Info Law Group : Technology Lawyers & Attorneys : Information Law Group : Privacy, Security & Intellectual Property Law

The company displays ads to consumers based on their online activities. Chitika’s privacy policy said that consumers could opt out of having cookies placed on their browsers and receiving targeted ads. According to the FTC, however, Chitika’s opt-out lasted only 10 days. After that time, Chitika placed tracking cookies on browsers of consumers who had opted out and displayed targeted ads to them again.

The FTC charged that Chitika engaged in a deceptive practice in violation of Section 5 of the FTC Act by tracking consumers’ online activities even after they used Chitika’s opt out mechanism to direct the company to stop tracking them online and serving targeted ads.

The settlement bars Chitika from making misleading statements about the company’s data collection practices and the extent to which consumers can control the collection, use or sharing of their data. The settlement also requires that every targeted ad Chitika displays include a link to a clear opt-out mechanism that allows a consumer to opt out for a period of at least five years. It also requires that Chitika destroy all identifiable user information collected when the defective opt out was in place. Finally, Chitika must alert consumers who previously tried to opt out that their attempt was not effective, and they should opt out again to avoid receiving targeted ads through the company.

Twitter – FTC Alleges Failure to Safeguard Personal Information

On March 11, 2011, the FTC announced final settlement with Twitter over allegations that the company deceived consumers and put their privacy at risk by failing to safeguard the security of their personal information. The FTC alleged that serious lapses in the company’s data security practices allowed hackers to obtain unauthorized administrative control of Twitter and access users’ personal information and tweets that users designated as private. The hackers also gained the ability to send tweets from any account. The FTC complaint alleged that hackers were able to gain administrative control of Twitter on at least two occasions.

According to the FTC, Twitter’s website privacy notice stated that the company “employ[s] administrative, physical, and electronic measures designed to protect your information from unauthorized access.” In addition, Twitter offered its users privacy settings that enabled them to designate their tweets as private. The FTC alleged that Twitter’s representations that the company (i) used reasonable and appropriate security measures to prevent unauthorized access to nonpublic user information, and (ii) honored users’ privacy choice were deceptive and violated Section 5 of the FTC Act.

The settlement prohibits Twitter from misleading consumers about the extent to which the company protects the security, privacy and confidentiality of nonpublic consumer information, including the extent of the measures the company takes to prevent unauthorized access to the information. Twitter also must honor the privacy choices made by consumers and establish and maintain a comprehensive information security program. The program must be assessed by an independent auditor every other year for 10 years.

Lessons Learned

With privacy enforcement on the rise, companies are well advised to take proactive approach to compliance with privacy and information security laws, regulations, guidelines and best practices. The FTC expects businesses to collect, use, disclose and process personal information in a fair and transparent way, and to accurately represent their privacy and security practices to consumers. Take a look at these Fair Information Practice Principles and think how your business can apply them to its personal information practices.

• Isn't the Boucher Bill just about online behavioral advertising conducted by large marketers?

No.  The Boucher Bill is proposed federal privacy and data security legislation that is very broad and far-reaching and goes way beyond regulation of online behavioral advertising as defined by the FTC.

• What would the Boucher Bill prohibit?

Under the Boucher Bill, a "covered entity" would be prohibited from collecting, using, or disclosing "covered information" from or about an individual for any purpose unless the covered entity (A) makes available to the individual a prescribed form of privacy notice prior to the collection of any covered information; and (B) obtains the consent of the individual to such collection in the manner set forth in the Bill.

This is interesting given that many regulators and legislators, including the FTC, have been calling for an end to the notice and consent model when it comes to meaningful privacy choice.

• What is a "covered entity"?

The Boucher Bill broadly defines a "covered entity" as any person engaged in interstate commerce that collects data containing covered information.  A covered entity would not include a government agency or any person that collects covered information from fewer than 5,000 individuals in any 12-month period and does not collect sensitive information.  Thus, it appears that just about any organization with more than 5,000 employees and/or customers would be a "covered entity" under the Boucher Bill.

• What is "covered information"?

The short answer is - just about anything that identifies (or even might identify) an individual.  "Covered information" is defined as, with respect to an individual, any of the following:

1. The first name or initial and last name.
2. A postal address.
3. A telephone or fax number.
4. An email address.
5. Unique biometric data, including a fingerprint or retina scan.
6. Social Security number, tax identification number, passport number, driver’s license number, or any other government-issued identification number.
7. A financial account number, or credit or debit card number, and any required security code, access code, or password that is necessary to permit access to an individual’s financial account.
8. Any unique persistent identifier, such as a customer number, unique pseudonym or user alias, Internet Protocol address, or other unique identifier, where such identifier is used
   to collect, store, or identify information about a specific individual or a computer, device, or software application owned or used by a particular user or that is otherwise associated with a particular user.
9. A preference profile.
10. Any other information that is collected, stored, used, or disclosed in connection with any covered information described in 1-9 above.

• What is a "preference profile"?

A "preference profile" is a list of information, categories of information, or preferences associated with a specific individual or a computer or device owned or used by a particular user that is maintained by or relied upon by a covered entity.

• How would a "covered entity" collecting "covered information" provide the required notice?

The answer depends on whether the covered entity collects the information online or offline.

Online:  If a covered entity collects covered information through the Internet, the Boucher Bill requires that it must post a privacy notice clearly and conspicuously on the website through which the covered information is collected.  The privacy notice must be accessible through a direct link from the Internet homepage of the covered entity.  This is very much like California's Online Privacy Protection Act, Business and Professions Code section 22575 et seq. 

Offline:  Unlike California (or any existing state law), the Boucher Bill would require notice even where information is collected offline or by means other than the Internet.  If a covered entity collects covered information by any means that does not utilize the Internet, the Bill requires that notice be made available to an individual in writing before the covered entity collects any covered information from that individual.

• What information must be included in the privacy notice?

The privacy notice (for online and offline collection) must include all of the following:

1. The identity of the covered entity collecting the covered information;
2. A description of any covered information collected by the covered entity;
3. How the covered entity collects covered information;
4. The specific purposes for which the covered entity collects and uses covered information;
5. How the covered entity stores covered information.
6. How the covered entity may merge, link, or combine covered information collected about the individual with other information about the individual that the covered entity may acquire from unaffiliated parties [an "unaffiliated party" is any entity that is not related by common ownership or affiliated by corporate control with a covered entity];
7. How long the covered entity retains covered information in identifiable form;
8. How the covered entity disposes of or renders anonymous covered information after the expiration of the retention period;
9. The purposes for which covered information may be disclosed, and the categories of unaffiliated parties who may receive such information for each such purpose;
10. The choice and means the covered entity offers individuals to limit or prohibit the collection and disclosure of covered information;
11. The means by and the extent to which individuals may obtain access to covered information that has been collected by the covered entity;
12. A means by which an individual may contact the covered entity with any inquiries or complaints regarding the covered entity’s handling of covered information;
13. The process by which the covered entity notifies individuals of material changes to its privacy notice;
14. A hyperlink to or a listing of the FTC's online consumer complaint form or the toll-free telephone number for the FTC's Consumer Response Center; and
15. The effective date of the privacy notice.

This goes far beyond the content requirements of California's Online Privacy Protection Act.

• Are there any exceptions to these notice requirements?

Yes. The notice requirements would not apply to covered information that (1)  is collected by any means that does not utilize the Internet and (2)  (a)  is collected for a "transactional purpose" or an "operational purpose" or (b)  consists solely of a first name or initial and last name, a postal address, a telephone or fax number, and/or an email address, and is part of a "first party transaction."

• What is a "transactional purpose"?

A "transactional purpose" is a purpose necessary for effecting, administering, or enforcing a transaction between a covered entity and an individual.

• What is an "operational purpose"?

An "operational purpose" is a purpose reasonably necessary for the operation of the covered entity, including (i) providing, operating, or improving a product or service used, requested, or authorized by an individual; (ii) detecting, preventing, or acting against actual or reasonably suspected threats to the covered entity’s product or service, including security attacks, unauthorized transactions, and fraud; (iii) analyzing data related to use of the product or service for purposes of optimizing or improving the covered entity’s products, services, or operations; (iv) carrying out an employment relationship with an individual; (v) disclosing covered information based on a good faith belief that such disclosure is necessary to comply with a Federal, State, or local law, rule, or other applicable legal requirement, including disclosures pursuant to a court order, subpoena, summons, or other properly executed compulsory process; and (vi) disclosing covered information to a parent company of, controlled subsidiary of, or affiliate of the covered entity, or other covered entity under common control with the covered entity where the parent, subsidiary, affiliate, or other covered entity operates under a common or substantially similar set of internal policies and procedures as the covered entity, and the policies and procedures include adherence to the covered entity’s privacy policies as set forth in its privacy notice.  However, "operational purpose" does not include the use of covered information for marketing, advertising, or sales purposes, or any use of or disclosure of covered information to an unaffiliated party for such purposes.

• What is a "first party transaction"?

A "first party transaction" is an interaction between an entity that collects covered information when an individual visits that entity’s website or place of business and the individual from whom covered information is collected.

• Do the consent requirements call for opt-in or opt-out consent?

It depends. 

