• by Michael Hahn , Bill Morrow , August 3, 2016

Yet such growth has not taken hold among publishers with Web sites directed at children, despite the fact that programmatic can increase revenues, decrease transaction times and shrink direct sales overhead.  

Why have these publishers allocated their inventory for distribution through less profitable channels? The answer has little to do with a market failure — and everything to do with a government failure.  

The Children’s Online Privacy Protection Act (COPPA) was enacted to enhance parental control over the information collected from children while they are online. The act, along with the implementing rules from the Federal Trade Commission (FTC), prohibits Web sites directed at children under 13-years-old from collecting personal information unless proper notice is provided and parental consent is obtained.  

The FTC amended the act’s implementing rule  in 2013 to expand the umbrella of covered personal information. It now includes persistent identifiers, which are used to recognize users across different Web sites, as well as geolocation information.

Thus, COPPA covers the very information that underpins behavioral advertising, including customer numbers held in cookies, Internet protocol addresses, processor or device serial numbers and unique device identifiers.

Even more problematic than the rule’s scope is the act’s “strict liability” standard. This standard makes publishers responsible for the unauthorized collection of information from children regardless of whether a third party is at fault or the collection is inadvertent.

COPPA strangely imposes the same legal standard that the law reserves for ultra-hazardous activities, such as rock blasting or the operation of a nuclear reactor. Persons who engage in those activities are liable for the injuries they cause to others regardless of whether they undertake reasonable preventive steps.

COPPA and its implementing rule have certainly gone off the tracks in assuming that behavioral advertising is tantamount to an ultra-hazardous activity.  

Publishers of child-directed sites often refuse to distribute their inventory through supply-side platforms and ad networks over whom they have limited control, both because of this regulatory scheme and a lack of confidence in the distribution chain. They know that such intermediaries sometimes violate the parameters set by publishers concerning the use of digital ad space.  

How many times has an ad operations manager been dismayed to learn that a video ad with audio automatically played in a banner, or that an advertisement displayed denigrates the publisher’s brand, despite contractual provisions prohibiting such conduct? That kind of track record, frequently caused by inadvertence and occasionally with intent, makes publishers understandably wary that intermediaries will properly comply with COPPA when requested.

This is particularly true for programmatic advertising, where distribution complexity and lack of intermediary trust and transparency is even more acute. The reality is that publishers of child-directed sites do not know – and cannot vet – the numerous parties that “touch” programmatic ad inventory and may insert tags that facilitate behavioral advertising or retargeting.  

Moreover, while intermediaries typically offer representations and warranties concerning COPPA compliance, and publishers often request indemnification for violations, those protections are not sufficient. The reality is that intermediaries often lack the resources to sufficiently deter them from causing violations for which publishers will be held strictly liable.

As advertisers increasingly allocate their budgets to programmatic and child-directed sites do not participate in this channel, publisher revenue growth is increasingly stunted. The industry needs to stem this tide and, in the first instance, do so through innovation.

This can be accomplished through wide-scale adoption of a private programmatic platform to support COPPA-compliant market participants. Such a closed network of buyers and sellers would involve third-party vetting, an agreement that inventory will be used for consumption purposes only, and robust and consensual accountability mechanisms.  

Such solutions are only in their infancy, but may ultimately provide publishers of child-directed sites the safeguards they need to increase their distribution of inventory through the programmatic channel, in spite of COPPA’s strict liability standard.

However, if an effective technical and market-based solution does not develop, the industry will need to take a second look at a legislative solution that imposes liability solely upon parties that knowingly violate the Act. Or, alternatively, such legislation should eliminate strict liability when a publisher of a child-directed site contracts with a third party in a manner that requires COPPA compliance.