FTC's Report on Privacy Sets Forth Framework for Consumers, Businesses and Policymakers

On December 1, 2010, the Federal Trade Commission issued a preliminary report entitled “Protecting Consumer Privacy in an Era of Rapid Change, A Proposed Framework for Businesses and Policymakers”. The report proposes a framework to balance the privacy interests of consumers with innovation that relies on consumer information to develop beneficial new products and services.

The FTC developed the proposed framework in recognition of increasing advances in technology that allow for rapid data collection and sharing that is often invisible to consumers. The framework is designed to reduce the burdens of protecting online privacy on consumers and businesses. The report is intended to inform policymakers, including Congress, as they develop solutions, policies, and potential laws governing privacy, and guide and motivate industry as it develops more robust and effective best practices and self-regulatory guidelines.

Building on the FTC’s guidance on behavioral advertising, the proposed framework seeks to further expand the scope of protected data beyond the traditional notions of “personally identifiable information.” Specifically, the proposed framework would apply broadly to online and offline commercial entities that collect, maintain, share or otherwise use consumer data that can reasonably be linked to a specific consumer, computer or device.

In developing the proposed privacy framework, the FTC observed that:

•  there is ubiquitous collection and use of consumer data online;

• the distinction between personally identifiable information and anonymous or de-identified information is blurring;

• the increased flow of information, including consumer data, creates significant economic benefits;

• the FTC’s existing “notice-and-choice” model of privacy protection has led to companies publishing privacy policies and notices that are long, legalistic disclosures that consumers usually do not read and do not understand;

• current privacy policies force consumers to bear too much burden in protecting their privacy;

• the FTC’s existing “harm-based model” of privacy protection, while focusing on protecting consumers from specific harm (e.g., physical or economic) has failed to recognize less tangible privacy concerns such as reputational harm or the fear of being monitored;

• both of the FTC’s privacy protection models (“notice-and-choice” and “harm-based”) have failed to keep up with data collection technology, including data collection that is invisible to consumers and website owners;

• industry efforts to address privacy through self-regulation have been “too slow” and have failed to provide adequate and meaningful protection to consumers;

• some companies manage consumer information in an irresponsible and even reckless manner, and many companies do not adequately address consumers’ privacy interests;

• many consumers are not informed about or cognizant of the risks associated with the collection, sharing and other use of their personal information; they lack understanding and ability to make informed choices about the collection and use of their data.

To reduce the burden on consumers and ensure basic privacy protections, the report makes a number of recommendations, which are summarized below.

1.       Privacy by Design

The report recommends that companies adopt a “privacy by design” approach by building privacy protections into their everyday business practices. Such protections include reasonable security for consumer data, limited collection and retention of such data, secure disposal of the data and reasonable procedures to promote data accuracy. Companies also should implement and enforce procedurally sound privacy practices throughout their organizations, including assigning personnel to oversee privacy issues, training employees and conducting privacy reviews for new products and services. The report calls for companies to implement these concepts in a systematic manner, scaled to each company’s business operations, including the amounts and types of data the organization processes. 

2.      Notice

The report calls on companies to improve their privacy policies and notices so that interested parties can compare data practices and choices across companies. For example, to facilitate meaningful choice, the FTC is recommending just-in-time concise notice and choice at the data collection point or before a consumer accepts a product or service. The FTC believes that privacy policies will continue to play an important role in promotion transparency, accountability and competition among companies on privacy issues – but only if the policies are clear, concise and easy to read. The report also recommends consideration of standardized privacy notices that allow consumers to compare information practices of competing companies. Finally, the FTC has reminded organizations that they must provide robust notice regarding material, retroactive changes to data practices and obtain affirmative consent to such changes.

3.      Choice, Including a Do-Not-Track Mechanism

The report calls for companies to provide choices to consumers about companies’ data practices in a simpler, more streamlined manner than has been used in the past. Consumers should be presented with choice about collection and sharing of their data at the time and in the context in which they are making decisions – not after having to read long, complicated disclosures that they often cannot find. The report suggests that, to simplify choice for both consumers and businesses, companies should not have to seek consent for certain commonly accepted practices associated with processing consumers’ transactions, internal business operations (such as improving services), fraud prevention, legal compliance and first-party marketing. Some of these data uses are apparent in the context of the transaction, while others are accepted or necessary for public policy reasons. For data practices that are not commonly accepted or necessary, consumers should be able to make an informed and meaningful choice. The FTC used the report to remind organizations that they must obtain affirmative consent for material, retroactive changes to their data practices.

One method of simplified choice the FTC has recommended is a “Do Not Track” mechanism governing the collection of information about consumer’s Internet activity to deliver targeted advertisements and for other purposes. The FTC has recommended a simple, easy to use choice mechanism for consumers to opt out of the collection of information about their Internet behavior for targeted ads. The FTC believes that a practical solution is technologically feasible and suggests that the most practical method could involve the placement of a persistent setting, similar to a cookie, on the consumer’s browser signaling the consumer’s choices about being tracked and receiving targeted advertising.

4.      Access

The report recommends allowing consumers “reasonable access” to the data that companies maintain about them, particularly for non-consumer facing entities such as data brokers. Because of significant costs associated with access, the report suggests that access should be proportional to both the sensitivity of the data and its intended use.

We note that the data access principle, although novel in the U.S., is a well-established requirement in the European Union and some other jurisdictions that have adopted omnibus data protection regimes. In addition, providing reasonable access to personal data is one of the seven privacy principles mandated by the EU-U.S. and Switzerland-U.S. Safe Harbor programs. Accordingly, many U.S. entities that have certified compliance with the Safe Harbor are already complying with the data access requirement with respect to personal data they receive from Europe.

5.      Privacy Awareness

The FTC has proposed that stakeholders undertake a broad effort to educate consumers about commercial data practices and the choices available to them. The FTC believes that increasing consumers’ understanding of commercial data collection practices will facilitate competition on privacy among companies.

6.      Enforcement

The FTC reiterated its resolve to take action against companies that “cross the line” with consumer data and violate consumers’ privacy – especially when children and teens are involved. The Commission also made clear that consumers’ choices should be respected. The FTC will not tolerate use of technology to circumvent consumer choice.

In issuing the report, the commission posed a series of questions to privacy stakeholders. The deadline for submitting comments to the FTC is January 31, 2011. The questions concern the scope of the companies and data to which the framework should apply; the substantive privacy protections the framework offers; data management procedures; practices that should require meaningful choice; the “do-not-track” proposal; transparency of privacy practices and improvement of privacy notices; data access; and consumer education.

Please check back with us as we address the report in more detail in the coming days.