Schwartz On Security: Online Privacy Battles Advertising Profits

Are people being hurt when their browsing habits and personal details are collected by online advertising groups?

Privacy rights organizations say yes, that people's sensitive information shouldn't be left in the hands of businesses that benefit from buying and selling it. Online advertising and financial services groups, however, argue that tracking is essential for delivering more relevant advertising, and of course it's the uptake of this advertising that keeps the lights on at many a Web site.

Those opinions come from the 442 comments received by the FTC after it released, in December 2010, its proposal for a privacy framework for public feedback. In the framework, the FTC proposes regulating companies that handle or collect people's personal information, and providing options such as Do Not Track for consumers to opt out of online tracking.

As that proposal suggests, the currently unregulated, free-market approach to selling people's personal information is drawing intense scrutiny. That's due in no small part to The Wall Street Journal's July 2010 What They Know investigative reporting, which detailed the array of cookies and surveillance technologies being used to monitor the who, what, and where of Web site visits. The latest technology can even function in real time, correlating email addresses, movie preferences, income, medical conditions, and more, while resisting attempts to be deactivated.

Online tracking isn't a small business. Notably, the Journal's investigation found that the top 50 Web sites -- which account for about 40% of all page views -- kept close tabs on their users, installing on average 64 different pieces of surveillance technology. For comparison's sake, noted the reporters, Wikipedia installed none.

Furthermore, a thriving micro-economy has emerged in which collected information gets traded on stock-market-like exchanges. According to the report, "in between the Internet user and the advertiser, the Journal identified more than 100 middlemen -- tracking companies, data brokers, and advertising networks -- competing to meet the growing demand for data on individual behavior and interests."

These businesses like life just the way it is, thank you very much. In particular, the Interactive Advertising Bureau -- its nearly 500 members sell and support interactive advertising -- "believes that the appropriate approach to addressing consumer online privacy issues is through industry self-regulation and education," according to its comments on the proposed FTC privacy framework. Self-regulation, it said, will "address privacy concerns while ensuring that the Internet can thrive, thereby benefiting both consumers and the U.S. Economy." That golden goose may go bye-bye if the government enshrines a person's right to online privacy. The White House is backing stronger privacy rights, as are three bills pending in the House and one in the Senate.

What might such legislation look like? Sens. John Kerry (D-Mass.) and John McCain (R-Ariz.) are co-sponsoring a "Privacy Bill of Rights." While the bill is still a work in progress, a recently leaked, draft version aims to regulate organizations that use, transfer, or otherwise handle personally identifiable information (PII) or unique identifier information relating to 5,000 or more people per year.

"Some provisions require businesses to comply with specific obligations when dealing with 'sensitive' PII, which is defined as PII which, if lost, compromised, or disclosed without authorization, could 'result in harm to an individual,'" said attorney Nicole Friess, an associate at Information Law Group, in a blog post.

Fines would run $16,500 per day, multiplied either by the number of days of noncompliance or the number of people harmed. "However, liability is capped at $2 million or $3 million depending on the nature of the violation," she said.

But many questions remain unanswered, such as what constitutes "tracking" or "harm." For example, in its comment on the FTC's privacy framework, the Mercatus Center at George Mason University made the humorous, but often true, observation: "How Do We Conduct Cost-Benefit Analysis When 'Creepiness' Is the Alleged Harm?" noted attorney Richard Santalesa, senior counsel at Information Law Group, in a blog post.

In fact, the Mercatus comment argues that consumers stand to gain more than they lose from tracking. "Importantly, nothing in the Commission's proceeding has thus far demonstrated that online data collection and 'tracking' represent a clear harm to consumers per se, or that any 'market failure' exists here," it said. "Such a showing would be difficult since using data to deliver more tailored advertising to consumers can provide important benefits to the public.

So let's put the question out there: Is better advertising worth the potential tradeoff of anyone being able to buy detailed information about your browsing habits, income, or medical conditions? Because with luck, you'll be able to decide.