Schwartz On Security: Online Privacy Battles Advertising Profits

Do businesses have the right to make money from the unregulated buying and selling of personal information?

March 30, 2011

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.

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