Editors' note: This is a guest column. See Larry Downes' bio below.
Wednesday's announcement that the Federal Trade Commission had filed a complaint against chipmaker Intel came as quite a surprise.
Not because of the allegations themselves, which focus on illegal tactics the company allegedly uses to maintain its dominance in the market for PC and server CPUs. Nearly all of them have already been cited in regulatory actions in the United States and abroad.
Earlier this year, the European Union fined Intel nearly $1.5 billion for conduct similar to that alleged in the FTC complaint (an appeal is pending). New York State Attorney General Andrew Cuomo, likewise, filed an antitrust case against the company in November. Private antitrust suits, notably by competitor Advanced Micro Devices, have been ongoing since 2005. Japan and South Korea have already concluded their own actions against the company.
Rather, what is surprising about the FTC complaint is its timing. Given the range of both public and private litigation against Intel, it's hard to see what the FTC hopes to achieve by jumping in so late in the game. Indeed, the commission had been investigating the chipmaker since June 2008, before the EU reached its decision and before a landmark settlement between Intel and AMD was reached in the private lawsuit just last month, in which Intel agreed to pay AMD $1.25 billion and cross-license various patents.
According to Intel's statement Wednesday morning, the company and the commission had been close to a settlement "of all outstanding issues with the FTC" when the commission instead decided to issue its complaint.
The real deal
So what's going on here? Let's start by looking at a few key differences between the FTC action and those brought by other litigants. First, the FTC complaint broadens the charges against Intel. In early December, sources reported that the FTC had widened its investigation beyond CPUs to include anticompetitive behavior in graphics processing units, in which Intel is alleged to control about half the market.
Nvidia, one of Intel's main competitors for GPUs and itself a party in still another lawsuit, confirmed that the FTC had contacted the company about its investigation. (In a Wednesday statement, Intel argued that the GPU claims have not been fully investigated by the commission and are therefore premature. It appears that the addition of these new issues derailed the settlement talks, leading to Wednesday's action.)
Second, the FTC's complaint alleges multiple violations of the Federal Trade Commission Act, which only the commission has the authority to enforce. Under section 5 of the act, the commission may use its power to remedy practices that have not yet reached the threshold of harm necessary under either the Sherman Act or the Clayton Act, the more general antitrust statutes. As the U.S. Supreme Court put it in a 1953 case, the commission quotes from in the first sentence of its complaint, section 5 gives the FTC power to "stop in their incipiency acts and practices which, when full blown, would violate" the Sherman or Clayton acts.
Third, and perhaps most disturbing, the FTC's proposed remedies are much broader than those sought in any of the other litigation. Rather than seeking fines, penalties, or money damages, the commission intends to enforce wide-ranging changes to how Intel operates.
For starters, the FTC wants to limit Intel's use of bundled prices, quantity discounts, minimum purchase guarantees from original equipment manufacturers, pricing products below cost and other long-standing industry practices. Moreover, the commission intends to require Intel to license its technology to "others" on terms and conditions "as the commission may order" and to require Intel to preclear any future acquisitions, including purchases of intellectual property such as patents and copyrights.
These and many other restrictions on Intel's conduct would be overseen by an independent monitor appointed by the FTC. Intel would also be required to submit "periodic compliance reports" with the commission.
In short, if the FTC goes forward with its complaint, and Intel is ultimately found to have violated the FTCA, the company would find itself closely regulated for an undetermined period of time by the commission and its outside monitors. Even advertising and promotional materials would need to be reviewable on demand by the government.
Notable timing
None of these differences, however, add up to a justification for the FTC's decision to insert itself into a complicated matrix of ongoing litigation, just as the other actions are or are close to reaching resolution.
For starters, if the GPU claims are as strong as the commission says they are, then they could easily have formed the basis of a separate complaint, filed once the FTC had had a full opportunity to investigate them.
As for the FTCA, the FTC undermines its own argument that the special powers of section 5 are necessary to repair the semiconductor market. The commission notes throughout the complaint that Intel's monopolies and the behaviors it is seeking to remedy, with the exception of the GPU-related violations, have been ongoing since 1999--the year in which Intel and the commission settled an earlier section 5 complaint. Given that so many other lawsuits are already years in progress, it's unlikely that any "incipient" behavior is involved here; whatever Intel has done, it has done for years.
The FTCA is a red herring, in any case. As leading antitrust scholar Richard A. Posner noted in 2005, expansion of the Sherman and Clayton Acts over the years has left no real difference between the more general antitrust laws and the FTC's special powers under section 5. Private enforcement or lawsuits brought by the Department of Justice or state attorneys general now cover all the behavior that may have been subject only to what was once the broader powers of the agency.
The FTC's belated decision to pursue Intel brings Posner's longstanding critique of the commission into sharp focus. Posner, who has questioned the effectiveness of the commission since 1969, concluded in 2005 that the agency's continued existence might be justified, not for its enforcement of antitrust laws, but rather on the basis of its unique role in protecting consumers against fraud. The Department of Justice is a "powerful and highly regarded" federal agency tasked with enforcing antitrust law, Posner wrote, "but there is no counterpart federal agency that tries to protect consumers against fraud and oppression--unless it is the Federal Trade Commission."
And while the FTC complaint duly invokes "harm to consumers" 31 times in its complaint, evidence of any real damage will be hard to come by. Thanks to Moore's Law--Intel founder Gordon Moore's promise that semiconductors will continue to get faster, smaller, and cheaper every 12 to 18 months--the price of raw computing power has fallen dramatically and consistently since Intel was founded. Consumers are not being tricked or misled into buying computers with Intel processors.
Protecting consumers?
The commission can blow all the smoke it wants to about ensuring "freedom of choice" for consumers, but for better or worse, this litigation and all the rest of it is being brought for the benefit of Intel's competitors. Which is not to say that Intel hasn't violated anticompetition laws and that those violations, if left unremedied, "will have an adverse effect on competition and hence consumers," as the FTC delicately puts it.
Perhaps they will. But there is another, greater danger here, and that is the harm to the entire semiconductor industry that will result from regulators stepping in to resolve what are, in essence, private fights between Intel, its competitors, and some of its biggest customers.
The commission, along with its counterparts abroad and judges fashioning remedies in the public and private antitrust cases, might somehow get it right and fix the semiconductor market--or at least make it more efficient than it is under Intel's dominance. On the other hand, they might make things much worse.
The worst-case scenario seems increasingly likely. The FTC, in any event, is weighing in far too late on Intel's battles with AMD, and too soon in its fight with Nvidia and other GPU manufacturers. The remedies it intends to visit are breathtaking in their expansiveness and would leave Intel unable to compete, let alone compete fairly. The only beneficiaries of this latest chapter in the antitrust saga would be Intel's competitors, not consumers.
As Posner noted with characteristic understatement, an FTC untethered from its role of protecting consumers is little more than a tool for unhappy competitors. "If the competitor files a lawsuit, he must bear the expense of the suit," Posner wrote, "but if he can get the FTC to proceed against the seller, he incurs no cost. This opens up the possibility of using the FTC as a weapon against competition."
Even worse, it's a weapon that has the unfortunate habit of regularly backfiring on those who employ it.
The FTC wants Intel to grow up and start acting like a responsible company.
At least that's the goal behind the agency's lawsuit against the chipmaker. Filed on Wednesday, the FTC's suit charges Intel with a host of offenses, including using threats and rewards to convince PC makers not to buy chips from the competition, altering its compiler to weaken the performance of rival chips like those made by AMD, and preserving its CPU monopoly by stifling the market for GPUs (graphics processing units) made by Nvidia and other manufacturers.
On Wednesday, the FTC held a press conference in Washington in which it discussed why it launched the lawsuit now and what it hopes to gain.
Fielding questions from reporters, Richard Feinstein, director of the FTC's Bureau of Competition, explained that the allegations against Intel have been bubbling for the past 10 years. During that time, at each point in which Intel perceived a threat to its dominance, the company responded not by competing aggressively on its own merits but by behaving in a way that was exclusionary and detrimental to the competition and ultimately detrimental to consumers, said the FTC.
Federal officials said they chose now to file the suit in part because the allegations have continued and evolved over time, and also because many of the charges are fairly recent, such as Intel's perceived attacks on the GPU market.
Unlike other complainants against Intel, the FTC is not imposing any fines or financial penalties. Instead, the agency simply wants the company to try a little behavior modification. The government said it is looking for changes in Intel's conduct to help restore market competition.
In its complaint, the FTC provided a laundry list of remedies that it plans to impose on Intel if the company is found to have violated any laws.
The full list of 26 different dos and don'ts can be found in the FTC's complaint, but to name just a few:
- Intel can't directly or indirectly require customers to purchase only its CPUs or GPUs.
- Intel can't require a customer to buy a minimum or fixed number of processors from Intel.
- Intel can't withhold payments or other compensation to OEMs (original equipment manufacturers) just because the companies are not exclusively doing business with Intel.
- Intel can't directly price its processors so its customers pay below cost just to thwart the competition.
- Intel can't make hardware or software designed to inhibit processors made by competing companies.
- For customers who bought "defective" compilers, Intel must provide them with a working compiler at no cost and compensate them for the cost of recompiling their software using the new compiler.
- Intel can't coerce benchmarking organizations to adopt benchmarks that are deceptive or misleading.
- Intel must file periodic compliance reports with the FTC and for a period of time make available any advertisements, tests, reports, studies, and other documents that relate to the charges against it.
In charging Intel, Feinstein said that the FTC is relying on principles from Section 2 of the Sherman Act, which deals with monopolies, and Section 5 of the Federal Trade Commission Act, which covers deceptive or anticompetitive actions that affect consumers.
Section 5 also specifies that the outcome of the FTC's case can't be used to establish liability on Intel's part in any other antitrust actions. That may work in Intel's favor as its lawyers have certainly been putting in overtime dealing with the barrage of lawsuits against the company.
Intel recently closed the books on a 2004 antitrust lawsuit filed against it by AMD. As part of the settlement, the company agreed to pay its rival chipmaker $1.25 billion and promised to refrain from offering incentives to customers to keep them from doing business with AMD.
Intel is still appealing the record $1.45 billion fine imposed on it in May by the European Commission after the company was found guilty of violating European antitrust laws.
And in November, New York Attorney General Andrew Cuomo filed a federal lawsuit against Intel, accusing it of paying off computer makers like Dell with rebates to retain its monopoly and shove AMD out of the marketplace. Though this case is separate and distinct from the FTC's suit, Feinstein did acknowledge that he spoke to and compared notes with the state attorney general.
With Intel already facing severe financial penalties from these other lawsuits, Feinstein said he didn't feel another fine was essential for the FTC's case. But he said that in theory the FTC can go into federal court and seek financial penalties if necessary.
Last-minute allegations
In response to the FTC's action, Intel held its own conference call Wednesday in which the company discussed the allegations in greater detail..
Intel spokesperson Chuck Mulloy told CNET that substantial common ground had been reached in the discussions between the company and the FTC, especially after Intel settled its suit with AMD. But negotiations broke down because the commission raised certain last-minute allegations, such as the benchmarking issue and the GPU matter, and because Intel felt some of the suggested remedies were over the top.
Mulloy said that the benchmarking and GPU concerns had never been addressed in the two years that the FTC had been investigating Intel, both formally and informally, and were added a few weeks prior to the lawsuit being filed. He said the commission issued a subpoena to Intel requesting information on the GPU issue on December 8, about a week before the suit was launched, and did not wait for a response from Intel.
The chipmaker was also unhappy with a couple of the remedies proposed by the FTC. One sticking point in particular was the notion of compulsory licensing, in which the commission would have required Intel to license its x86 architecture to other companies, which includes those trying to make their own chips compatible with Intel processors. But Intel objected because it considers the technology to be its own intellectual property worth tens of billions of dollars.
Mulloy also said that talks broke down because Intel felt the FTC was trying to micromanage the company's pricing schemes--dictating how and under what circumstances it could offer discounts to certain customers. He added that Intel did make some proposals to the commission on discounting schemes, but this issue was never resolved.
Intel's view is that this is overreach on the part of the FTC, said Mulloy. He feels Intel was on track to settle and was disappointed that it couldn't get it done.
To move the case along quickly, the FTC decided to have it heard before an administrative judge rather than a slower federal court. The speedier process of the administrative court will begin with a trial in September, which Feinstein believes will conclude by the end of the year. Depending on the outcome, there may or may not be further proceedings before the FTC. But ultimately, the case would be reviewed by the FTC for a final decision. If the judge rules against Intel and the company appeals, that could take the case to the middle of 2011.
Ultimately, Feinstein believes that Intel's actions have deprived the marketplace of the vigorous competition it needs, affecting innovation, prices, and consumer choice. Despite the gains in the microprocessor market, Feinstein said he believes it's hard to know what the market might have done over the past 10 years had it not been for Intel's conduct.
Updated December 18, 5:45 a.m. PST with response from Intel
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The Federal Trade Commission's complaint against Intel for alleged anticompetitive practices has a new twist: graphics chips.
To date, the antitrust actions of regulators worldwide toward Intel have focused on sale practices for central processing units, or CPUs, a market over which the company has fought heavily with Advanced Micro Devices. On Wednesday, however, the FTC spelled out a litany of allegations about Intel's alleged anticompetitive behavior in the market for graphics-processing units, or GPUs, in which Nvidia is a major player.
Nvidia is the world's leading supplier of "discrete," or standalone, graphics chips but takes a distant second place in overall market share to Intel, which supplies "integrated" graphics built into the chipsets that accompany all of its processors. Mercury Research estimates the total market for graphics chips, including integrated graphics, at almost $10 billion in 2009.
Why graphics, and why now? "It would be really hard to sell the public on expending resources to take Intel through administrative proceedings when it had already paid over a billion dollars to AMD," said Joshua D. Wright, a professor at George Mason University School of Law and a scholar in residence at the Federal Trade Commission until 2008.
"[The FTC] needed to be seen as doing something new," Wright said.
"[Nvidia] becomes the remaining star witness, now that AMD has left the field," said Roger Kay, principal at Endpoint Technologies. "And the FTC's focus, which begins to look toward the future, has to take into account how graphics will fit in as computer technology develops," Kay said.
Intel General Counsel Doug Melamed asserted in a statement that the FTC complaint "is based largely on claims that the FTC added at the last minute and has not investigated," referring to the GPU allegations. And Melamed added in a conference call that some of these GPU allegations were made as recently as December 8.
One of the areas the FTC case zeroes in on is the burgeoning competition for chipsets in Netbooks--small, inexpensive laptops that are typically priced around $350. Netbooks are powered by Intel's Atom processor--and integrated graphics silicon built into the chipset. In this market, Nvidia also sells its Ion chipset, which competes with Intel's integrated graphics product.
... Read more
The Federal Trade Commission is planning to crack down on bloggers who review or promote products while earning freebies or payments, the Associated Press reported Sunday.
This would, for the first time, bring bloggers under FTC guidelines that ban deceptive or unfair business practices.
"New guidelines, expected to be approved late this summer with possible modifications, would clarify that the agency can go after bloggers--as well as the companies that compensate them--for any false claims or failure to disclose conflicts of interest," the article explained.
The rules could be quite strict, even extending to the practice of affiliate links--for example, a music blogger who links to a song on Amazon MP3 or iTunes that earns an affiliate commission in the process.
The practice of free products for bloggers, most of whom are not bound by ethical guidelines that journalists have historically followed, has been making headlines for some time now. Microsoft, for example, created a wave of bad press a few years ago when it gave free Acer laptops preloaded with Windows Vista to several dozen bloggers.
Some companies have sprung up around the whole notion of blogger compensation and giveaways. The AP article mentions some of the marketing companies that have made a business out of offering bloggers incentives--free trips, products, gift certificates, or outright payments--for coverage. One of them, Izea, has been generating controversy in the tech press since it started PayPerPost.
Izea says that it requires bloggers to disclose what they've gotten paid for or what they've received for free. But with the proposed FTC guidelines, if a blogger fails to disclose a freebie or payment, both Izea and the blogger could be held responsible. The FTC could also take issue with the fact that for at least one promotion, Izea has said it avoided including bloggers who would be likely to give the company negative press.
Izea CEO Ted Murphy wrote in a blog post Monday that the company supports stricter FTC regulations for bloggers.
"The companies that should be worried about these changes are those that have no standards and no way to enforce disclosure," Murphy wrote. "We have invested millions of dollars creating systems that allow us to automate transactions and verify standardized disclosure."
But some bloggers, the AP article mentioned, are concerned that the FTC's efforts could go too far, possibly generating probes into posts that were written without any compensation, and possibly leading bloggers to post with more restraint. And some believe it would be better if bloggers created their own standards based on niche and industry.
Then there's this: does the FTC realize just how many small-time bloggers are out there? Championing business ethics is a worthy goal, but, um, good luck getting much done when there are hundreds of thousands of blogs out there and new ones popping up more or less daily. Ever heard of the expression "herding cats?"
This post was updated at 11:37 a.m. PT with comment from Izea.
The federal government and four states are suing satellite television provider Dish Network for violating laws regarding the national Do Not Call registry.
The Federal Trade Commission on Wednesday said Dish Network has been calling consumers on the Do Not Call list, either directly or through marketing dealers working on its behalf, to promote its services since 2003.
The agency also said the company's "robocalls," or automated messages, are in violation of the federal Telemarketing Sales Rule. The agency's complaint was filed jointly with attorneys general from California, Illinois, Ohio, and North Carolina.
"Because a few bad actors still don't get it, we want to make it crystal-clear," Eileen Harrington, acting director of the FTC's Bureau of Consumer Protection, said in a statement. "If you call consumers whose numbers are on the Do Not Call registry, you're breaking the law."
The government is seeking a permanent injunction against Dish Network, prohibiting it from violating robocall and Do Not Call restrictions, and requiring that it monitor the marketing dealers it works with to prevent future violations. It is also seeking monetary civil penalties for every Telemarketing Sales Rule violation.
Dish Network said it has not violated the law and should not be held responsible for Do Not Call violations made by other companies.
"An independent audit demonstrates that Dish Network is in compliance with Do Not Call laws, has proper controls in place, and is well within the safe-harbor provisions of the law," the company said in a statement. "We also believe that the FTC is equating merely doing business with an independent retailer to 'causing,' or 'assisting and facilitating,' violations by that retailer, which creates a strict liability standard that does not exist in the law and was not intended by Congress."
The government is also filing complaints against two of the marketing dealers with which Dish works, Vision Quest and New Edge Satellite, for allegedly calling consumers on the Do Not Call list.
The FTC filed similar complaints against two other Dish Network partners in 2008--Planet Earth Satellite and Star Satellite. Those charges were settled, with the companies paying a total of $95,000 in penalties.
WASHINGTON--President Obama's economic stimulus plan has already spurred activity in at least one online industry, though not one the administration was hoping to encourage.
Deceptive Web sites, advertisements, and e-mail campaigns have cropped up across the Web in recent weeks, luring consumers into scams by promising them federal grant money from the stimulus package, the Federal Trade Commission said Wednesday.
The FTC is investigating these scams and is reaching out to the private sector for help. Google on Wednesday morning committed to investigating stimulus-related ads that violate its anti-scam policy, and Facebook has pulled ads for stimulus funds from its site, in accordance with a new advertising policy it implemented this week.
The deceptive sites and ads "have literally mushroomed up almost overnight," Eileen Harrington, the acting director of the FTC's Bureau of Consumer Protection, said Wednesday.
Web sites fraudulently offering ways for consumers to receive stimulus funds often use pictures of President Obama.
(Credit: Screenshot provided by the Federal Trade Commission)Scammers have created sites with domains like PresidentObamaGrants.com and OfficialStimulusGrants.com, Harrington said, and include pictures of President Obama and Vice President Biden. The sites prompt consumers to enter a credit card number to pay a small fee in return for a list of grants supposedly available for things like mortgage payments. Those small fees, however, are often nothing more than a down payment on a "negative option" agreement that could cost someone thousands of dollars over the course of a year if not canceled.
"These Web sites tout free money for you," Harrington said. "But as the saying goes, the devil is in the details. Buried deep within the Web site is the fact that they'll charge you a lot of money."
Advertisements for these sites have started on appearing on social-networking sites, video-streaming sites, and search engines. While Google and Facebook have been cooperative, Harrington said not all sites have been responsive to the FTC's request for help, though she declined to name any such sites. She also said the FTC has been in communication with network advertising groups about the problem, though she once again declined to name which ones.
"We've spent a lot of time educating advertisers how to screen for ads and this one should be a no-brainer for them," she said.
Facebook started noticing the suspect stimulus-related ads on its site about four to five weeks ago, before the FTC contacted the company, said Joe Sullivan, senior counsel for Facebook. Through Facebook's own ad screening and the "thumbs down" function that lets users give feedback on ads, it was able to identify the problem. Facebook launched a new policy this week to prohibit ads on its site with any obscure recurring billing schemes.
Spammers are also targeting consumers through e-mails that encourage consumers to click on a link within the message or to fill out attached forms to find out more about receiving stimulus funds. Clicking on the links or the attachments, however, can result in identity theft or in harmful software being downloaded to one's computer.
The FTC will not discuss ongoing investigations publicly, but Harrington said the deceptive negative-option marketing campaigns found on many of the fraudulent stimulus sites fit the profile of scams the FTC has already challenged in many law enforcement actions.
"The FTC has broad authority to challenge deceptive and unfair practices," she said.
Either through court proceedings or administrative challenges, the agency could take actions that could result in any number of consequences, such as prohibiting the use of certain ads or requesting that money be returned to consumers.
President Obama plans to appoint current Federal Trade Commission member Jon Leibowitz to lead the agency, which partially enforces antitrust laws and has taken a recent interest in online advertising.
An administration official on Monday confirmed to CNET News that Leibowitz, a Democrat appointed to the five-person commission in 2004, would be nominated as chairman.
Liberal groups including the ACLU and U.S. PIRG last year called on the Obama administration to appoint a chairman who would take a more regulatory approach. More recently, many of those same groups criticized the FTC's view that self-regulation of online targeted advertising was sufficient, which Leibowitz also seemed to take issue with.
"Industry needs to do a better job of meaningful, rigorous self-regulation, or it will certainly invite legislation by Congress and a more regulatory approach by our commission," he said earlier this month.
In November 2007, Leibowitz suggested that Internet companies should take an "opt in" approach to cookies instead of the current "opt out" approach, a requirement that would have roiled the industry. He also suggested the idea of a "Do Not Track" list for Web surfers.
"Leibowitz will help transform what has been a largely anemic regulatory watchdog during the Bush years into an agency that sees its first priority as consumer protection," said Jeff Chester, executive director of the Center for Digital Democracy, a liberal group that advocates for more regulation. "Public interest groups such as mine appreciate that Leibowitz has called for tougher online privacy safeguards, and that his door has always been open."
The FTC under Leibowitz will also continue to address questions of anti-comptetitive practices in the technology sector, including in its proceeding investigation of Intel.
"Under Leibowitz's lead, we expect this investigation to proceed fairly and hope that the new chairman uses his position to investigate similar anti-competitive abuses by other companies," said Ed Black, the president and CEO of the Computer and Communications Industry Association. "His knowledge of high-tech and Internet issues is a huge plus."
On Monday, the U.S. Supreme Court dealt the FTC a bitter defeat when it declined to hear the agency's appeal of the unsuccessful Sherman Act antitrust case it brought against chipmaker Rambus. The case has lasted seven years and is now effectively over; the FTC initially alleged the company "threatens to undermine participation in industry standard-setting activities."
Leibowitz was one of two commissioners to dissent from the FTC'S 2006 decision to allow Time Warner and Comcast to buy cable television systems from Adelphia Communications, without conditions. He and commissioner Pamela Jones Harbour called for restrictions to keep the cable companies from discriminating against rival providers.
On the issue of Net neutrality, Leibowitz stood out from his colleagues in June 2007 when the FTC released a report stating no new laws were necessary. Leibowitz issued an opinion saying existing antitrust laws may not have been "adequate to the task" of Internet broadband regulation.
"Will carriers block, slow or interfere with applications?" Leibowitz asked at a public hearing held by the FTC in November 2006. "If so, will consumers be told about this before they sign up? In my mind, failure to disclose these procedures would be...unfair and deceptive."
Leibowitz previously worked as a lobbyist for the Motion Picture Association of America. Before that, he was chief counsel and staff director for a Senate antitrust subcommittee.
Plans for Leibowitz's nomination were first reported by Bloomberg.
CNET's Declan McCullagh contributed to this report
A government regulatory agency said Thursday that it will continue to push for better self-regulation of online behavioral advertising, but privacy advocates--as well as a key congressman who plans to introduce data collection legislation soon--say self-regulation will not sufficiently protect consumers.
After considering public comments over the past two months, the Federal Trade Commission on Thursday released a revised set of four principles to guide self-regulation of online targeted ads. Yet the changes to the principles are minimal, privacy advocates say, and may even create more loopholes for online companies collecting behavioral data. Critics also charge the guidelines punt the important task of defining certain terms related to online advertising to the industry and public interest groups.
The following are the four principles:
• Web sites should prominently note their behavioral advertising practices and give consumers an accessible way to opt out of such programs. Companies are encouraged to make these notifications separate from general privacy policies. Companies that collect information through mobile devices or other means should ensure they have sufficient disclosure mechanisms.
• Companies are encouraged to maintain reasonable security and retention practices with respect to the data they collect.
• Companies are also encouraged to inform consumers of retroactive material changes to their data collection policies.
• And companies are encouraged to receive express consent from consumers before collecting "sensitive data," such as information about children, health information, and Social Security numbers.
The revised principles were issued with a report (PDF) that responds to comments the agency received on the topic. The commission voted 4 to 0 to approve the report, but two commissioners suggested the issue is far from resolved.
"Industry needs to do a better job of meaningful, rigorous self-regulation, or it will certainly invite legislation by Congress and a more regulatory approach by our commission," Commissioner Jon Leibowitz said. "Put simply, this could be the last clear chance to show that self-regulation can--and will--effectively protect consumers' privacy in a dynamic online marketplace."
Rep. Rick Boucher (D-Va.), who chairs the Internet subcommittee in the House Energy and Commerce Committee, said he intends to reintroduce data collection legislation in the "not-too-distant" future.
"I think self-regulation is helpful, and responsible Web sites will abide by (the principles), but self-regulation is not sufficient, in my opinion," Boucher told CNET News.
He said he and Rep. Cliff Stearns (R-Fla.), who is the ranking Republican on the Internet subcommittee, will introduce bipartisan legislation similar to a bill introduced in 2002, called the Consumer Privacy Protection Act, to ensure online companies notify consumers whenever behavioral or personal data is being collected.
"I think if we empower (Internet) users in this way, it would lead to greater consumer confidence, leading to more electronic commerce," Boucher said.
The congressman said his subcommittee will work in conjunction with the House Energy and Commerce's consumer protection subcommittee to put together a new version of the bill. The FTC and the Federal Commissions Commission would likely share authority enforcing it.
No big changes
The principles announced by the FTC are unlikely to result in any significant changes in online tracking, privacy advocates said, though they are broad enough to address practices such as Google's method of partially basing search results on a user's search history. Google applauded the revised principles.
"The FTC principles underscore that in a fast-evolving space like the Internet, a self-regulatory approach is the best way to protect consumers and promote innovation," Pablo Chavez, Google senior policy counsel, said on Google's public policy blog. "Google will continue to engage in efforts to develop strong self-regulatory principles and will continue to advocate for comprehensive federal privacy legislation."
Mike Cassidy, CEO of Undertone Networks, a premium online advertising network, also said that the revised principles are unlikely to change much.
"But I'm also of the belief not a lot needs to be changed," Cassidy said. "As a U.S. citizen, I think the government's got better things to do," such as addressing the current economic recession.
The provisions found in the so-called "stimulus" bill Congress is finalizing only make the need for regulation more important, argued Pam Dixon, executive director of the World Privacy Forum.
The FTC's principles are coming out "at the same time the stimulus package is going to fund millions of dollars of health care data moving online," Dixon said. "It's not a good intersection. I was hoping for more."
She said self-regulatory efforts such as the Network Advertising Initiative--to which both Google and Undertone Networks belong-- have been a "demonstrated failure."
Insufficient protection for "sensitive information" and kids
The NAI, she said, has insufficiently defined medical information in its own guidelines--yet the FTC on Wednesday called on industry groups and and privacy advocates to develop its own specific standards to address so-called "sensitive information."
"In terms of sensitive information, the FTC did a punt on this," Dixon said.
Furthermore, by neglecting to define "children," or address the fact that children are not able to give meaningful consent to data collection, the FTC "failed to protect kids from online predatory practices," said Corie Wright, a lawyer for Georgetown's Institute for Public Representation. Children, she said, are "increasingly becoming really attractive targets for marketers."
To the extent that any online behavioral targeting may amount to unfair or deceptive practices, the FTC will investigate them, said Jessica Rich from the FTC's Bureau of Consumer Protection. Meanwhile, the FTC will continue to evaluate this year self-regulatory programs like the NAI.
Jeff Chester, executive director of the Center for Digital Democracy said the agency has not taken a more proactive approach to regulating online targeting because of the Bush administration's preference for self-regulation.
"I see this document as the last official act of the Bush administration," he said, noting that President Obama has not yet appointed a new FTC chairman.
Congressman Boucher said he trusts Obama's judgment on the decision.
"I deeply respect his values and I'm confident he'll appoint a person of outstanding ability who shares his goals for consumer protection," he said.
About a dozen leading privacy and consumer groups met with members of President-elect Barack Obama's transition team Tuesday to discuss the Federal Trade Commission's role in protecting consumer privacy.
While participating organizations addressed a range of problems and potential solutions, the underlying message was clear: the FTC has for too long allowed industries to self-regulate their online privacy practices--to the detriment of consumers.
"The FTC keeps moving the goal post on what privacy advocates need to prove" before it provides substantive regulation, said Chris Jay Hoofnagle, director of the Berkeley Center for Law and Technology's Information Privacy Programs. "The commission has taken this posture that allowed business interests to win by just showing up. Self-regulation in online privacy has gotten more than a fair shake."
Hoofnagle took part in Tuesday's meeting, along with representatives from the Privacy Rights Clearinghouse, the Consumer Federation of America, the American Civil Liberties Union, the Center for Digital Democracy, the World Privacy Forum, the Electronic Privacy Information Center, the Privacy Times, the Privacy Journal, the Consumers Union, the Electronic Frontier Foundation, and U.S. PIRG, the federation of state Public Interest Research Groups. The groups met with Susan Ness and Phil Weiser, the FTC review team leaders for the Obama transition team.
While the transition's agency review leaders have been seeking insight from numerous sources about the functionality of agencies like the FTC, this meeting was held at the request of the privacy groups, according to Jeff Chester, the executive director of the Center for Digital Democracy.
"We wanted to impress upon the transition team that there are many online privacy issues that need to be the highest priority of the incoming Obama FTC," Chester said. "The last eight years has been a disaster for consumer protection and privacy, and the agency has not really had the interest to work on behalf of consumers to investigate the online ad industry and its harmful and problematic practices."
Along with the need for better regulation of targeted online marketing, the groups discussed the need for more oversight in the data broker industry and privacy policies for medical information, among other things. A range of solutions were offered, from more benchmarks for self-regulated industries to new legislation.
If the FTC is going to let industries self-regulate their privacy policies, it should provide clear benchmarks, Hoofnagle said. Without clearly defining the problems that need to be solved and the measures of success, the commission cannot know when it should intervene, he said.
More regulation for targeted online ads?
The Network Advertising Initiative, for example, is a group of third-party network advertisers including Google and Yahoo that has created its own online behavioral advertising guidelines. The group announced Tuesday it updated its code of conduct, but multiple groups at the meeting with the Obama transition team said that behavioral tracking and targeting is still a problem that the FTC needs to address.
Susan Grant, director of consumer protection at the Consumer Federation, called the practice "deceptive on its face."
"The FTC approach to this issue is emblematic of its timid and inadequate approach to consumer privacy in general over the past several years," she said. "Information is collected by entities with whom people have no relation, without consumers having any idea of what would be done with that information."
The Consumer Federation is calling for the FTC to establish a "Do Not Track" registry, Grant said. The FTC already oversees the Do Not Call Registry, which lets consumers opt out of receiving telemarketing calls. The registry has been very successful, Hoofnagle said, with telemarketers reporting larger profits and more effective results.
"It was a polar opposite from the self-regulatory system," he said. "It seems we can learn from these lessons but the FTC couldn't."
Groups like Center for Digital Democracy are now waiting for Congress to introduce legislation to empower the FTC to better regulate in this area, Chester said.
Congressman Ed Markey (D-Mass.) is, in fact, interested in introducing some type of omnibus electronic privacy legislation next Congress, according to his communications director Jessica Schafer. Though the legislation has yet to be drafted or finalized, it would likely include provisions to protect consumers from online Web tracking used to create targeted online ads, she said. Markey has criticized behavioral tracking in the past.
More oversight of the data broker industry
Multiple groups at Tuesday's meeting also told the transition team that the data broker industry needs better oversight from the FTC.
The Privacy Rights Clearinghouse, a nonprofit consumer rights group, has received numerous complaints from consumers about companies that sell their personal information, including companies that supposedly violate their own privacy policies, according to the Clearinghouse's director Beth Givens.
"This is an unregulated industry that needs to be investigated by the FTC," Givens said. "It's long overdue."
Data brokering may have contributed to the mortgage meltdown of the past year, Hoofnagle said, since Internet users would typically face a deluge of offers from mortgage brokers after making a single inquiry online about how to get a mortgage.
Those who participated in the meeting said it was difficult to gauge the transition team's interest in their ideas.
"They were in fact-gathering mode," Grant said.
One significant improvement Obama could make to the FTC, Hoofnagle said, would be to alter its makeup by appointing a commissioner to with a background in consumer advocacy.
"If you look around they're often antitrust lawyers," he said. "That reflects its important antitrust mission, but that leaves the other half of the mission a little short."
The privacy and consumer advocates also suggested Obama consider creating a national privacy official. The United States and Japan are the only two countries in the developed world that do not have overarching privacy laws or an official who enforces them, said Barry Steinhardt, director of the Technology and Liberty Program for the ACLU.
"It's time for the us to get in the international consensus on that," he said.
WASHINGTON--The Federal Trade Commission essentially banned robocalls Tuesday--creating new rules that telemarketers may only send the prerecorded sales pitches to people who actually want to receive them.
The FTC amended its Telemarketing Sales Rule after reviewing more than 14,000 comments made since October 2006, when proposed amendments were published for public consideration.
There are two stages to the change: By December 2008, robocalls will be required to include an automated key-press or voice-activated opt-out. Beginning September 2009, telemarketers won't be able to send out any robocalls without "the prior express written agreement of the recipient to receive such calls."
There are no exceptions for telemarketers to send robocalls to customers with whom they have an "established business relationship," as an earlier policy allowed, but there are some exceptions. Health care-related calls subject to the Health Insurance Portability and Accountability Act of 1996 are still allowed, as are charitable fundraising robocalls made to members of the nonprofit charitable organization for which the call is placed, or to people who previously donated to it. The fundraising calls must still include an automated opt-out, however.
The strict limits won't stop robocalls from political campaigns, either."Political calls are not placed for the purpose of inducing purchases of goods or services, and therefore are not 'telemarketing' within the meaning of the TSR," the FTC notes in a footnote of the amendment.
Congress made some attempts this year to address annoying prerecorded political phone messages. The Robocall Privacy Act of 2008, introduced in both the House and Senate earlier this year, would put a number of limits on robocalls from political campaigns, including the number of calls made to a house in one day and the hours such calls can be made.
