• by Karlene Lukovitz  @KLmarketdaily, January 29, 2010

Based on the comments of Federal Trade Commission officials and panelists at Jan. 28's FTC roundtable on privacy issues, the commission's core focus lies in identifying and addressing disparities between consumer expectations and marketer practices.

That is the assessment of Reed Freeman, partner in the Washington, D.C.-based legal firm Morrison & Foerster, who represents clients in FTC and state consumer protection investigations and negotiations.

The agenda for this second of three FTC roundtables on privacy was designed to explore both how evolving technology can be used to compromise consumers' privacy and how it can be used to enhance privacy. This seems to indicate that the current commission does not view technology itself as being either "good or bad," but instead recognizes that "it's how it's used that can be good or bad," observes Freeman.

The remarks and discussions also appeared to confirm that the current commission is seeking a more "holistic" privacy framework that allows for addressing areas where businesses' consumer data practices diverge from what consumers would reasonably expect. David Vladeck, director of the FTC's Bureau of Consumer Protection, indicated that the commission believes that while consumers care deeply about privacy, they have little understanding of commercial data collection, sharing and distribution practices, Freeman points out.

FTC leadership in place during the last two administrations focused, respectively, on "notice and choice" and "harms-based" approaches, Freeman explains. The "notice and choice" concept resulted in the FTC strongly encouraging businesses to create privacy policies that clearly inform consumers about their data practices and to then ensure that they adhered to their policies. The "harms-based" concept resulted in the FTC focusing its resources on addressing practices deemed to present the most potential harm to the greatest number of consumers -- a focus that led to the creation of trade regulation rules such as the "Do Not Call" list and the CAN-SPAM Act.

The current commission "may not throw the babies out with the bath water," but is looking for a more complete solution for consumer privacy -- hence its emphasis on identifying and addressing consumer expectations/practices gaps, says Freeman.

Freeman offers examples of the types of areas where such gaps might be deemed to exist, such as an online retailer sharing data supplied for a purchase transaction with other marketers, who then send commercial emails to the consumer without notice.

A company that does not comply when a consumer opts out of receiving its emails is both violating the law and failing to meet consumer expectations, Freeman adds. And the first FTC privacy roundtable focused to a large degree on exploring the implications of "behavioral" advertising, indicating that this is one of the areas being assessed, he notes.

During last week's roundtable, commission officials also made it clear that in addition to using these forums and other means to gather the information needed to issue its report on privacy issues (due out in June or July), it will be actively investigating and taking enforcement actions in more privacy cases.

For marketers, the core questions about the FTC's report include what form it will take, as well as the specific recommendations or directives made, says Freeman. The commission could opt to issue either a staff report or an FTC report detailing what actions it believes it can take under the scope of its existing authority and spell out which practices require no consumer notice (because consumers expect them), which require notice and an opt-out, and which are flatly prohibited (even with notice/consent).

Or the FTC could send a report to Congress asking that Congress pass the FTC Improvements Act, perhaps also asking that the Act be amended to instruct the FTC to create a new privacy trade regulation rule.

The commission has the authority to create such rules (which carry the force of law), but might seek Congressional backing to "have the wind at its back," says Freeman -- particularly if it decided to address an area such as use of behavioral data for marketing/ advertising purposes, which could have significant and possibly unintended consequences for Web content providers, as well as advertisers.

The FTC Improvements Act -- which was passed by the House and is now pending consideration by the Senate Commerce Committee -- would give the FTC substantially more authority, including the ability to seek civil penalties from the courts in Section 5 (unfair/deceptive practices) privacy cases, Freeman says.

Currently, the FTC can ask courts to order companies to cease illegal privacy practices and require them to compensate victims for harm caused by privacy violations -- but quantifying the harm created by privacy violations is problematic, he explains. The ability to seek civil penalties would provide the FTC with a more practical, forceful deterrent.