On July 17, 2008, the House Telecommunications and Internet Subcommittee examined the practice of deep packet inspection (DPI), a method for networks and third parties to determine what information users (identified by IP addresses or random ID numbers) are searching for and accessing on the Internet in order to tailor more relevant advertising based on an individual’s interests. DPI is often cookie-based and does not link personally identifiable information with user surfer behavior.

The House Subcommittee’s hearing focused on whether the online advertising industry should be required to use opt-in systems, or whether current opt-out systems adequately protect consumers’ privacy. The July 17 hearing is the latest in a series of efforts by regulators and legislators to better understand behavioral targeting.

As discussed here in our posts, in December 2007, the Federal Trade Commission issued for public comment proposed online behavioral advertising principles designed to guide the industry in self regulation. The proposed principles state that websites should provide clear notice when they collect an individual’s information and that data collectors should obtain affirmative, express consent before using certain categories of sensitive data for marketing purposes.  The FTC is in the process of reviewing and evaluating dozens of comments filed in response to the proposed principles.

On July 9, 2008, the Senate Committee on Commerce, Science, and Transportation held a hearing to consider the current state of the online advertising industry and the potential impact on user privacy. Industry representatives and consumer advocates, including Microsoft Corp., NebuAd Inc., the Center for Democracy and Technology, Google Inc., the Competitive Enterprise Institute, and Facebook Inc., testified. As noted in the FTC’s press release of July 9, according to the testimony of Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection, “behavioral advertising may provide a variety of benefits to consumers, including free content, personalization of ads, and a potential reduction in unwanted advertising. Consumer research has shown that consumers value online ads that are more personalized. These ads may facilitate shopping for specific products. Further, behavioral advertising may help subsidize and support a diverse range of free online content and services that might otherwise not be available or that consumers would have to pay for, for example, blogging, search engines, and instant access to news and other information.”

This is certainly not the end of the discussion – the industry awaits the FTC’s completion of its review regarding the proposed self-regulatory principles, and Congressional leaders have stated their intent to further explore behavioral targeting.

The author thanks Proskauer summer associate Julie Shah for her substantial contribution to this post.