On February 12, 2009, the FTC issued its long-anticipated Staff Report on Self-Regulatory Principles for Online Behavioral Advertising. The revised Self-Regulatory Principles are the result of a year of study of the more than 60 comments provided by industry, advocacy organizations, academics, and individual consumers in response to the FTC’s proposed self-regulatory principles issued in late 2007. For more on the history, see our prior posts on the history here, here, here, and here.

Not surprisingly, the FTC made clear that “these Principles are guidelines for self-regulation and do not affect the obligation of any company (whether or not covered by the Principles) to comply with all applicable federal and state laws.” And the Principles themselves, set forth below, largely reflect existing FTC law in this area. For example, it is well established that a company may not unilaterally alter its policies and use previously collected data in a manner that materially differs from the terms under which the data was originally collected. See In the Matter of Gateway Learning Corp., FTC Docket No. C-4120 (Sept. 10, 2004).

The FTC defines online behavioral advertising as “the tracking of a consumer’s online activities over time– including the searches the consumer has conducted, the web pages visited, and the content viewed – in order to deliver advertising targeted to the individual consumer’s interests.” The newly revised Principles now explicitly carve out “first party” advertising, where no data is shared with third parties, and contextual advertising, where an ad is based on a single visit to a web page or single search query.

Our challenge at the Proskauer Privacy Law Blog is to synthesize a 55 page Staff Report and two concurrences from Commissioners Harbour and Leibowitz into a pithy, easily digestible blog post. Hmmm. Well, we thought we would start with the Principles themselves. But first, a couple of observations.

Observation number one – the Report frequently goes out of its way to note the eroding distinction between traditional personal identifying information (“PII”) such as name, address and Social Security, and non-PII such as IP address. As noted in the Executive Summary, “staff believes that the Principles should apply to data that could reasonably be associated with a particular consumer or computer or other device, regardless of whether the data is ‘personally identifiable’ in the traditional sense. Indeed, in the context of online behavioral advertising, rapidly changing technologies and other factors have made the line between personally identifiable and non-personally identifiable information increasingly unclear. Moreover, this approach is consistent with existing self-regulatory efforts in this area.” Those blurring lines and increasingly complex technology and advertising practices promise to pose considerable challenges for the construction of clear and user-friendly consumer privacy notices.

Observation number two — the Report makes clear that disclosures regarding the collection of PII and non-PII for purposes of behavioral marketing should be made separate from the traditional privacy policy.  “Staff recognizes that it is now customary to include most privacy disclosures in a website’s privacy policy. Unfortunately, as noted by many of the commenters and by many participants at the FTC’s November 2007 Town Hall, privacy policies have become long and difficult to understand, and may not be an effective way to communicate information to consumers. Staff therefore encourages companies to design innovative ways – outside of the privacy policy – to provide behavioral advertising disclosures and choice options to consumers.”  The Staff Report highlights certain recommendations made by commenters that “appear promising. For example, a disclosure (e.g., ‘why did I get this ad?’) that is located in close proximity to an advertisement and links to the pertinent section of a privacy policy explaining how data is collected for purposes of delivering targeted advertising, could be an effective way to communicate with consumers. . . . Staff encourages these efforts and notes that they may be most effective if combined with consumer education programs that explain not only what information is collected from consumers and how it is used, but also the tradeoffs involved – that is, what consumers obtain in exchange for allowing the collection and use of their personal information.”

So, without further ado, here are the Principles. They provide for: (1) transparency and consumer control; (2) reasonable security, and limited data retention, for consumer data; (3) affirmative express consent for material changes to existing privacy promises; and (4) affirmative express consent to (or prohibition against) using sensitive data for behavioral advertising. The bolded italicized language below represents the FTC staff’s own annotations showing changes from the first version in late 2007.

(1)        Transparency and Consumer Control

Every website where data is collected for behavioral advertising should provide a clear, concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option. Where the data collection occurs outside the traditional website context, companies should develop alternative methods of disclosure and consumer choice that meet the standards described above (i.e., clear, prominent, easy-to-use, etc.)

(2)               Reasonable Security, and Limited Data Retention, for Consumer Data

Any company that collects and/or stores consumer data for behavioral advertising should provide reasonable security for that data. Consistent with data security laws and the FTC’s data security enforcement actions, such protections should be based on the sensitivity of the data, the nature of a company’s business operations, the types of risks a company faces, and the reasonable protections available to a company. Companies should also retain data only as long as is necessary to fulfill a legitimate business or law enforcement need.

(3)               Affirmative Express Consent for Material Changes to Existing Privacy Promises

As the FTC has made clear in its enforcement and outreach efforts, a company must keep any promises that it makes with respect to how it will handle or protect consumer data, even if it decides to change its policies at a later date. Therefore, before a company can use previously collected data in a manner materially different from promises the company made when it collected the data, it should obtain affirmative express consent from affected consumers. This principle would apply in a corporate merger situation to the extent that the merger creates material changes in the way the companies collect, use, and share data.

(4)               Affirmative Express Consent to (or Prohibition Against) Using Sensitive Data for Behavioral Advertising

Companies should collect sensitive data for behavioral advertising only after they obtain affirmative express consent from the consumer to receive such advertising.

We will have future occasion to discuss other elements of the FTC’s Report, but it is clear this will not be the last we hear from the FTC on this issue. “Looking forward, the Commission will continue to monitor the marketplace closely so that it can take appropriate action to protect consumers. During the next year, Commission staff will evaluate the development of self-regulatory programs and the extent to which they serve the essential goals set out in the Principles; conduct investigations, where appropriate, of practices in the industry to determine if they violate Section 5 of the FTC Act or other laws; meet with companies, consumer groups, trade associations, and other stakeholders to keep pace with changes; and look for opportunities to use the Commission’s research tools to study developments in this area.”