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| Summary of the Federal Trade Commission's June 13, 2000 Online Profiling Report to Congress On June 13, 2000, the Federal Trade Commission (the "FTC") issued a report to Congress describing the nature of online profiling, consumer privacy concerns about these practices, and the FTC's ongoing efforts to address these concerns (the "Report"). While the FTC refrained from making any legislative recommendations to Congress, it indicated that it would continue to engage in discussions with industry members of the Network Advertising Initiative (the "NAI") to encourage effective industry self-regulation in the area of on-line privacy. According to Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection, the FTC intends to supplement the Report with specific recommendations to Congress after it has an opportunity to fully consider the self-regulatory proposals and how they may be reconciled with the FTC's previous views in the online privacy area. The Report describes consumer profiling as the process by which companies that provide advertising in the form of "banner ads" on numerous unrelated Web sites gather data from consumers who view their advertising, mainly through the use of "cookies," which track individual web surfing habits. Once gathered, the consumer data may be analyzed and combined with demographic and "psychographic" information from third-party sources, data on the consumers' offline purchases, or information collected directly from consumers through surveys and registration forms. This enhanced data permits advertisers to create a detailed consumer profile enabling the advertisers to predict individual consumers' tastes and purchasing habits and to launch targeted advertising. The Report notes that the information gleaned by advertisers in this manner is often, but not always, anonymous, since the profiles are often linked to the identification number of the advertising network's cookie on the consumer's computer, rather than the name of a specific person. Sometimes, however, the profiles derived from tracking consumers' activities on the Web are linked or merged with personally identifiable information. According to the Report, online profiling gives rise to both benefits and privacy concerns. Online profiling is beneficial because it enables both consumers to receive information about goods and services in which they are interested and businesses to avoid wasting money marketing to consumers with no interest in their products. Furthermore, targeted advertising may help to subsidize free content on the Internet. Online profiling, however, has given rise to significant privacy concerns as well. The greatest concern to the FTC is the fact that online profiling is conducted without consumers' knowledge. According to Bernstein, "the presence and identity of an advertiser on a particular site, the placement of a cookie on the consumer's computer, the tracking of the consumer's movements, and the targeting of ads are simply invisible in most cases." The Report indicates that this most significant concern might be mitigated by the appearance of privacy policies on Web sites which give notice of profiling and by the use of devices in the browsers of computers which alert consumers to the presence of cookies. According to a recent survey conducted by Privacy & American Business and cited in the Report, the majority of Internet users polled would be willing to permit companies to use their personal information gathered through the Internet as long as they were given notice and the opportunity to opt-out of any uses they did not approve. Additional privacy concerns include the extensive scope and comprehensive nature of monitoring which occurs across numerous unrelated Web sites and over an extended period of time. According to the Report, these concerns are not diminished by the fact that most profiles contain no personally identifiable information since (1) companies might change their policies and begin associating personally identifiable information with non-personally identifiable information previously collected, and (2) the profiles comprising non-personally identifiable information could still be used by companies to determine what prices and terms are offered to individuals for important goods and services, such as life insurance. On November 8, 1999, the FTC and United States Department of Commerce jointly sponsored a Public Workshop on Online Profiling to educate the public about the practice of online profiling and to explore self-regulation by the NAI as a means of addressing the privacy concerns raised by this practice. Following the workshop, the NAI (which is comprised of 24/7 Media, AdForce, AdKnowledge, Avenue A, Burst! Media, DoubleClick, Engage, and MatchLogic) submitted working drafts of self-regulatory principles for consideration by the FTC and Department of Commerce staff. The Report indicates that these drafts touch upon "the fundamental question of how fair information practices, including choice, should be applied to the collection and use of data that is unique to a consumer but is not necessarily personally identifiable." Although efforts have been made to arrive at an agreement as to the basic standards for applying fair information practices, the Report indicates that this process is not yet complete. Consequently, the FTC intends to supplement the Report with specific recommendations to Congress after it has an opportunity to more fully contemplate the self-regulatory proposals and how they interrelate with the FTC's previous views and recommendations in the online privacy area. We will keep you apprised of further developments as they occur. © 2000 Davis & Gilbert LLP |
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