Opt-out consent is enough in many circumstances.  Under the Bill, a covered entity is deemed to have the consent of an individual for the collection and use of covered information relating to that individual if the covered entity has provided to the individual a clear statement containing the information described above and informing the individual that he or she has the right to decline consent to such collection and use, and the individual either affirmatively grants consent for such collection and use or does not decline consent at the time such statement is presented to the individual.  (However, if an individual declines consent at any time subsequent to the initial collection of covered information, the covered entity may not collect covered information from the individual or use covered information previously collected.)  Alternatively, a covered entity may comply by enabling an individual to decline consent for the collection and use only of particular covered information, provided the individual has been given the opportunity to decline consent for the collection and use of all covered information.

However, some situations require opt-in consent:

1. A covered entity must provide the notice described above and obtain the express affirmative consent of the individual prior to making a material change in privacy practices governing previously collected covered information from that individual or disclosing covered information for a purpose not previously disclosed to the individual and which the individual, acting reasonably under the circumstances, would not expect based on the covered entity’s prior privacy notice.  This would codify existing law that a company may not unilaterally alter its privacy policy and use previously collected data in a manner that materially differs from the terms under which the data was originally collected. See In the Matter of Gateway Learning Corp., FTC Docket No. C-4120 (Sept. 10, 2004).
    
2. A covered entity is prohibited from selling, sharing, or otherwise disclosing covered information to an unaffiliated party without first obtaining the express affirmative consent of the individual to whom the covered information relates.  This would represent a fundamental change in existing US privacy law, except in particular narrow sectors.  Further, a covered entity that has obtained express affirmative consent from an individual must provide the individual with the opportunity, without charge, to withdraw such consent at any time thereafter.
    
3. A covered entity is prohibited from collecting or disclosing sensitive information from or about an individual for any purpose unless the covered entity makes available to such individual the privacy notice described above prior to the collection of any sensitive information and obtains the express affirmative consent of the individual to whom the sensitive information relates prior to collecting or disclosing such sensitive information.  ["Sensitive information" is any information that is associated with covered information of an individual and relates to that individual’s (A) medical records, including medical history, mental or physical condition, or medical treatment or diagnosis by a health care professional; (B) race or ethnicity; (C) religious beliefs; (D) sexual orientation; (E) financial records and other financial information associated with a financial account, including balances and other financial information; or (F) precise geolocation information.]  This would also be a significant shift in US privacy law, bringing the US much closer to existing stringent privacy protections in the EU.
    
4. A covered entity is prohibited from collecting or disclosing covered information about all or substantially all of an individual’s online activity, including across websites, for any purpose unless such covered entity makes available to such individual the privacy notice described above prior to the collection of the covered information about all or substantially all of the individual’s online activity and obtains the express affirmative consent of the individual to whom the covered information relates prior to collecting or disclosing such covered information.
    
5. With certain limited exceptions, any provider of a product or service that uses location-based information would be prohibited from disclosing such location based information concerning the user of such product or service without that user’s express opt-in consent.

• Are there any exceptions from these consent requirements?

Yes, but only with respect to the opt-out consent requirements and the opt-in consent requirements under (1) and (2) above.  There are no exceptions to the opt-in requirements under (3), (4) and (5) above.

The opt-out requirements and the Gateway-type opt-in requirements described in (1) above do not apply to the collection, use, or disclosure of covered information for a transactional purpose or an operational purpose.

The opt-in requirements described in (2) above do not apply to the disclosure of covered information by a covered entity to a service provider for purposes of executing a first party transaction if (A) the covered entity has obtained consent for the collection of covered information (opt-out and/or Gateway-type opt-in consent described above); and (B) the service provider agrees to use such covered information solely for the purpose of providing an agreed-upon service to a covered entity and not to disclose the covered information to any other person.   [A "service provider" is an entity that collects, maintains, processes, stores, or otherwise handles covered information on behalf of a covered entity, including, for the purposes of serving as a data processing center, providing customer support, serving advertisements to the website of the covered entity, maintaining the covered entity’s records, or performing other administrative support functions for the covered entity.]

In addition, notwithstanding (2) above, a covered entity may collect, use, and disclose covered information if (1) the covered entity provides individuals with the ability to opt out of the collection, use, and disclosure of covered information by the covered entity using a readily accessible opt-out mechanism whereby the opt-out choice of the individual is preserved and protected from incidental or accidental deletion, including by (A) website interactions on the covered entity’s website or a website where the preference profile is being used; (B) a toll-free phone number; or (C) letter to an address provided by the covered entity; (2) the covered entity deletes or renders anonymous any covered information not later than 24 months after the date the covered information is first collected; (3) the covered entity includes the placement of a symbol or seal in a prominent location on the website of the covered entity and on or near any advertisements delivered by the covered entity based on the preference profile of an individual that enables an individual to connect to additional information that (A) describes the practices used by the covered entity or by an advertisement network in which the covered entity participates to create a preference profile and that led to the delivery of the advertisement using an individual’s preference profile, including the information, categories of information, or list of preferences associated with the individual that may have led to the delivery of the advertisement to that individual; and (B) allows individuals to review and modify, or completely opt out of having, a preference profile created and maintained by a covered entity or by an advertisement network in which the covered entity participates; and (4) an advertisement network to which a covered entity discloses covered information does not disclose such covered information to any other entity without the express affirmative consent of the individual to whom the covered information relates.  [An "advertisement network" is an entity that provides advertisements to participating websites on the basis of individuals’ activity across some or all of those websites.]

