In 2018, the new General Data Protection Regulation (GDPR) entered into force in the European Union. This regulation governs the protection of personal data and the processing of this data. Among other things, the GDPR provides for imposing fines and compensation in cases of violations against the regulation. A key issue in this regard is measuring the damages that result from violations. The legal literature provides little guidance on this, and damages in early court decisions ranged widely, from zero to hundreds of euros per case—largely without any in-depth analysis of the economic aspects of each case. Due to the high number of persons affected in a typical GDPR case, small differences in the valuations of damages can have significant economic ramifications for the companies involved.

NERA was retained by a large European company, which was permitted to collect certain customer data. However, the company had used this data to estimate interest in other goods and services. The local data protection agency classified this as a violation of the GDPR. A local court of first instance awarded hundreds of euros in compensation to an individual claimant, based on judicial discretion.

The client hired a team from the NERA offices in Berlin, Frankfurt, and San Francisco to produce a damage estimate using economic methods likely to be approved by the courts. This assessment began with a review of methodological approaches and empirical evidence described in the economic and legal literature.

NERA then derived an approach for the estimation of the alleged damage based on the findings from this literature. In order to determine a case-specific estimate for the valuation of the personal information involved, NERA conducted a conjoint analysis survey. Conjoint analysis is regularly applied in merger control, as well as in the valuation of intangible goods. In this case, the survey was specifically designed to distinguish the value respondents placed on the estimates of interest in certain goods and services at issue from the value of the personal information the company was allowed to collect. In addition, various control mechanisms (e.g., double-blind approach, screens, and treatment and control group), which are customary at the international level, were applied to avoid biases. The conjoint analysis was then used to estimate the distribution of consumers’ “willingness to pay” to avoid sharing these various types of information.

The estimate calculated by NERA showed that the compensation awarded in the first instance proceedings was overstated by a factor of close to 100, compared to the local population’s average valuation of the information concerned. An appeals court has already set aside the valuation of damages by the court of first instance due to insufficient justification.

NERA experts regularly advise as economic experts in legal and arbitration proceedings, for example on data protection and other intangible goods in relation to the GDPR, as well as on other issues in regulation and competition economics.