FTC Chairman Pushes for Increasingly Specific “Self” Regulation of Behavioral Advertising

In recent weeks, FTC Chairman Jon Leibowitz has encouraged the behavioral advertising industry to adopt increasingly specific "self" regulatory measures to address privacy concerns. Behavioral advertising, which the FTC has described as the practice of  “tracking of a consumer’s activities online . . . in order to deliver advertising targeted to the individual consumer’s interests” is a concern for consumer groups.  Consumers’ concerns range from the transparency of the process to the adequacy of security measures in place to protect information compiled, to the impact of behavioral advertising on vulnerable consumers. In recent statements, Leibowitz has suggested that he remains unsatisfied with industry efforts to address these concerns.

According to Reuters, in late April Leibowitz told the Reuters Global Financial Regulation Summit: “From my perspective, the industry is pretty close to its last clear chance to demonstrate” that it can police itself. Then, on May 12, Leibowitz suggested that the FTC has specific ideas as to how that policing should occur. In an interview on C-Span, Leibowitz questioned the adequacy of provisions giving consumers the option to “opt-out” of behavioral advertising.  Leibowitz explained that although “[o]pt-out isn’t illegal necessarily, but I think the better practice is opt-in.” The difference between the two practices lies in the default option: for opt-out, customers who do not take the initiative to change their options allow data tracking, while pt-in would require the industry to obtain express permission from consumers before tracking consumer data for advertising purposes.

These comments echo a concurring statement Leibowitz issued with a recent FTC staff report on self-regulation of behavioral advertising.  In November 2007, the FTC held a public town hall meeting to discuss behavioral advertising. Then, in December 2007, it issued a report identifying “possible self-regulatory principles” for behavioral advertising. Specifically, the FTC identified the following principles to guide self-regulatory efforts by the industry:

  • transparency/consumer control;
  • reasonable security and limited data retention for consumer data;
  • affirmative, express consent for material changes to existing privacy promises;
  • affirmative express consent to (or prohibition against) using sensitive data for behavioral advertising;

Finally, the report also issued a call for additional information regarding using tracking data for purposes other than behavioral advertising. In February 2009, the FTC issued a follow-up report, Self-Regulatory Principles for Online Behavioral Advertising, advancing the same principles with some clarification.  For example, while the first two principles remain unchanged, the FTC staff clarified that express consent for material changes is only suggested for changes that affect information already collected.  The report also clarifies that the principles apply to "any data collected for online behavioral advertising that could reasonably be associated with a particular consumer or a particular computer or device. The report continues to urge the industry to obtain consent before using sensitive data — such as financial or health information — for advertising.  Leibowitz issued a concurring statement to the report, in which he emphasized that "the Report’s endorsement of self-regulation" should be "viewed neither as a regulatory retreat by the Agency nor an imprimatur for curent business practice." He stated that "[i]ndustry need to do a better job of meaningful, rigorous self-regulation or it will certainly invite legislation by Congress and a more regulatory approach by our Commission."  Leibowitz also cautioned that the FTc "will go after" all companies that fail to keep their promises about they they will use consumers’ information.  He concluded by warning that "[a] day of reckoning may be fast approaching."

It is unclear why the FTC has encouraged self-regulation in this area, as opposed to pursuing direct regulation. While the industry remains officially unregulated, Leibowitz’s recent comments encouraging the use of "opt-in" procedures suggest that he may be attempting to accomplish an increasingly specific regulatory agenda through “self-regulation.”  It remains to be seen whether the FTC will continue to encourage the industry to adopt the standards the FTC would like to see, or whether, as Leibowitz has predicted, Congress or the FTC will adopt a more regulatory approach.


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