On July 9, 2008, the Senate Committee on Commerce, Science, & Transportation (“Senate Commerce Committee”) addressed growing governmental interest in behavioral (or “ehavioral”) advertising. Ehavioral advertising has been described by the FTC as the process of tracking consumer activities online to deliver targeted advertising. The Senate Commerce Committee’s July 9, 2008 hearing occurred in the midst of a flurry of recent self-regulatory and state legislative initiatives focused on whether heightened regulation is necessary to address privacy interests in the context of collecting and/or using consumers’ personally identifiable and non-personally identifiable information to deliver targeted advertising. See Wildman Harrold Client Alert dated July 8, 2008 titled Online Behavioral Advertising – Key to Internet Monetization or Privacy Probes? for further background.

Sen. Byron Dorgan (D-N.D.), who chaired the July 9, 2008 Senate Commerce Committee hearing, opened the discussion by recognizing the importance of advertising on the internet and its key role in facilitating the availability of free services for consumers online. He also expressed understanding for advertisers’ interests in finding ways to better target their information. "Online advertising is helpful and useful in my judgment," he said. "It is a necessary component of the Internet and helpful to consumers.” But he added that there were privacy concerns that should be explored.

The hearing focused on the factors driving online behavioral advertising, the methods of online behavioral advertising used in the industry, and the protections the government should adopt to protect consumers from unwanted invasions of their privacy. Most of the witnesses supported basic privacy legislation, in combination with self-regulation. The witnesses included representatives from the Federal Trade Commission (FTC), the Center for Democracy & Technology, Google, and NebuAd, a small Silicon Valley start-up which helps Internet service providers track their customers in order to send them highly targeted advertisements.

FTC

The FTC testified that self-regulation is the best approach to balancing consumer protection with ad-supported business models that allow for free Internet content and services. Lydia Parnes, director of the FTC’s Bureau of Consumer Protection, said the keys to self-regulation are transparency and consumer control. She added that the FTC is currently reviewing public comments on its proposed guidelines on online advertising. Parnes did not know when the guidelines would be released. Based on suggestions offered at its recent town-hall meeting, the guidelines will likely include the following:

  • Companies collecting online data should provide disclosure of the practice, as well as an opportunity not to have the data collected;
  • Companies should provide reasonable security;
  • Companies must get consumer permission to use data in a way other than previously disclosed; and 
  • Consent must be obtained before using any sensitive information–e.g., health, financial data–for behavioral advertising purposes.

Google

Jane Horvath, senior privacy counsel at Google, said her company supported a comprehensive federal privacy law and backed the creation of FTC privacy principles on online behavioral advertising. Google also supported more labeling of online display ads and consumer education about privacy.

NebuAd

Amid questions on his company's tracking technology, Robert Dykes, chairman of NebuAd, explained that his company was in compliance with the law and does not collect any personally identifiable information. Instead, NebuAd transforms an Internet-protocol address into anonymous identifiers for the purposes of allowing advertisers to target market segments. Recently, NebuAd's planned initiative with Charter Communications to track the web usage of subscribers drew criticism from Congress and has been indefinitely delayed. Dykes said that NebuAd supports self-regulation and privacy regulation focusing on the sensitivity of the type of information. However, the regulations should not stifle innovation.

Microsoft

Mike Hintze, associate general counsel for Microsoft, said his company has long supported federal privacy legislation, combined with consumer education and self-regulation. But he added that Microsoft was a relatively small player in the online advertising industry and raised concerns that if one company became too dominant, there would not be a market incentive for privacy protections – because, in a competitive market, privacy protection could be a selling point of one service over another.

Facebook

Chris Kelly, chief privacy officer at Facebook, said his website focused on sharing information, but users had the control over who sees personal information. Further, Facebook only knows what its users decide to share. In discussing the distinction between personally identifiable and non-personally identifiable information, Kelly noted that "ad targeting that shares or sells personal information to advertisers (name, email, other contact oriented information) without user control is fundamentally different from targeting that only gives advertisers the ability to present their ads based on aggregate data."

Competitive Enterprise Institute

Clyde Wayne Crews, Jr., Vice President for Policy at the Competitive Enterprise Institute, explained that privacy will become a bigger issue in the future because of emerging technologies. He said that legislating online privacy would be difficult because the environment is extremely complex and constantly changing. He offered that a better force for regulation is market-based because online consumers can choose what sites to use.

Center for Democracy & Technology

Leslie Harris of the Center for Democracy & Technology (CDT), a civil liberties group, said consumers often do not have a good understanding of how personal information is tracked and used. She explained that the trend of ISPs partnering with advertising companies may provide access to everything a user does online. Harris also said that self-regulation was not good enough and recommended (1)additional hearings on ISP targeting and sensitive information; (2) general privacy laws; (3) enforceable FTC guidelines; and (4) the development of a "do not track" regime similar to the "do not call" list.

Conclusion

The witnesses at the hearing generally supported basic privacy legislation along with self-regulation of online advertising. Sen. Dorgan promised to hold another hearing with representatives from internet service providers, who were invited to testify at the July 9th hearing, but declined to attend. Thus, the significant controversy surrounding this issue will continue as lawmakers grapple with balancing the benefits of online advertising with growing concerns about consumer privacy.