But the issue is not likely to disappear any time soon. The legislature doesn't start its next term until January, but leaders can still call the group back into session later this year. Democrat Richard Brodsky, the New York assemblyman shepherding the measure, said he intends to continue pushing for the bill at any future sessions this year. He added that if the law doesn't pass this year, he intends to reintroduce it next January.
"This matter is by no means finished," Brodsky said. "There are systematic invasions of privacy that are unnecessary, that the public doesn't know about."
New York is not the only state that is considering regulating the online ad industry. Similar measures were proposed this year in Connecticut and Massachusetts. The Connecticut bill was not passed, but the one in Massachusetts remains under consideration.
Online advertising is also facing scrutiny in Washington. The Federal Trade Commission late last year proposed voluntary standards for behavioral targeting, or serving ads to people based on their Web-surfing history. Those guidelines suggested that any sites that collect data for the purpose of tracking online activity and targeting ads should notify consumers about the practice and give them the ability to opt-out.
Lawmakers are also looking into Internet marketing. Sen. Byron Dorgan (D-N.D.) has called for a hearing about online advertising and privacy, while Reps. Ed Markey (D-Mass.) and Joe Barton (R-Texas) are investigating whether Internet service providers violate subscribers' privacy by sharing data about their Web-surfing activity.
On Wednesday, Randall Rothenberg, president and CEO of the IAB, asked Congress to reject attempts to impose new privacy principles. "A small but vocal coterie of forces opposed generally to marketing, advertising, and open media markets is attempting to advocate to limit the technology responsible for (the) internet advertising revolution," he testified to the House Small Business Committee. "Although these advocacy groups have provided no evidence of public harm, their efforts have begun resulting in regulatory proposals which, if enacted, would severely hinder the ability of small publishers to support themselves with advertising sales, and impair the ability of small businesses to use interactive advertising to market themselves."
In New York, the Brodsky bill would have required companies that engage in behavioral targeting to notify people about the practice and let them opt-out. It also would ban companies from collecting personal information like names or addresses without users' consent.
In many respects, the act would have codified 7-year-old privacy principles of the Network Advertising Initiative, a trade association that includes many of the biggest online ad networks. For that reason, the bill might not have had an impact on many online companies. But opponents of the measure argued that not all online ad networks are members of the Network Advertising Initiative. Opponents also objected in principle to any effort to mandate that all ad networks follow one trade group's voluntary standards.
The Interactive Advertising Bureau lobbied against the measure, going so far as to create a new, discounted class of membership for small publishers in hopes of launching a grassroots campaign against the law.
Mike Zaneis, IAB vice president, public policy, said lobbying efforts helped to persuade New York lawmakers that the bill might harm advertising and media businesses in the state. "As members of the state legislature began to get educated and do their own homework, they understood the negative implications for the New York state economy," he said.
A group called the State Privacy and Security Coalition, made up of 12 Web companies including AOL, Yahoo, Google, Facebook and eBay, also opposed the act. Jim Halpert, a lawyer representing the coalition, said the bill was an unconstitutional attempt to restrict interstate commerce. "It would not have been enforceable," Halpert said.
The law cleared several hurdles in New York's assembly, but did not advance to the floor for a vote. A comparable measure was also pending in the state senate, sponsored by Republican Andrew Lanza, but did not get as far as the assembly bill did.