February 16, 2000 2:20 PM PST

FTC investigates DoubleClick's data-collection practices

DoubleClick, the Internet's largest advertising network, has acknowledged it is under a Federal Trade Commission investigation concerning its practice of collecting dossiers on consumers.

In a Securities and Exchange Commission filing, the New York company disclosed notice of a federal "inquiry" and said it also is a defendant in several class-action lawsuits.

The complaints allege, among other things, that DoubleClick unlawfully compiled data on consumers' surfing and shopping habits on the Net, then sold that information to third-party advertisers.

Commission officials confirmed that an inquiry is under way. The "staff is conducting a routine inquiry of DoubleClick Inc. to determine whether it has engaged in unfair or deceptive practices," Jodie Bernstein, Bureau of Consumer Protection director, said in a statement. "The company has been cooperating with the inquiry."

In a statement released this afternoon, DoubleClick CEO Kevin O'Connor acknowledged he was aiding commission investigators, adding that the firm "applauds the FTC's efforts to keep the Internet safe for consumers."

In the SEC filing on Monday, however, the company stated that "if, as a result of any of these proceedings, a judgment is rendered or a decree is entered against us, it may materially and adversely affect our business, financial condition and results of operation."

DoubleClick's shares fell $4.94 to $106.50 in afternoon trading on the Nasdaq Stock Market before activity came to a halt.

The probe follows a recent trend in which federal investigators have increased scrutiny of online companies. During the past few weeks, popular e-commerce sites such as eBay, eToys and Amazon.com have been the subject of inquiries. The investigations come in part as a result of numerous consumer complaints.

DoubleClick has come under fire for its profiling practices as privacy groups and other consumer advocates rallied support for their cause.

The Electronic Privacy Information Center (EPIC), a public interest research organization based in Washington, D.C., filed a complaint with the FTC last week charging that DoubleClick engaged in "unfair and deceptive trade practices."

The organization is asking, among other things, to prohibit the advertising firm from collecting personal information using digital tags called cookies without an individual's informed consent, said David Sobel, EPIC's general counsel.

EPIC has also requested that the commission level civil penalties on DoubleClick in an amount equal to 50 percent of the company's revenue.

Sobel said that DoubleClick's practices are unfair because consumers rarely know they are being tracked, and its privacy policies, which have allegedly changed several times in the past two years, can be construed as deceptive.

The complaint follows DoubleClick's November $1.7 billion acquisition of Abacus Direct, the country's largest catalog shopping database firm.

Privacy advocates had long feared that DoubleClick would correlate its online database with Abacus' offline consumer profiles. At first, the advertising firm said it would not link the information. But the policy statement was quietly revised after the November deal.

The policy now reads that information, such as a person's name, address and demographics, will be correlated to the Abacus Alliance Web sites.

The policy statement raised the ire of privacy advocates. In response, DoubleClick on Monday unveiled a $2 million advertising campaign, which includes full-page notices in major-circulation newspapers such as The New York Times informing readers about how the profiling system works.

DoubleClick has maintained that the information will be used only to target advertisements to specific households. The company also has said it will not associate any personally identifiable medical, financial or sexual-preference information with an individual, nor will it associate data collected from children.

The company has launched an educational Web site, PrivacyChoices.org, to inform users about online privacy and make it easier to opt out of DoubleClick's profiling network. Aside from opting out, consumers can install software that blocks advertisements and unique computer identifiers. Junkbusters, a privacy clearinghouse, offers a blocking tool for free. Other companies that provide such services include Zero-Knowledge and AdSubstract.

The federal inquiry will unlikely punish DoubleClick for its practices, analysts predicted, saying that other similar firms would have to be targeted.

"DoubleClick is not doing anything differently than what other companies are doing," said Michele Slack, an advertising analyst with Jupiter Communications in New York. "I would be surprised if DoubleClick gets slapped with a fine."

Jim Nail, a Forrester Research analyst who also tracks online advertising, said the FTC will most likely use the inquiry as a way to look at the broader issue of privacy online.

"This is the beginning of long, involved debates about privacy that will end with regulations," he said. "I don't think we can expect the advertising firms to self-regulate."

 

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