States Could Target Behavioral Sector as Industry Battles for Self-Regulation

Some U.S. states could target the behavioral ad sector and other online ad industry firms, according to a Texas Attorney General’s Office representative. The Federal Trade Commission also hinted at an investigation of behavioral technology companies, an action supported by a senior member of the House Energy and Commerce Committee. Meanwhile, critics last week pummeled the industry’s primary self-regulatory solution intended to help consumers guard against some online data tracking, the Network Advertising Initiative.

Privacy advocates have long pushed for more protections against online consumer data tracking, collection and usage. Their critiques of the interactive ad industry and the NAI intensified last week at a two-day FTC forum in Washington, D.C. held specifically to discuss issues surrounding behavioral ad targeting.

Amid cries of privacy infringement and calls for government intervention, the industry aims to police data-related practices itself. Indeed, big industry players are endorsing the primary self-regulatory body for behavioral ad technologies, the NAI. Yahoo is a new member, and Microsoft and Google submitted applications to join, according to the NAI.

The Interactive Advertising Bureau also is considering a privacy compliance program to improve the industry’s image in the eyes of consumers, privacy watchdogs, and government entities.

But state governments could step in. “I think in general right now the states are looking at a couple of things,” said Brad Schuelke, chief, Internet Enforcement Unit Office of the Texas Attorney General, regarding inspection of behavioral targeting firms. Speaking at last week’s FTC conference on Internet data tracking and ad targeting, Schuelke added, “I think first and foremost it would be the state’s deceptive trade practices and unfair practices statutes.”

California already has laws on the books regarding online data collection and sharing of consumer data.

If the fact that the commission held a two-day forum dedicated to behavioral targeting wasn’t a strong enough signal, FTC commissioner Jon Liebowitz’s remark that “The marketplace alone may not be able to solve all problems inherent in behavioral marketing,” strengthens the possibility of an FTC investigation into the sector. “If we see problems…the commission won’t hesitate to bring cases, or even break thumbs,” he jested.

U.S. Representative Edward Markey (D-MA) also indicated support of an FTC investigation. The senior member of the House Energy and Commerce Committee released a statement Thursday recommending the FTC “promptly investigate” what he called “invasive online advertising practices.”

Though individual firms including Tacoda and AlmondNet have acted to temper consumer privacy concerns, the industry’s primary means of helping users opt-out from being tracked by several behavioral technologies is the NAI’s opt-out tool. The seven-year-old system was deemed a failure by Pam Dixon, executive director of the World Privacy Forum.

“It’s very fragile and it’s very susceptible to deletion,” she said at last week’s FTC conference during a panel on industry self-regulation. Dixon and other NAI detractors argued the system is ineffective because it requires a cookie to be placed on users’ computers that can be easily erased if they delete their cookies. Dixon also lamented the system doesn’t allow people to opt-out from all tracking technologies.

Because the NAI tool was designed to manage opt-outs from what NAI Executive Director Trevor Hughes called “online preference marketing,” he explained, “It is not a one-size fits-all solution for every practice that exists.”

“The membership record of the NAI is perhaps a model example of a failed self-regulatory effort,” notes a World Policy Forum report released Friday which incorrectly names its main subject in its title, “The National Advertising Initiative: Failing at Consumer Protection and at Self-Regulation.” The report suggests more members are necessary for the NAI to have an impact; the trade group lists 11 members on its Web site, not including Yahoo. Companies must join the NAI in order to be part of its opt-out management system.

Texas’s Schuelke suggested the NAI’s approach to self-regulation is faulty in at least one way. “One problem I don’t know is addressable in the model is the not-mandatory membership,” he said.

The largest online ad industry players and servers of the majority of online ads either aim to join the NAI or already have subsidiaries that are members. In addition to AOL’s and Tacoda, Microsoft’s Atlas and WPP’s 24/7, potential Google property DoubleClick is an NAI member. Yahoo is now an NAI member, according to Hughes, who also said Google and Microsoft have applications pending.

“We acquired a company that was a founding member of the NAI,” said Mike Hintze, Microsoft’s associate general counsel, legal and corporate affairs, alluding to Atlas parent company aQuantive. “Separately we’ve been looking at expanding our own activities in [the behavioral targeting] area and we decided early on that once we did move into that area we would join the NAI in our own right.”

The IAB’s Policy Development and Communications Task Force is considering development of a privacy compliance program to address concerns about data-tracking, according to VP, Public Policy Mike Zaneis.

Privacy guardians have conjured an opt-out model they’d like the industry to develop to enable a simple, universal way for consumers to opt-out from data tracking. The yet-to-be-created Do Not Track List would operate by requiring companies that drop persistent tracking technologies on users’ computers to register all domains of servers placing those technologies (typically cookies) on users’ computers. Consumers could then set their browsers to block servers on the list from tracking their Web activity.

“We expect the marketplace to build the tools,” said Center for Democracy and Technology Ari Schwartz during the conference.

Industry representatives called the proposed system daunting from an implementation standpoint, and worried that by blocking sites marked unacceptable by a Do Not Track system, valuable content could be inaccessible to users.

Zaneis also questioned the approach taken by the CDT, which unveiled the proposed system along with other consumer and privacy advocates last week, garnering much media attention. “If they were serious about moving this to implementation, they would recognize the partnership industry has with consumers and they would have brought [the IAB] into the process, but it makes for a good headline,” he said.

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