BOSTON (06/13/2000) - The U.S. Federal Trade Commission (FTC) and leading Internet advertising networks such as DoubleClick Inc. are negotiating an industry self-regulatory scheme aimed at addressing privacy concerns about consumer profiling and Web personalization.
The negotiations were disclosed this morning at a U.S. Senate Commerce Committee hearing, at which Jodie Bernstein, director of the FTC's consumer protection bureau, said the talks are expected to wrap up "in a week or two."
Bernstein said the chances are "better than 50-50" that a self-regulation program will be successfully negotiated with DoubleClick and other companies.
But if the talks don't lead to an agreement, she said, the FTC may make legislative recommendations on the issue.
Companies that violate the proposed self-regulatory guidelines could be hit with an FTC injunction for deceptive practices and fined up to $11,000 per day for each violation, Bernstein and another FTC official said at today's hearing.
Despite the attempt at self-regulation, though, several senators expressed grave doubts that the approach will work - or that it will forestall the increasing congressional support for privacy legislation - Sen. John McCain (Republican-Arizona) the commerce committee's chairman, said the FTC will have to do a great "selling job" on Capitol Hill for any self-regulation plan.
The talks involve the FTC, the U.S. Department of Commerce and the Network Advertising Initiative, a coalition of third-party advertising networks such as DoubleClick, Engage Inc. and 24/7 Media Inc.
The network advertising companies don't just supply banner ads to Web sites, they also gather data about the consumers who view their ads, primarily using Internet cookies that track the actions of individual users on the Web.
For example, an FTC staffer using a cleaned-out PC spent just 15 minutes surfing some of the Web's most popular sites and collected 124 cookies. This "clickstream" data can be combined with off-line information about demographic characteristics to create a wide-ranging profile of individual consumers, according to an FTC report released at the hearing.
Daniel Jaye, chief technology officer at Engage in Andover, Massachusetts, said companies have to collect all that information in order to track the effectiveness of Internet advertising, which pays for the Web's wealth of free content. Furthermore, he said many of the practices are similar to those used in the off-line world of direct marketing, such as renting catalog mailing lists and magazine subscription lists.
But Senator Richard H. Bryan (Democrat-Nevada) called the monitoring activity "the dark side" of e-commerce. "If a consumer went to the local mall and someone behind them was taking notes on where they shopped and how long and what they bought - and then sold that information to third parties - consumers would be offended and outraged," he said.
McCain said there's a danger that online profiling could create a "dossier" of people's religious, political, financial and medical information. Companies "can track the Web sites we visit, the pages we view, the time and duration of our visits, terms entered into search engines, purchases, response to advertisements and the page we visited before coming to that site," he added.
The Network Advertising Initiative members negotiating the self-regulation program represent about 90% of the Internet ad market. But Senator Ron Wyden (Democrat-Oregon) said he's concerned about how to regulate the online profilers that "operate in the shadows" and aren't interested in self-restraint. "People who are not signatories (to the guidelines) can do any darn thing they want . . . with online profiling," he said.