United States: U.S. Senate Duo And California Ballot Initiative Propose To Radically Alter U.S. Consumer Internet Privacy And Upend Digital Advertising

Last Updated: April 23 2018
Article by Alan L. Friel

Amid growing concerns over the improper use of user information and data breaches, and in the same week as the Senate examines the Cambridge Analytica controversy, a duo of U.S. senators who have long advocated for federal consumer privacy legislation seized the moment to propose a bill that would give the Federal Trade Commission (FTC or Commission), for the first time, the authority to promulgate regulations to govern internet publishers' and service providers' privacy practices regarding adults and proposes seemingly European Union (EU)-inspired privacy protections, including opt-in consent to broad categories of data use and sharing. If passed, the law, and the FTC regulations to be promulgated under it, could radically alter the internet economy by making it significantly harder for publishers to monetize data to provide more relevant advertising to users, so-called interest-based advertising (IBA), which is the economic underpinning of the business model of the publishers and services that provide their content and services to users for free on an advertiser-supported basis. The proposal actually goes further in some ways than EU law, in that it would prohibit limiting services to users who consent to data use and sharing necessary for IBA, and would give the FTC the authority to determine whether pricing based on "discounts or other incentives in exchange for express affirmative consent" is "reasonable." Although scores of prior attempts by Congress to pass broad federal consumer privacy legislation have gone nowhere, the circumstances of the moment may have created a tipping point. And even if a federal consumer privacy law fails to get through Congress, a California advocacy group is attempting to qualify a ballot initiative for EU-style privacy laws for the November general election that could also threaten ad-supported digital media.

Toward Strict Federal Regulation?

On April 10, Sens. Edward Markey, D-Mass., and Richard Blumenthal, D-Conn., introduced the Customer Online Notification for Stopping Edge-provider Network Transgressions (CONSENT) Act (or the Bill). The FTC's privacy and data security authority is largely limited to regulating deception and unfairness under Section 5(a) of the FTC Act, with the standard for unfairness requiring a showing of actual harm not offset by benefit to consumers or competition. This effectively restrains the FTC to deception cases when it comes to collection and use of data for digital advertising, though the Obama administration's FTC was expanding unfairness into tracking and targeting in its Vizio action as we reported on here. Congress did give the FTC more specific authority to regulate children's privacy, and the CONSENT Act would similarly provide the FTC with new authority to establish regulations aimed at protecting the privacy of information belonging to customers of edge providers. Historically, "edge providers" is a term used to refer to the content and content-enabling services that use the internet – websites, web services, search engines, social media platforms, online advertising services, web and mobile applications, and content-hosting and content-delivery services. In other words, edge providers provide the content and services that flow through the "pipes" of the internet. The Bill defines both an "edge provider" and an "edge service," and regulates edge providers only to the extent they provide edge services. An edge service is an online service with subscribers or users that register an account, that sell their service, that search for and identify data at a user's request, or that collect any of the following "sensitive" information from a user: financial (not defined); health (not defined); information pertaining to children (not defined); Social Security numbers; precise geolocation; content of communications; call details; web browsing history, application usage history and the functional equivalents of either; and any other information the FTC determines to be "sensitive." Edge services are further broadly interpreted in the Bill to also include any such services provided through software, including mobile applications, or provided over the internet via connected devices (which would include IoT devices). Most notably, the Bill regulates the collection and use of online service usage data, which is deemed sensitive regardless of its nature and without being tied to a personally identifiable person. The Bill, if passed in this form, would require:

  • Transparency notice about the types of "sensitive" data collected, how and for what purposes such data is used, and the types of entities with which such data is shared. A number of states have similar disclosure laws as related to personal information. The Bill would expand that approach but is consistent with the kind of privacy transparency the FTC already recommends, and failure to provide it could potentially be deception by omission under current law.
  • Notice to customers if privacy practices regarding the regulated data change in a significant way. This is consistent with current FTC interpretation of Section 5 requirements.
  • "Require an edge provider to obtain opt-in consent from the customer to use, share or sell" the sensitive data. This would require EU-style consent to tracking, but there is no exception, as there is under the EU's General Data Protection Regulation (GDPR) when there is a legitimate basis for or interest in collecting and using the data, such as to provide the service requested. While that might be cleaned up in the regulations through a concept of implied consent (though the Bill describes opt-in as "express affirmative consent"), consent to develop customer profiles such as to enable IBA seems to be the very type of activity for which express affirmative consent is intended to be required.
  • Expands the U.S. approach to personally identifiable information to data identifiable not just to a person, but also to a specific browser, mobile phone or other device. The language of the Bill also seems to suggest that what the Bill deems "sensitive data" are also categories of personally identifiable information even if they are not linked to a person or device. However, it does seem to contemplate use and sharing of deidentified data without consent if certain efforts are made to prevent reidentification and downstream recipients are contractually committed to the same obligation.
  • Prohibits requiring consent to use and sharing for "commercial purposes" as a condition of service, and gives the FTC the authority to determine whether price discounts or incentives to customers in exchange for consent are reasonable. Although this is an evolving question, it appears the EU regulators are not going to interpret the GDPR as prohibiting "take it or leave it" offers of service tied to consent, at least where the service is free ad-supported media and the consent is tied to accepting IBA. The Bill, as currently drafted, would not be as permissive.
  • Requires reasonable security practices. This is already a well-established requirement under Section 5 unfairness authority. However, the Bill has a broad breach notification requirement that applies to all the categories of so-called sensitive data, including usage history. The notification requirement is, however, tied to a likelihood-of-harm standard.
  • Allows the FTC to regulate telecommunications carriers, generally governed by the Federal Communications Commission, to the extent that they are acting as edge providers.
  • The Bill proposes that only the FTC, certain other federal agencies and state attorneys general may enforce the law. There is no express private right of action.

