Hints of a Clash with FTC as NAI Revamps Behavioral Ad Rules

Industry proponents of behavioral targeting may be in for a tussle with the Federal Trade Commission over disclosure of data use.

The final version of the Network Advertising Initiative’s (NAI) code of conduct for behavioral ads, released yesterday, introduces changes intended to clarify some terms and update the group’s existing policies. It also restricts the types of data that can be collected for ad targeting without first getting explicit permission from the end user.

The code is more striking for what’s missing. Namely this: The NAI does not increase the requirements for how ad networks and publishers notify Internet users of their data collection practices. As with its previous rules, released in 2001, the new document requires only that those practices be outlined in the small type of privacy policies.

That position diverges from the FTC’s guidance in its draft guidelines, which state Web sites collecting data should provide notice of their behavioral targeting practices in a manner that’s “clear, concise, consumer-friendly, and prominent.”

NAI Executive Director Trevor Hughes said it would be logistically difficult to provide notice either inside an ad or on the page where the ad is delivered. One reason, he said, is that the bulk of NAI’s members are neither advertisers nor the publishers, but the companies that sit between them. Therefore, he claimed, they have no direct control over the real estate on Web sites or in banners.

“We think the privacy policy is still the right place to deliver notice,” he said. “It’s really difficult to conceive of an industry wide solution that provides notice either in the banner or on the page where the ad is delivered.”

An FTC public affairs officer declined to comment on the disclosure issue, but she said an upcoming staff report on behavioral targeting would spell out the Commission’s position on notice and other aspects of behavioral targeting.

“The Federal Trade Commission encourages self-regulation and is pleased to see development on this front,” is all she would say.

The NAI includes all the top U.S. Web companies, including Google, Yahoo, Microsoft, AOL, and Fox Audience Network, among many other small behavioral networks and other firms. The group acts as their central body for setting and policing data use at a time when the FTC has advocated self-regulation in the space.

The group has grown significantly in 2008. Back in April it had 15 members, up from a low of four at the bottom of the 2001/2002 dot-com bust. It has nearly doubled in the seven months since then, to 25 members.

Hughes said further expansion of the NAI’s membership is a distinct possibility, but he expects growth would be hampered by a variety of dynamics.

“The economy, the level of intensity that is focused on behavioral targeting and the privacy issues in the space — all of those will be factors,” he said.

Along with its new code of conduct, the NAI published a document listing the feedback it received during the open comment period for its new guidelines. For instance, one commenter declared the definition of “security” should be expanded to include the “transfer” of data along with its existing “storage” and “use.” The association agreed and made the change.

The transparent process failed to address the concerns of privacy advocate the Center for Digital Democracy (CDD). The group criticized the NAI document for concealing data use disclosure and playing loose with consumer information.

Jeff Chester, executive director of CDD, argued the association’s definition of personally-identifiable information (PII) is too limited in an age when marketers can deliver ultra-targeted offers without necessarily knowing a person’s name. He said the definition of PII should be expanded to include forms of identification other than a person’s name, address, or phone number.

“Given the growing use of outside consumer information databases for more precise profiling, advanced behavioral marketing analytics, and more refined user targeting…the concept of PII must be revised to reflect contemporary online advertising practices,” Chester wrote in a statement.

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