• Are there any other exemptions under the Bill?

Yes.  The Bill explicitly provides that nothing therein shall prohibit a covered entity from collecting or disclosing aggregate information or covered information that has been rendered anonymous.

• What is "aggregate information"?

"Aggregate information" is data that relates to a group or category of services or individuals, from which all information identifying an individual has been removed.

• What does "render anonymous" mean?

"Render anonymous" means to remove or obscure covered information such that the remaining information does not identify, and there is no reasonable basis to believe that the information can be used to identify the specific individual to whom such covered information relates or a computer or device owned or used by a particular user.

• Does the Boucher Bill include any data security requirements?

Yes.  A covered entity or service provider that collects covered information about an individual for any purpose must establish, implement, and maintain appropriate administrative, technical, and physical safeguards that the FTC determines are necessary to (A) ensure the security, integrity, and confidentiality of such information; (B) protect against anticipated threats or hazards to the security or integrity of such information; (C) protect against unauthorized access to and loss, misuse, alteration, or destruction of, such information; and (D) in the event of a security breach, determine the scope of the breach, make every reasonable attempt to prevent further unauthorized access to the affected covered information, and restore reasonable integrity to the affected covered information.  The Bill would therefore extend certain GLBA- and HIPAA-like protections to non-financial and non-health care sectors.

The Bill anticipates that the FTC will develop standards to carry out this section and, in doing so, will consider the size and complexity of a covered entity, the nature and scope of the activities of a covered entity, the sensitivity of the covered information, the current state of the art in administrative, technical, and physical safeguards for protecting information, and the cost of implementing such safeguards. 

The Bill prohibits the FTC, in promulgating rules pursuant to the Bill, from requiring the deployment or use of any specific products or technologies, including any specific computer software or hardware. Thus, the Bill seeks to make any security requirements technology-neutral (similar to the Massachusetts data security regulations and other state data security laws).

• Does the Boucher Bill say anything about data integrity?

Not exactly.  The Boucher Bill addresses data "accuracy," requiring in very general terms that a covered entity "establish reasonable procedures to assure the accuracy of the covered information it collects."

• Who would enforce the Boucher Bill?

Not surprisingly, the Bill gives the FTC enforcement power and would make a violation an unfair and deceptive act or practice in violation of the FTC Act.

The Boucher Bill also gives State attorneys general the power to bring a civil action seeking injunctive relief and/or damages.

The Bill explicitly states that it does not provide any private right of action.

• Would the Boucher Bill preempt state law?

Yes, the Bill would preempt many state laws.  The Bill would supersede any provision of a statute, regulation, or rule of a State or political subdivision of a State, that includes requirements for the collection, use, or disclosure of covered information. 

The Bill would have no effect on GLBA, HIPAA, COPPA, the CAN-SPAM Act, certain other federal laws, or the FTC's authority pursuant to other laws.

In our current legal structure, even though such information flows around the world at breakneck speed, the definition of personal information ultimately depends on where you reside - and that, in turn, has grown out of social and cultural expectations. In the United States this has traditionally meant information that can be used to identify and victimize you (i.e., identity theft) - Social Security number, financial account number, and now, to a growing extent, medical information - although, in some new state statutes, the definition is much more broad.  In Europe, the answer, for cultural and historical reasons, continues to be much more expansive, encompassing just about anything that can identify an individual.

So when an individual shares information on Facebook about his or her favorite music, or holiday plans, or the color of a piece of clothing, does that constitute "personal information"? What are consumers' reasonable expectations about how that information, if disclosed publicly -- or not so publicly (e.g., to one's "friends") -- should be used? And should the government regulate the sharing and use of such information by data brokers, social networks, cloud computing vendors, and advertisers?

Last year, the FTC introduced self-regulatory principles for behavioral advertising, but issued a warning that advertisers had one last chance before the FTC would take further steps to regulate. Has that time come? Mr. Vladeck told the New York Times today that the FTC will issue a report in June or July.  Chairman Leibowitz said:

I have a sense, and it’s still amorphous, that we might head toward opt-in.

What would such opt-in look like and how would it operate?  Is any opt-in solution manageable in the online world? Can any proposed model keep up with rapid changes in technology and consumer expectations?  And will this focus on online privacy issues affect and/or eclipse the progress of the many pending federal data security and breach notification bills?

We shall see.