FTC Chairman Jon Leibowitz warned yesterday that companies involved in Web advertising face their “last chance” to “voluntarily” adopt stricter policies governing the use and collection of consumer information, Reuters reports. This isn’t the first time the FTC has threatened the advertising industry with regulation, but it signals a sense of immediacy that may pressure industry leaders to change their practices in coming weeks.
Leibowitz presumably wants to quell widespread concern that Internet companies like Google and AT&T have “excessive control” over consumer information. But what’s excessive about using information that individuals have voluntarily handed over for marketing purposes, subject to legally enforceable rules laid out from the get-go?
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Any new FTC mandates on data collection would almost certainly impose a privacy ceiling that would offer some, if not most, people too much privacy. This may sound impossible at first, but think of people who document their every move on Twitter, open for the world to see. Different people have wildly different privacy preferences, and there is no way a single set of rules-however well-conceived-could satisfy everyone.
Privacy mandates will place shackles on the still-young Internet advertising industry, stifling promising opportunities for making money from online content. Strict rules governing data collection will deprive publishers — especially small ones — of ad revenue at a time when it is sorely needed. Rigid mandates will also prolong “dumb” Web ads by delaying the evolution of targeting technologies capable of making advertisements more relevant and, therefore, more interesting to users.
There’s an even more obvious problem with Leibowitz threatening to impose privacy regulations on the marketplace. And that’s the fact that it’s Jon Leibowitz of the Federal Trade Commission making the threat. Let’s take a moment to examine the FTC’s own views of information privacy, shall we?Leibowitz and the FTC know quite a bit about gathering information. They do it all the time. But unlike a website operator, there’s nothing voluntary about it. When the FTC wants information about you, your business, and your customers, they seize it by force. No rules apply to the FTC in its information-gathering capacity: No constitutional constraints, no probable cause requirement, no enforceable guarantee that information won’t be leaked to competitors or the press. And all of the cost of gathering the information falls to you.
Here are a couple of examples. Companies A and B were the targets of a recent FTC merger investigation that lasted two years. The companies spent approximately $15 million in compliance costs meeting FTC demands for information about the companies and their operations. At one point, the FTC demanded to see Company A’s confidential personnel evaluations — a subject completely unrelated to any antitrust objective. When Company A refused that request, the FTC informed the company that there was no legal avenue to appeal or question the FTC’s demands. Eventually, the companies abandoned their merger rather then face further demands for information.
Incidentally, during the investigation, a Washington Post editorial writer was given free access to confidential FTC memos about the case — including documents gathered from the two companies. Coincidentally, John Leibowitz is married to Ruth Marcus, a member of the Post’s editorial board.
In another FTC case, the target was a management consultant who worked alone out of a home office. The consultant and two clients were under investigation for about a year before they were forced to sign an FTC order — without any trial or due process rights. Here’s the consultant’s account of what it took to comply with the FTC’s initial demand for private information:
Since we didn’t know whether or not the professional liability policy would reimburse for copying, I rented a copy machine and had it in my living room so that it was only $0.02 per page – compared to $0.07 or so at Kinko’s. Plus, we didn’t want to spend hours on end at Kinko’s making copies. I hired a temporary assistant for $10 per hour. I billed at a $50 hourly rate for my time (discounted from my usual $75) since I was benefiting from being able to copy and send in the documents in my own defense, too. I charged [Client 1] $2,147.14 for labor and copying. I charged [Client 2] $1,482.56. This was EXTREMELY cheap. The lawyer we ultimately went with would have charged $0.25 per copy at his law firm. Our insurance carrier for both [clients] ended up reimbursing the [clients] for my invoices.
As an illustration, here is the excerpt for copying expenses from my [Client 1] bill for one month:
Extraordinary Expenses (not included in hourly rate): $422.14
Office Depot (paper, labels, Bate Stamp) supplies: $76.55
Monthly Copier Fee: $168.50
Delivery Fee: $37.50
6,974 Copies at $.02 per page: $139.48
In addition to my costs, we had our attorneys review the documents to be sure they answered the questions from the letter of inquiry and that we weren’t sending irrelevant stuff. I would guesstimate that each [client] paid about $5,000 (conservative, probably) in legal fees to their respective attorneys for the review of the information.
When reviewing the invoices, I see that we actually copied 6,974 pages for [Client 1] and 6,870 for [Client 2]. Our legal counsel may have taken some stuff out before submitting it to the FTC if it wasn’t relevant to the letter of inquiry, but still – that’s a lot of paper!
Yes, all it takes is a “letter of inquiry” to obliterate your personal privacy. Failure to comply with FTC demands can be catastrophic. The FTC can seize your assets without having to prove any actual crime. There used to be an internal FTC process that afforded defendants some chance of due process, but under Mr. Leibowitz’s “leadership,” that has now been abolished.