HL Chronicle of Data Protection : Privacy Lawyers & Attorneys : Hogan Lovells Law Firm : Data Security, E-Commerce & Technology

Dr. Stefan Schuppert in the Hogan Lovells Munich office prepared this entry.  Stefan is a member of the Hogan Lovells Privacy practice and the  IP, Media & Technology group and advises companies in the fields of information technology and new media concerning intellectual property, contract law and data protection.

On November 23, the data protection authority (DPA) of the German Federal State of Hamburg imposed a €200,000 fine [link in German] against the Hamburg-based savings & loan Hamburger Sparkasse due to violations of the German Federal Data Protection Act (the BDSG) for, among other reasons, using neuromarketing techniques without customer consent.   The case – which attracted much negative publicity in Germany, including page 1 headlines and "top spots" in television news – may very well influence the assessment of neuromarketing techniques under data protection laws beyond Germany. 

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Two national newspapers today included items on targeted advertising, a further indication that online tracking remains a hot topic.  In an article on the front page of the New York Times entitled  "Retargeting Ads Follow Surfers to Other Sites"  the reporters note that "[b]ehavioral targeting has been hotly debated in Washington, and lawmakers are considering various proposals to regulate it."

People have grown accustomed to being tracked online and shown ads for categories of products they have shown interest in, be it tennis or bank loans.

Increasingly, however, the ads tailored to them are for specific products that they have perused online. While the technique, which the ad industry calls personalized retargeting or remarketing, is not new, it is becoming more pervasive as companies like Google and Microsoft have entered the field. And retargeting has reached a level of precision that is leaving consumers with the palpable feeling that they are being watched as they roam the virtual aisles of online stores.

The article quoted an Advertising Age writer who said “If the industry is truly worried about a federally mandated ‘do not track’ list akin to ‘do not call’ for the Internet, they’re not really showing it.”   The Interactive Advertising Bureau (IAB), comprised of more than 460 media and technology companies responsible for selling 86% of online advertising in the United States. disputes that they are not addressing the privacy issues associated with online tracking and targeting, as indicated  here.

A Wall Street Journal opinion piece by Emory University Economics Professor Paul Rubin paints a very different picture from the New York Times article.  The piece is entitled "Ten Fallacies About Web Privacy" and in summary form, here is Professor Rubin's list of privacy fallacies with excerpts of why he thinks the propositions are false. 

1) Privacy is free...  The more privacy consumers have, the less information is available for use in the economy. Since information helps markets work better, the cost of privacy is less efficient markets...

2) If there are costs of privacy, they are borne by companies... [C]onsumers get tremendous benefits from the use of information [and bear a cost from regulations designed to protect their privacy]...

3) If consumers have less control over information, then firms must gain and consumers must lose...  [W]hen information is used for other purposes—for example, in credit rating—then the cost of credit for all consumers will decrease...

4) Information use is "all or nothing." ... [S]ervices will be lower-quality and less valuable to consumers as information use is more restricted...

5) If consumers have less privacy, then someone will know things about them that they may want to keep secret....  [W]e are not used to the concept that something can be known and at the same time no person knows it. But this is true of much online information...

6) Information can be used for price discrimination (differential pricing), which will harm consumers.  [If] price discrimination makes it possible for firms to provide goods and services that would otherwise not be available (which is common for virtual goods and services such as software, including cell phone apps) then consumers unambiguously benefit...

7) If consumers knew how information about them was being used, they would be irate.  [C]onsumers don't bother to learn about information use on the Web precisely because there is no harm from the way it is used...

8) Increasing privacy leads to greater safety and less risk. The opposite is true....  Think of being called by a credit-card provider and asked a series of questions when using your card in an unfamiliar location, such as on a vacation...

9) Restricting the use of information (such as by mandating consumer "opt-in") will benefit consumers. In fact, since the use of information is generally benign and valuable, policies that lead to less information being used are generally harmful...

 10) Targeted advertising leads people to buy stuff they don't want or need. This belief is inconsistent with the basis of a market economy... 

Clearly, when Congress returns from its recess and the privacy advocacy community returns from vacation, and as the FTC prepares its long-awaited report following a series of privacy roundtables earlier this year, debate over online tracking, self-regulation and the need vel non of government regulation will heat up.

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The Federal Communications Commission released its long-awaited National Broadband Plan today, providing an aggressive roadmap for advancing affordable broadband deployment and adoption; stimulating economic growth; and boosting the nation's capabilities in education, healthcare, homeland security, and other areas.  The Plan also appears to confirm that the FCC is looking to take an expanded role in privacy-related consumer protection issues.

In the Plan, the FCC discusses a number of broadband privacy and data security issues focused on the protection of and consumer control over personal information.  For example, the FCC states 

 

[t]he collection, aggregation and analysis of personal information are common threads among, and enablers of, many application-related innovations...

and the Plan notes the value of services such as customized suggestions for movie rentals or books and more targeted and relevant advertising.  It cautions, however

many users are increasingly concerned about their lack of control over sensitive personal data.

The FCC then remarks:  

Innovation will suffer if a lack of trust exists between users and the entities with which they interact over the Internet.  Policies therefore must reflect consumers’ desire to protect sensitive data and to control dissemination and use of what has become essentially their “digital identity.”  Ensuring customer control of personal data and digital profiles can help address privacy concerns and foster innovation.

The FCC also makes several broadband privacy and data security recommendations in the Plan, including:

• Encouraging Congress and the Federal Trade Commission (as well as the FCC) to clarify the relationship between users and their online profiles, including disclosure and consent requirements and data collection, sharing, storage, safeguarding, and accountability responsibilities;

• Suggesting that Congress consider helping spur the development of trusted "identity providers" that can help consumers maximize the privacy and security of their data;

• Having the FTC and FCC jointly develop principles to require that customers provide informed consent before broadband service providers share certain information with third parties (including account and usage information and other personally identifiable information); and

• Prompting the federal government to put additional resources into combating identity theft and fraud and enhancing consumer online security.

In addition, the Plan includes several privacy and data security recommendations in the smart grid and cybersecurity areas, including a recommendation that states require utilities to "provide consumers access to, and control of, their own digital energy information, including real-time information from smart meters and historical consumption, price and bill data over the Internet."  If states fail to do so within 18 months, the Plan recommends that Congress consider national legislation.

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