it!), you will see the steps I took to transform the image. My oldest bannerhead had transformed Mr. Conway to the point shown on the end of the top line (when the DCMA request to take it down was made). My subsequent efforts are plainly so transformative as to create new works -- in which case, the sampling of the original work is permitted as fair use, and is clearly part of a parody, now. As CEO, Mr. Conway has -- in true Transylvanian fashion -- been able to suck out of Mattersight (and eLoyalty before it) over $10.4 million in cash, and perhaps $25 to $35 million (including equity grants) all in, over the last 13 years. All of this while never once reporting GAAP Annual EPS -- or earnings for the common shareholders (NASDAQ: MATR). A parody of a public figure (even one made from a copyrighted work, but transformed, by art and skill) -- as a means of commentary on his performance -- is plainly protected as "fair use" under the applicable US common law. Mattersight is headquartered in the United States, and I live here too. US law allows this image, despite the swooning palpitations of Mattersight's General Counsel. [See Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994).] Moreover, a federal District Court in Northern California recently held -- under similar circumstances -- that people in the Mattersight GC's position must evaluate "fair use" exceptions BEFORE sending a takedown notice, or be liable for abuse of the DMCA process in damages to the transforming work creator: . . ."[T]he fact remains that fair use is a lawful use of a copyright. Accordingly, in order for a copyright owner to proceed under the DMCA with ‘a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law,’ the owner must evaluate whether the material makes fair use of the copyright.” The court went on to say that “[a]n allegation that a copyright owner acted in bad faith by issuing a takedown notice without proper consideration of the fair use doctrine thus is sufficient to state a misrepresentation claim pursuant to Section 512(f) of the DMCA. . . ." Lenz v. Universal Music Corp. (Case Number C 07-3783 JF, U.S. Dist. Ct., N.D. CA 2008). On a pixel-by-pixel analysis, now -- my final image contains less than 10 percent of the original's pixel-values. That is plainly fair use, and/or a parody. And so, this posting will serve as the extra-judicial counter-notice to Mattersight's GC (in addition to the phone messages I've left for her) that the very able Judge Fogel contemplated when he granted Mrs. Lenz partial summary judgment against Universal Music, back in February 2010 (a 17 page PDF file -- see pages 14 and 15). As to any additional DMCA Takedown Notices sent to any other ISP for this same content, the Mattersight GC is now "on notice" that it may constitute a bad-faith abuse of the process, to thwart my "fair use" -- and my protected parodies. To complete the record, here, then -- I'll post the text of Mattersight's takedown notice under the DMCA, in green below -- as well as a mini-image of the banner, complained about, as it stood last Thursady. It was, in fact, only one of seven banners that would appear randomly, under the theme I was using on Wordpress. So, a reader only had a one-in-seven chance of even seeing it. Yet, the hired gun felt it was an unfair use of a barely bigger than thumbnail size copyrighted image of the CEO. So be it. It will remain here on blogger. And there are already accounts open on other hosts, should this one be made the subject of bogus "takedown" attempt. Information. Just. Wants. To. Be. Free.

Location of copyrighted work (where your original material is located): www.mattersight.com www.eloyalty.com First Name: Christine Last Name: Carsen Company Name: Mattersight Corporation Address Line 1: 200 S. Wacker Drive Address Line 2: Suite 820 City: Chicago State/Region/Province: Il Zip/Postal Code: 60606 Country: USA Copyright holder you represent (if other than yourself): Mattersight Corporation Please describe the copyrighted work so that it may be easily identified: http://mattersightfail.files.wordpress.com/2012/04/matterhead6-2012.jpg The picture is found here on the blog: http://mattersightfail.wordpress.com/about/, with a smaller version found here: http://mattersightfail.wordpress.com/, incorporated into the April 13th blog entry. Location (URL) of the unauthorized material on a WordPress.com site (NOT simply the primary URL of the site - example.wordpress.com; you must provide the full and exact permalink of the post, page, or image where the content appears, one per line): http://mattersightfail.wordpress.com/ If the infringement described above is represented by a third-party link to a downloadable file (e.g. http://rapidshare.com/files/...), please provide the URL of the file (one per line):N/A I have a good faith belief that use of the copyrighted materials described above as allegedly infringing is not authorized by the copyright owner, its agent, or the law.: Yes I swear, under penalty of perjury, that the information in the notification is accurate and that I am the copyright owner or am authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.: Yes Signed on this date of (today's date, MM/DD/YYYY): 04/15/12

Signature (your digital signature is legally binding): Christine R. Carsen, General Counsel. . . .

Whatever else may be said about the above, it is a certainty that the latest banner has so transformed the original, as to no longer be infringing. I actually think the pre-Dracula-ized version would have been better for Mr. Conway's reputation -- but his lawyer insisted, so. . . I had to respond with a plainly-protected-parody transformation. Ah -- irony! -- that's for me! Here endeth the lesson in copyright law in the United States.

Proof That New EU Privacy Directive Conflicts With Mattersight's Business Model, From Mattersight, Itself

I've finally been able to directly download public domain .TIFF images -- from the USPTO.gov site -- of the two US patents Mattersight was granted on its business methods. As I've said earlier, these patents are of scant value, in terms of being able to actually preclude competitors from providing similar call analysis services to Fortune 500 clients. [See this post, and this post, for more on that.]

The patent page images are very useful, however, for clearly explaining what it is that Mattersight does, in terms of call-recording, to operate its business. And it is clearer than ever, now that the new EU Privacy Directives will -- in my opinion -- make Mattersight's core business line unworkable in the EU Member-States. Click to enlarge:



Note that each of the highlighted steps in Mattersight's business model will require the "disengagement" of already-collected and analyzed customer data -- if any EU Memeber State citizen decides to opt out of the data, and exercises his or her right to be "forgotten" and "erased" from the Mattersight databases.

That makes for a real problem, in any drive by Mr. Conway, et al., to grow Mattersight's behavioural analytics offering in the EU, proper. And so, Mattersight may be more than fully-valued at $9 per share (current NASDAQ-quoted price), in my opinion.

Do stay tuned.

Less Than 10 Percent Of The Eligible Series B Preferred Shares Were Tendered -- At $8.60 -- Why?

This evening, Mattersight announced the results of the partial tender offer it ran for the 7% Series B Preferred. That tender expired last Friday evening -- not with a bang, but with a whimper. Fewer than 20,000 of the 111,000 or so eligible Series B Preferred Shares were tendered, according to Mattersight's SEC-filed report, closing out its previously-filed Schedule TO.

The under 20,000 shares of Series B tendered, in turn, represents just about 1 percent of all the still-outstanding Series B, which converts one-for-one into common, now. [I'll be back tomorrow, with some thoughts on whether this earler surmise of mine -- played any part in that.]

To be fair -- at least at first blush -- I think the anemic response had far more to do with the notion (if you believe the Mattersight common is stable at this price level) that holding the Series B is tantamount to earning a 7% running dividend on the Mattersight common, as Series B converts one-for-one into the common at any time, and it is even entitled to much the same voting rights, generally, as the common.

No, I think at least some traders on last Thursday (after 10 AM -- see the chart here), woke up to the idea that since Mattersight common has never paid a dime of dividends, one could hold/acquire the Series B, and clip 7% -- as a pretty decent return.

Or perhaps in a less-charitable vein, most savvy B holders realized that Mattersight was underpricing them. If the common was trading above $8.71 last week with no dividend (as it was) -- why should the Series B, with a 7% coupon -- be worht less than the common, if tendered? It shouldn't.

It could be argued that Mattersight was looking to grab some of the B back "on the cheap," here. Only a few took the suckers' bet, it seems.

As I say -- more after I've been able to sleep on it.

Truth-Telling "MATTERS"!

On Mattersight.com's investors' community section of its corporate website, under a tab called "Stock Quotes", it provides some stock trading lookup tools. That tool generated the stock price graph from 2000 to present which appeared in my last post.

When I went to create a five year chart, Mattersight offered me the option of adding "event" markers to the chart, to help me interpret its NASDAQ common stock price movements. One of those event tags is "Earnings" -- so you know I HAD to select that particular overlay(!).

Below are the results, followed by my correction thereto -- to restate the chart for the fact that each arrow is upside down (click the chart to enlarge it). More importantly, my corrections explain the notion that decreasing loss-levels are not equal -- in any sense of the GAAP term -- to increases in GAAP earnings.



In sum, I think the entire Mattersight-generated chart is egregiously and materially misleading. Do see below -- but in my experienced eye, it reflects a cultural problem at the company. And I think the culture of fast and loose with financial truths starts at the top. The CEO is a CPA afterall. In short, he knows better.

There is no indication that I could find that would let the visitor know the chart does not refer to any GAAP measure, of any sort. In fact, there are no footnotes at all to the chart. That's troubling.

Someone ought to show the SEC's Corporate Finance, Disclosure Policy and Market Regulations staffers this chart -- scratch that -- maybe I will just forward it on, later today, by secure e-mail.

So It Begins -- Again!

Kelly Conway, the CEO of Mattersight, is a CPA.

Mattersight is a public company. Sarbanes-Oxley applies to it, as does Dodd-Frank.

This blog is commentary on what I see as a lack of oversight and balanced governance -- at Mattersight (and before it, at eLoyalty -- both of which Mr. Conway has led, since inception). This lack is both at the CEO-, and board- levels, in my view. Here is Exhibit A. [To be posted later this evening, if Wordpress.com cannot reinstate this blog, over there.]

Q1 Results Conference Call -- 5 PM EDT On May 10, 2012

Mattersight today announced that it will hold the regular Q1 results call, and slide presentation, about five days later than usual. You may access the call through the investors section of Mattersight's corporate website, after market-close on May 10, 2012. As was the case for the last 54 or so previous quarters, I don't expect to see a net profit from operations, on a GAAP basis, consistently applied.

I could be shocked, though. I could be wrong. This might be the first quarter in the history of eLoyalty -- and now Mattersight -- in which significant GAAP earnings per share have been generated.

If so, I'll be the first to cheer, should that oh-so unlikely event occur. I personally doubt it, though.

I'll set my calendar, in my phone, for a reminder -- and will report here on the evening of May 10, 2012.