• by Wendy Davis  @wendyndavis, December 1, 2010

On the eve of a congressional hearing about Internet privacy, the Federal Trade Commission unveiled a report proposing that Web companies voluntarily create a do-not-track mechanism that would enable users to opt out of all online data collection.

"Industry efforts to implement choice on a widespread basis have fallen short," the FTC says in its 122-page staff report. "To the extent that choice mechanisms exist, consumers often are unaware of them, and click-through rates remain low."

The report, which was focused on behavioral advertising -- or serving ads to Web users based on data collected about them across the Web -- also endorsed the ideas that privacy policies should be streamlined and simplified and that companies should make more of an effort to ensure that consumers are making informed decisions about allowing online tracking. "To be most effective, choices should be clearly and concisely described and offered when - and in a context in which - the consumer is making a decision about his or her data," the report states.

Chairman Jon Leibowitz reiterated on Wednesday that the FTC isn't currently calling for privacy legislation, but said he hopes that the report will guide lawmakers and policymakers. However, he added, he can envision supporting new laws in the future. "From my perspective, and I'm speaking only for myself, a legislative solution will surely be needed if the industry doesn't step up to the plate," he said Wednesday afternoon in a teleconference with reporters.

The FTC in its report also criticized previous efforts to self-regulate, saying such efforts "have been too slow, and up to now have failed to provide adequate and meaningful protection."

Almost two years ago, the FTC issued principles that called for companies using behavioral advertising to provide "clear, concise, consumer-friendly and prominent" notice of the practice and allow consumers to opt out.

Leibowitz specifically expressed dissatisfaction with the new self-regulatory initiative launched by the Digital Advertising Alliance -- a coalition including the Interactive Advertising Bureau, American Association of Advertising Agencies, Association of National Advertisers, Better Business Bureau, and Direct Marketing Association.

"We would like to see them move faster and give clearer choices to consumers," Leibowitz said.

The DAA recently unveiled AboutAds.info, where consumers can learn about online behavioral advertising and opt out of tracking when done for purposes of serving targeted ads. Stuart Ingis, counsel to the DAA, said the group has already signed up around 60 ad companies and has another 30 to 40 in the pipeline. "We think we're already covering the vast majority of third-party ad networks," he said.

Ingis added that Web companies are slated to begin using the icon later this month. He expects 5 billion impressions of the icon to be served by the end of the year.

While Ingis said he opposes the terminology "do-not-track," he also said he agrees with the basic premise that people should be able to opt out of tracking through a simple mechanism. "Do-not-track is a misnomer," he says. "It makes it sound like 'do not call,' and gives the notion that there's something bad going on."

Unlike the case with the do-not-call registry, a do-not-track mechanism would not prevent users from receiving online ads. On the contrary, people who use do-not-track would still receive online ads, but those ads wouldn't be targeted based on data amassed from people's Web-surfing activity.

The report acknowledged that the FTC can't itself require companies to create or honor a do-not-track functionality -- a point that FTC consumer protection chief David Vladeck made Wednesday morning at a keynote speech hosted by advocacy group Consumer Watchdog. "There are ways we could coax, cajole and charm industry in that direction," Vladek said, adding that it would take new legislation to mandate do-not-track.

The FTC said in its report that a do-not-track mechanism would only work if accompanied by "an enforceable requirement that sites honor those choices."

Leibowitz is slated to testify Thursday at a hearing on Capitol Hill addressing online privacy and the concept of a do-not-track mechanism.

In the report, the FTC solicits feedback about whether it should recommend legislation requiring do-not-track if the industry doesn't voluntarily implement "an effective uniform choice mechanism."

IAB Senior Vice President and general counsel Mike Zaneis said the organization opposes such a law. "At this time we believe our self-regulatory program is capable of providing the functional equivalent of do-not-track; thus there is no need for government regulation."

Linda Woolley, executive vice president, government affairs for the DMA, added that it was "premature" to discuss do-not-track.

The FTC will accept comments to the report through Jan. 31.