FTC Should Reject Online Advertisers’ Privacy Effort, Groups Say

An online-advertising industry effort to self-regulate privacy safeguards fails to protect Internet users and should be rejected, a coalition of consumer groups wrote to U.S. and European Union regulators today.

“Consumers in both the U.S. and EU are offered limited options based on principles crafted by the digital marketing industry,” the Transatlantic Consumer Dialogue wrote in a letter to the Federal Trade Commission and Article 29 Working Party, a group of privacy watchdogs from the EU’s 27 nations.

The Transatlantic Consumer Dialogue, founded in 1998 and based in London, represents EU and U.S. consumer and public- interest groups, including, in the U.S., the American Civil Liberties Union, the Center for Digital Democracy and the Consumer Federation of America.

Under the online ad industry’s U.S. privacy initiative, announced in October by a coalition of advertising and marketing groups, triangular icons appear on or near ads, or at the bottom of websites. The icons link to disclosures about companies’ data collection practices and let consumers opt out of being targeted by ads based on the websites they visit.

The New York-based Interactive Advertising Bureau, which recommends standards and generates market research for online advertisers, began requiring its members to comply with the icon program on Aug. 29. About 350 companies have licensed and are using the icons, Mike Zaneis, the bureau’s general counsel, said in an interview last month.

‘Do Not Track’

“We are fortunate enough in the U.S. to have thoughtful regulators that take the time to understand our program and let it fully develop before preemptively deeming it inadequate,” Zaneis said of the letter in an e-mail today. The Digital Advertising Alliance, which developed the privacy program, couldn’t immediately be reached for comment.

The industry effort, which is voluntary, coincides with an increased focus by U.S. lawmakers and regulators in Washington on Internet privacy, including whether consumers should have control over whether their activities are tracked online.

The FTC in December called for creating a “do-not-track” option that lets consumers opt out of being tracked online and receiving targeted ads. Lawmakers including Senator Jay Rockefeller, a West Virginia Democrat who chairs the Senate Commerce Committee, have introduced legislation that would create a do-not-track system.

At stake is the market for online behavioral advertising, which targets ads to people based on the websites they visit and is projected to grow to $2.6 billion in 2014 from $775 million in 2008, according to a January 2010 study by eMarketer Inc., a New York-based digital research firm.

Self Regulation

The industry’s self-regulatory program is “inadequate” and the icon is an “insufficient means of notice to a user about the wide range of data collection that they routinely face,” the Transatlantic Consumer Dialogue wrote in its letter. Under the program, companies can continue to collect “sensitive data,” including about consumers’ health and finances, according to the letter, which also was sent to officials in the White House and U.S. Commerce Department.

The FTC is concerned that the voluntary industry effort only blocks targeted ads and doesn’t address online tracking, Jessica Rich, the deputy director of the agency’s consumer protection bureau, said in an interview last month. The FTC has received the letter and takes comments from the Transatlantic Consumer Dialogue “very seriously,” Cecelia Prewett, an agency spokeswoman, said in an e-mail.

The agency has the power to act when companies engage in unfair and deceptive trade practices. If Congress passes a do- not-track law, the FTC wants to increase its enforcement power with rule-making authority.

The FTC and Obama administration are preparing to issue reports on Internet privacy by the end of the year.

To contact the reporter on this story: Eric Engleman in Washington at eengleman1@bloomberg.net

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net

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