LEGAL CORNER

Change is Coming to Online Marketing Practices by Choice or by Regulation

Plenty has been written in the popular press about privacy for social media sites.  For example, one husband was surprised to see his wife show up on a dating advertisement on Facebook which is the target of a privacy lawsuit in California.  Google is often made a privacy rights punching bag.  While these types of stories occasionally wedge their way on to the front page, the less-reported story about the Obama Administration’s scrutiny of the entire online marketing model deserves more attention.

The Federal Trade Commission and its chief of the Bureau of Consumer Protection David C. Vladek is examining the bargain we all make every day whether knowingly or unknowingly—free web surfing and content in exchange for revealing personal data and computer usage habits.   Earlier this year, Mr. Vladek was not pleased with his initial investigation.

This summer, Mr. Vladek was quoted in the New York Times and the Wall Street Journal that standard confusing privacy policies do not provide clear information to consumers about what information is collected and how it is used.  The FTC listed the scrutiny of online marketing and privacy issues as one of its “major goals.”  The FTC said new regulations are possible if the industry does not police itself better by next summer. 

The noise from Washington is more than just mere words.  In June, the FTC settled a case with Sears Holdings Management Corp.   Sears offered its customers $10 if the customer would download software onto their computers allowing Sears to monitor online browsing.  The program allowed Sears to see whatever bank statements and prescriptions the user may have accessed online.   The FTC suggested Sears’ lengthy privacy policy did not make these revelations clear.  Sears agreed to destroy the information and stop the practice.

The FTC may be following the lead of Canada’s Privacy Commissioner which recently targeted Facebook resulting in changes to Facebook’s privacy practices.  The changes came after the Canadian Privacy Commission issued a lengthy report noting the risks posed by the unwitting disclosure of personal information to Facebook’s third-party developers who provide the popular games and quizzes.  Facebook formally responded outlining steps it was taking to the satisfaction of the Canadian authorities.

These massive social networking sites steal the headlines, but it is possible any regulations could have broader effects on the entire online marketing industry.  Any restrictions on use of browsing data could constrain Yahoo, Google and MSN’s business models.

 I imagine most readers of this publication realize their online use and search terms are being recorded and analyzed by the search engines.  It is a trade we are willing to make for more relevant search results and those friendly book recommendations from Amazon.  I am not a conspiratorialist and believe most of us are smart enough to avoid providing data to certain sites that may not appear on the level.  But, what about your parents or grandparents? Are they too intrigued to find out their IQ or know what Hollywood actor would play them in a movie to know when not to provide personal information?  How would you feel if the government or Wal-Mart knew what terms you searched today?

The rumblings from the FTC mean that unless you want the federal government deciding what information is maintained and how it is used, online marketers and website operators need to police themselves.  The FTC expects more transparency and the industry should deliver.  The simple disclosure of what information is maintained by websites and how it is used in plain English is probably enough to keep the wolves at bay.   The FTC does not want these disclosures hidden in the ninth link of a Terms of Use or Privacy Policy hidden on the bottom of the page.  It seems to me an enterprising social media company would want to exploit the very transparency and ease of use Web 2.0 promotes.  Why wouldn’t there be a simple video that explains what information is collected and what the site does with it?

Adhering to the policy is even more important then disclosing the policy.  Too many times I have seen companies not invest the time to coordinate their technology with their privacy policy and simply cut and paste a form policy from another site.  In one case, a jury awarded $4.5 million against a company that assisted students applying online for colleges.  The site contained a privacy policy that said it was not sharing personal information and the testimony revealed the privacy policy was copied from another site.  The company was indeed sharing the information and the jury penalized the company for that.

In typical Obama-esque rhetoric, for the online marketing industry, this is your moment, this is your time and this is your opportunity.  Otherwise, regardless of whether you supported “Change” or not, the current Administration may be bringing forced change to the industry.  The FTC expects progress by the Summer of 2010; the clock is ticking.