Does N.Y. Consumer Privacy Bill Really Threaten Ad Targeting?

For Web publishers and ad networks reliant on behavioral targeting, the enactment of a law barring data collection without the express consent of end users is pretty much the worst scenario imaginable.

Now the nightmare has arrived.

Or so one might gather from a New York Times report yesterday. The story suggested the proposed legislation could end common uses of consumer data for ad targeting.

Is that really the case?

According to The Times, the bill “would make it a crime… for certain Web companies to use personal information about consumers for advertising without their consent.”

Yet a close look at the legislation, introduced last June by Assemblyman Richard Brodsky, shows the Times statement — while true — is a bit of a red herring. That’s because the bill itself matches almost verbatim the Network Advertising Initiative’s (NAI) own original self-regulation principles, which already disallow the use of personally identifiable information for ad targeting without consent.

From the NAI Principles:

Network advertisers shall neither use personally identifiable information about sensitive medical or financial data, sexual behavior or sexual orientation, nor social security numbers, for OPM [online preference marketing].

From Assemblyman Brodsky’s nearly identical bill:

A third party entity shall neither use personally identifiable information about sensitive medical or financial data, sexual behavior or sexual orientation, nor social security numbers, for online preference marketing. (Download and read the document in its entirety.)

All NAI members are already required to conform to these principles, and the consensus is that they do so. The list of compliant companies includes Yahoo, Tacoda (and through it AOL), DoubleClick (and through it Google), Atlas (and through it Microsoft), Revenue Science, and others. The bill in its current form would require no changes in the common practice of BT.

The differences here are largely punitive. The proposed legislation would permit the New York Attorney General to impose fines of between $1,000 and $3,000. (The NAI’s principles are enforceable by the Federal Trade Commission, and the group has agreed to set up a third party enforcement body to enforce compliance and refer cases to the FTC.)

So nothing to worry about, right?

Not so fast. Trevor Hughes, the NAI’s executive director, notes that the bill could have the effect of “etching in stone” a legislative baseline that’s already showing some wear. Indeed, the NAI and its members recently undertook a project to revamp the group’s aging principles. The new principles will take into account numerous changes wrought on the digital ad landscape in the seven years since the original document was created. One of the larger changes has happened more recently, as ISPs have begun testing user tracking technology that will allow them to make money from behavioral targeting.

“There’s some recognition that… standards for newer practices and more novel business models should bear some scrutiny to determine whether they deserve treatment under a self-regulatory program,” said Hughes when the group announced its principles re-do three months ago.

New York’s embrace of the older guidelines would neuter the new ones, not to mention ignore the FTC’s recent determination that self-regulation is preferable to legislation.

“Our members, their guidepost would be [this legislation],” Hughes said. “This supersedes what the NAI is doing today.”

One other difference is that the bill would apply to all companies engaged in data-driven ad targeting, not merely NAI members. The NAI and FTC both have plans to address the currently limited jurisdiction of behavioral targeting self-regulation. The NAI has said it is considering expanding the definition for membership such that its ranks may soon grow from roughly a dozen to over 100. The FTC meanwhile has proposed BT industry self-regulation guidelines it hopes will act as a line of defense for consumer privacy without creating laws. It hopes to release formal guidelines this year.

How’s the ad community responding to the draft legislation? When I reached New York Assemblyman Richard Brodsky’s office yesterday, the person who answered said phones were ringing off the hook. I was transferred to the Assemblyman’s legislative director, Kent Sopris, who confirmed the bill was taken from the NAI’s old principles and emphasized he wanted feedback from marketers.

“We’ve obviously had a lot of phone calls on this,” he said.