Ad Agreement May Mean E-Commerce Site Changes

Some e-commerce companies may soon have to change their online privacy policies and practices as a result of a recent agreement between large network advertisers and the Clinton administration regarding online data collection.

In a landmark pact announced late last month, DoubleClick and eight other network advertisers that collectively own more than 90 percent of the market agreed to follow a set of self-regulatory guidelines for collecting online data. But the guidelines will ultimately affect e-commerce sites through new contract terms they will get from the network advertisers.

Federal officials believe network advertisers will raise the bar on online privacy for e-commerce sites. Network advertisers are hoping that the self-regulatory guidelines will slow efforts in Congress to pass privacy legislation. Others aren't so sure what the effect will be.

"I'm not convinced that this will change anything in the near term," said Jordan Rosner, director of new-media marketing at Pfizer Pharmaceuticals Inc. in New York. The guidelines will improve the practices of some big companies, but there are still going to be firms "willing to take the risk of public backlash" over their privacy practices, he said.

The U.S. Federal Trade Commission applauded the self-regulation agreement developed by the group of nine network advertisers, known as the Network Advertising Initiative. But the FTC said privacy legislation will still be needed to ensure that network advertisers that aren't part of the NAI comply with the agreement.

Network advertisers supply banner advertisements but may also collect data on browsing habits, largely through the use of cookies -- unique identification tags placed on an end user's computer. The agreement sets restrictions on the use of that data.

For instance, e-commerce sites will have to notify end users when online profiling is taking place and offer an "opt out" option.

But the agreement also opens the door to the most controversial aspect of online profiling: the merging of personal information, including names and addresses, with Web browsing habits -- and sharing the information with third parties. Under the agreement, e-commerce sites that take this route will have to offer "robust" and explicit notification and give end users the ability to remain anonymous.

This provision has alarmed privacy advocates, who fear that end users won't learn the true implications of data sharing. "Clearly, if you read any advertising statement, they're not exactly neutral," said Andrew Shen, a policy analyst at the Electronic Privacy Information Center in Washington.

But the FTC can enforce the guidelines, say legal experts. If a company doesn't follow its privacy policy, it is risking legal action for deceptive trade practices.

"If a company posts a privacy policy, it better be accurate. And if it's not accurate, that could be a violation of the Federal Trade Commission act," said John Bentivoglio, a former chief privacy officer at the U.S. Department of Justice and now an attorney at Arnold & Porter in Washington.

DoubleClick, the largest of the network advertisers, says it has no plans to begin merging personally identifiable data despite this agreement. In March, the company backed off on plans to combine personally identifiable data with Web surfing habits after facing wide-ranging criticism.

But pressure from advertisers for better online profiling data may prompt some network advertisers to seek end-user approval to link a name with Web browsing habits. Without that information, e-commerce merchants are limited in how they can respond to customers. "It's as if someone is standing in front of you with a paper bag over their head," said analyst Eric Schmitt at Forrester Research Inc. in Cambridge, Mass.

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