DMA Politically Direct (Summer 2008): Behavioral Targeting and Online Advertising Under Scrutiny; DMA Responds

August 27, 2008 — Throughout the summer, both chambers of Congress have been holding hearings on various topics relating to behavioral and online marketing.

On June 25, the House Small Business Committee held a hearing on the impact of online advertising on small companies. Rep. Charlie Gonzalez (D-TX), chairman of the Subcommittee on Regulations, Health Care and Trade, expressed concern that the recent search advertising deal between Google and Yahoo! could prompt government action in this area. Moreover, Gonzalez and other panel members remained hesitant to take any steps to further regulate the Internet at this time.

The Senate Committee on Commerce, Science, and Transportation held a hearing July 9 entitled “Privacy Implications of Online Advertising” that focused on the current state of the online advertising industry, its impact on users’ privacy, and what role self-regulation or legislation could play in protecting consumer privacy.

The hearing included witnesses representing the Federal Trade Commission (FTC), Facebook, Google, Microsoft, NebuAd Incorporated, the Center for Democracy and Technology, and the Competitive Enterprise Institute. Many of the senators’ questions focused on how personally identifiable information collected online could be used to identify specific individuals, as well as their habits and preferences, and how such information is being shared.

The FTC’s Lydia Parnes, director of the FTC’s Bureau of Consumer Protection, stated that, due to the rapid speed at which technology is changing, the agency currently favors an approach that is self-regulatory, rather than legislative, when addressing online privacy issues. DMA supports this approach.

Sen. Byron Dorgan (D-ND), chairman of the committee, announced that the committee would hold another hearing in the near future regarding online advertising to examine further the role of Internet Service Providers (ISP) in ensuring the privacy of their customers.

On July 14, DMA Senior Vice President of Government Affairs Jerry Cerasale issued a statement commending the FTC for “balancing the need to notify consumers when their personal information is compromised with that of not over-burdening companies and consumers with notification requirements.”

Focus on ‘Deep Packet Inspection’

On July 17, the House Energy and Commerce Subcommittee on Telecommunications examined the use of technologies that allow ISPs to monitor their customers’ Internet activities for potential marketing opportunities. During the hearing, members from both parties expressed opposition to a practice known as “Deep Packet Inspection” (DPI), which allows ISPs to monitor, record, and analyze the content of data sent via the Internet.

There was also considerable discussion regarding a shift in consumer sentiment towards opt-in privacy policy versus the current opt-out standard. Committee Chairman Ed Markey (D-MA) publicly commented that he was “setting the stage” for action during the next Congress on legislation that would require companies to obtain permission from consumers before engaging in such activities as DPI.

The House Energy and Commerce Committee subsequently sent a letter to top cable, phone, and Internet companies, asking for information about their data collection policies. This letter inquires about the nature and extent to which these companies engage in tailored Internet advertising, and the impact these practices could have on consumer privacy.

On August 11, the House released the companies’ responses, noting that several of them had acknowledged using targeted-advertising technology without explicitly informing customers.

Commenting on the companies’ feedback, Rep. Markey, who created the Privacy Caucus 12 years ago, said, “Our responsibility is to make sure that we create a law that, regardless of the technology, includes a set of legal guarantees that consumers have with respect to their information.” Markey added that he and his colleagues plan to introduce legislation next year, a sort of online-privacy Bill of Rights, that would require that consumers must opt in to the tracking of their online behavior and the collection and sharing of their personal data.

Focus on Google-Yahoo Deal

Both chambers of Congress have also held hearings to consider the implications of a proposed commercial arrangement between Google and Yahoo that would allow Yahoo to outsource a portion of its search advertising services to Google.

The major concerns raised by members present at the hearings included how this arrangement would affect advertisers (including pricing and access to audiences), Yahoo’s incentive to continue to compete and innovate, and whether the agreement could lead to establishing price minimums in the search advertising market.

No Legislation Expected to Pass in 2008

DMA does not anticipate that any legislation on behavioral marketing will be passed this year. However, the issue is gaining momentum and is likely to be at the top of the next Congressional agenda.

To that end, DMA will continue to work with Congressional offices on this important issue.

Additionally, since April, DMA has been evaluating its Guidelines for Ethical Business Practice to ensure that they are applicable to behavioral advertising. DMA intends to provide draft revisions and interpretations that show how existing guidelines apply in the behavioral advertising arena. The revisions will include a means of increased consumer notice, transparency, and choice regarding certain uses of data, and will be made available to DMA membership for consideration and comment.

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