Notably, the Bill does not yet have bipartisan support. It is also likely to be tightened up and watered down during the legislative process. However, in evaluating the danger this bill poses to the internet economy, it is important to note what spawned the Bill – consumer profiling on social media and the use of that data other than as intended by the data subject or the edge provider. IBA, by its nature, depends on culling detailed profiles based on user data, albeit tied to a device or other unique identifier rather than to a specifically identified human being, in order to make inferences about them for the purpose of sending them ads likely to be of interest in the hopes of influencing their behavior. If the Bill does anything, it would seem to be seeking to require affirmative express consent to do so, and to prohibit making consent a requirement of access, though the door is left open for "reasonable" differential pricing. That might mean ad-supported media and services could require consent to IBA in exchange for free access, but an ad-free version of the service could be provided for a reasonable subscription fee.

As California Goes, so Does the Nation

The California Attorney General's Title and Summary for a California ballot initiative titled "The Consumer Right to Privacy Act of 2018" (the Initiative) that consumer privacy advocates are attempting to qualify for the November 2018 general election provides:

"ESTABLISHES NEW CONSUMER PRIVACY RIGHTS: EXPANDS LIABILITY FOR CONSUMER DATA BREACHES. INITIATIVE STATUTE. Gives consumers right to learn categories of personal information that businesses collect, sell, or disclose about them, and to whom information is sold or disclosed. Gives consumers the right to prevent businesses from selling or disclosing their personal information. Prohibits businesses from discriminating against consumers who exercise these rights. Allows consumers to sue businesses for security breaches of consumer data, even if consumers cannot prove injury. Allows for enforcement by consumers, whistleblowers, or public agencies. Imposes civil penalties. Applies to online and brick-and-mortar businesses ...."

The Initiative would regulate "personal information," broadly defined to include IP address, cookie or pixel tag ID, device ID, and other unique identifiers, as well as more traditional types of personal information, and "inferences drawn" from that data. Unlike the Bill, the Initiative is an opt-out rather than an opt-in scheme. However, like the Bill, it prohibits conditioning service on consent. While the Bill would charge the FTC with evaluating the reasonableness of incentives or discounts for providing consent, the Initiative bans such practices completely. Much like the current California Shine the Light Act, which gives consumers the right to learn about the sharing of their personal information with third parties for direct marketing purposes if they are not given choice regarding that sharing, the Initiative gives rights only to California residents. However, the scope of regulated activity and data is far more expansive than current California law, which is more about transparency than choice. Also, unlike the Bill and the Shine the Light Act, the Initiative provides an express private right of action, with no need to show injury beyond a violation of the statute for standing, and statutory damages of a minimum of $1,000 and up to $3,000 per violation, which would make this very attractive to class action lawyers if it were to pass. Further, a data security breach of the regulated data would also be subject to such statutory penalties. Like the Bill, the Initiative possesses a tremendous risk to digital advertising as we know it today. But unlike the Bill, which can be reworked during the legislative process, the Initiative would become law based on the current draft if California voters were to pass it.

A full copy of the initiative is available here.

The Future of Ad Tech

The adage "bad facts make bad law" is applicable here. The Cambridge Analytica scandal seems to be turning popular opinion against tracking and targeting of consumers as part of the bargain between consumers and publishers for free or low-cost content. While requiring transparency and choice regarding privacy practices through thoughtfully crafted regulation could be sound public policy, overregulation may have significant negative effects on our digital economy and cause consumers more harm than good. We will continue to follow and report on these and other legislative efforts that affect IBA, e-commerce and digital publishing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions