Privacy Concerns with “Behavioral Advertising” Can Be Addressed by Self-Regulation: FTC

This posting was written by John W. Arden.

Although “behavioral advertising” raises consumer privacy concerns, the Federal Trade Commission is “cautiously optimistic” that those concerns can be effectively addressed by industry self-regulation, an FTC official said on July 9 in testimony before the Senate Committee on Commerce, Science, and Transportation.

“Behavorial advertising” is the practice of collecting information about an individual’s online activities in order to provide advertisements that are tailored to the individual’s interests, according to Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection.

The practice involves the use of “cookies” to track consumers’ online activities and to associate those activities with a particular computer or device. The cookies collect information on websites and web pages visited by the consumer. However, this information is usually not personally identifiable.

Consumer Benefits, Discomfort

While behavioral advertising may benefit consumers by providing them with advertising relevant to their interests, it also may track sensitive information about children, health, or a consumer’s finances, according to Ms. Parnes.

Two recent surveys indicate that a majority of consumers feel discomfort about having their online activities tracked, collected, and used to provide advertising. These surveys indicated that 45 percent of consumers believe that the tracking should be banned, while 47 percent believe that tracking should be allowed with some form of consumer control.

Key Findings

The FTC held a two-day Town Hall meeting on behavioral advertising in November 2007. According to Ms. Parnes, several key points emerged from this meeting, including:

(1) Behavioral advertising may provide valuable benefits to consumers in the form of free content, personalization, and potential reduction in unwanted advertising;

(2) The invisibility of the practice—and the risk that collected data may be misused—raises privacy concerns; and

(3) Business and consumer groups expressed support for transparency and consumer control in the online marketplace.

Self-regulatory efforts by the Network Advertising Initiative (NAI) were criticized for the limited membership of the NAI, the limited scope of the efforts, and the lack of enforcement and cumbersome “opt-out” system.

FTC Self-Regulatory Principles

In response to these criticisms, the FTC issued its own set of self-regulatory principles and sought public comment on them. (See “Trade Regulation Talk,” December 21, 2007). These principles recommended: (1) transparency and consumer control of data collection, (2) reasonable security and limited retention of consumer data, (3) a requirement of consumer consent to the use of data in a materially different way than previously represented, and (4) a requirement of affirmative express consent for use of sensitive data such as that involving children, health, or finances.

The Commission received more than 60 public comments, which are now being evaluated. These included some specific proposals for possible implementation of self-regulation.

“The FTC is encouraged by the efforts that have already been made by the NAI and some other organizations and companies and believes that the self-regulatory process that has been initiated is a promising one,” said Ms. Parnes.

The Commission expressed optimism that the issues raised can be effectively addressed through “meaningful, enforceable self-regulation” and an intention to continue to monitor the marketplace in order to take appropriate action to protect consumers.

A news release and text of the prepared testimony appears at the FTC website.