• by Wendy Davis  @wendyndavis, September 17, 2008

In the U.S., online ad company NebuAd was forced to retreat from its controversial behavioral targeting plan, but rival Phorm has just been given the go-ahead by U.K. authorities.

The U.K.'s Department for Business, Enterprise and Regulatory Reform stated Tuesday that Phorm's behavioral targeting platform is legal, largely because the company intends to notify users about the system and obtain their consent before deploying it.

"After conducting its inquiries with Phorm, the UK authorities consider that Phorm's products are capable of being operated in (a lawful) fashion," the agency stated.

Phorm gleans information about people's online activity from their Internet service providers and then serves users ads based on the sites they've visited. The company, registered in the U.S., has offices in New York and London and an engineering team in Moscow.

Phorm intends to launch soon in the U.K. with Internet service providers BT Group, TalkTalk and Virgin Media.

Like Silicon Valley rival NebuAd, Phorm has come under fire from advocates who view the company as privacy threat based on the sheer comprehensiveness of knowledge it can amass about Web users. Internet service providers have access to every Web site people visit as well as every search they perform. By contrast, older behavioral targeting companies only track users across a limited number of sites.

Phorm says it doesn't collect personally identifiable information, such as names or e-mail addresses, store IP addresses, or keep lists of sites visited.

The U.K. agency's statement Tuesday came in response to a request by Vivian Reding, an E.U. commissioner. She reportedly wanted to know whether the U.K. planned to take action against Phorm for a secret test the company conducted with BT in 2006. She also said this summer that her office was considering going to the European Court of Justice about Phorm.

Unlike the U.S., Europe has a sweeping privacy law that limits companies' ability to collect and use data about consumers. But even without a similar law, pressure from Congress helped scuttle NebuAd's plans to deploy its broadband provider-based behavioral targeting system. NebuAd had tested its platform with six Internet service companies this year, but all of them said last month that the tests had ended and there were no immediate plans to restart them.

NebuAd's CEO Bob Dykes resigned recently, following which the company said it was broadening its business to include older online ad targeting techniques.