Markets Wired

The Federal Trade Commission, the nation’s chief privacy policy and enforcement agency for 40 years, issued a preliminary staff report today that proposes a framework to balance the privacy interests of consumers with innovation that relies on consumer information to develop beneficial new products and services. The proposed report also suggests implementation of a “Do Not Track” mechanism – likely a persistent setting on consumers’ browsers – so consumers can choose whether to allow the collection of data regarding their online searching and browsing activities.

“Technological and business ingenuity have spawned a whole new online culture and vocabulary – email, IMs, apps and blogs – that consumers have come to expect and enjoy. The FTC wants to help ensure that the growing, changing, thriving information marketplace is built on a framework that promotes privacy, transparency, business innovation and consumer choice. We believe that’s what most Americans want as well,” said FTC Chairman Jon Leibowitz.

The report states that industry efforts to address privacy through self-regulation “have been too slow, and up to now have failed to provide adequate and meaningful protection.” The framework outlined in the report is designed to reduce the burdens on consumers and businesses.

“This proposal is intended to inform policymakers, including Congress, as they develop solutions, policies, and potential laws governing privacy, and guide and motivate industry as it develops more robust and effective best practices and self-regulatory guidelines,” according to the report, which is titled, “Protecting Consumer Privacy in an Era of Rapid Change: A Proposed Framework for Businesses and Policymakers.”

Leibowitz added that the FTC, in addition to making policy recommendations, “will take action against companies that cross the line with consumer data and violate consumers’ privacy – especially when children and teens are involved.”

The FTC staff developed the proposed framework in recognition of increasing advances in technology that allow for rapid data collection and sharing that is often invisible to consumers. Although many companies use privacy policies to explain their information practices, the policies have become long, legalistic disclosures that consumers usually don’t read and don’t understand if they do. Current privacy policies force consumers to bear too much burden in protecting their privacy.

To reduce the burden on consumers and ensure basic privacy protections, the report first recommends that “companies should adopt a ‘privacy by design’ approach by building privacy protections into their everyday business practices.” Such protections include reasonable security for consumer data, limited collection and retention of such data, and reasonable procedures to promote data accuracy. Companies also should implement and enforce procedurally sound privacy practices throughout their organizations, including assigning personnel to oversee privacy issues, training employees, and conducting privacy reviews for new products and services.

Second, the report states, consumers should be presented with choice about collection and sharing of their data at the time and in the context in which they are making decisions – not after having to read long, complicated disclosures that they often cannot find. The report adds that, to simplify choice for both consumers and businesses, companies should not have to seek consent for certain commonly accepted practices. It is “reasonable for companies to engage in certain practices – namely, product and service fulfillment, internal operations such as improving services offered, fraud prevention, legal compliance, and first-party marketing,” the report states. “By clarifying those practices for which consumer consent is unnecessary, companies will be able to streamline their communications with consumers, reducing the burden and confusion on consumers and businesses alike.”

One method of simplified choice the FTC staff recommends is a “Do Not Track” mechanism governing the collection of information about consumer’s Internet activity to deliver targeted advertisements and for other purposes. Consumers and industry both support increased transparency and choice for this largely invisible practice. The Commission recommends a simple, easy to use choice mechanism for consumers to opt out of the collection of information about their Internet behavior for targeted ads. The most practical method would probably involve the placement of a persistent setting, similar to a cookie, on the consumer’s browser signaling the consumer’s choices about being tracked and receiving targeted ads.

The report also recommends other measures to improve the transparency of information practices, including consideration of standardized notices that allow the public to compare information practices of competing companies. The report recommends allowing consumers “reasonable access” to the data that companies maintain about them, particularly for non-consumer facing entities such as data brokers. Finally, FTC staff proposes that stakeholders undertake a broad effort to educate consumers about commercial data practices and the choices available to them.

The vote approving the preliminary staff report was 5-0, with Commissioners William E. Kovacic and J. Thomas Rosch issuing concurring statements. Public comments on the report will be accepted until January 31, 2011. To file a public comment electronically, please click here and follow the instructions.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics.