Report: Phorm's Secret Behavioral Targeting Tests Spark Criminal Probe

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The British Internet Service Provider BT is reportedly facing a criminal investigation by the country's Crown Prosecution Service for allegedly selling data about consumers' Web activity to the behavioral targeting company Phorm.

The probe stems from BT's secret test of Phorm's platform conducted in 2006, The Register reports. That test, which involved around 18,000 broadband subscribers, didn't come to light until 2008.

Phorm, like now-defunct rival NebuAd, serves ads to users based on information about their Web activity gleaned from Internet service providers using deep packet inspection technology. Although incorporated in Delaware as a U.S. company, Phorm has only tested its platform abroad, in the U.K. and Korea. Phorm executives have said they intend to also launch in the U.S.

News of a potential criminal investigation comes after a separate U.K. agency, the Department for Business, Enterprise and Regulatory Reform, declined to take any action against BT. That department has said that Phorm is "capable of being operated in a lawful, appropriate and transparent" manner.

But regulators from an E.U.-wide body, the European Commission, last year commenced an action concerning Phorm's tests with BT. That matter could end up in the European Court of Justice.

Privacy advocates and some U.S. lawmakers have said that the type of ISP-based ad targeting envisioned by Phorm requires opt-in consent. ISP-based targeting is seen as potentially more intrusive than older forms of behavioral advertising because broadband providers have access to all Web activity, including users' search queries and visits to non-commercial sites. Older behavioral targeting companies only collect information from a limited number of commercial sites within a network.

Phorm said it doesn't store users' personal data. The company also said it sought users' opt-in consent for its more recent test in the U.K., which took place in 2008.

NebuAd conducted U.S. tests in 2007 and 2008, but suspended plans for broader deployment in response to pressure from Congress. The company recently folded.

Some U.S. consumers filed potential class-action lawsuits against NebuAd and its ISP partners, alleging that the behavioral targeting system violated federal wiretap laws. Those cases are pending in several federal district courts.

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