November 22, 2000 3:40 PM PST

Online ad companies hit with privacy suits

Class-action lawyers are raising the heat on Web advertising companies, with charges of online privacy violations flying in a pair of lawsuits filed this week.

Web advertisers Avenue A and MatchLogic, an Excite@Home subsidiary, were hit with separate complaints in federal court Monday for allegedly tracking customers without their permission. Both companies declined to comment on the suits.

"Plaintiffs allege that (the defendant) has covertly, without consent or authorization, planted 'cookies' upon Internet users' computer hard disk drives and secretly tracked their movements across the Internet," the plaintiffs charged in a filing in Denver, Colo.

Class-action plaintiffs made substantially the same allegations against Avenue A in a case filed in federal court in Redmond, Wash. Both suits were joined by the feared class-action law firm Milberg, Weiss, Bershad, Hynes & Lerach.

Privacy experts said class-action lawyers are stepping into a vacuum left by lawmakers and regulators who have so far backed away from implementing tough online privacy laws.

Such suits target widespread practices among online advertising companies, they said, and directly challenge nascent standards governing consumer privacy rights that have been largely set by the industry itself.

This summer, for example, the Federal Trade Commission approved privacy standards worked out by the Network Advertising Initiative, an industry consortium whose members include DoubleClick, Engage and 24/7 Media.

"The issue here involves banner ad networks, and whether it's considered OK to do tracking by cookies," said Richard Smith, chief technology officer for the nonprofit research group Privacy Foundation. "There is no real law against it, so the question is whether class-action folks can use existing laws to say there is something wrong with this."

Cookies are electronic markers that facilitate a variety of Web surfing functions; they landed in the privacy spotlight because they can be used to collect information on Internet browsing activities.

Monday's suits targeted MatchLogic and Avenue A using the Electronic Communication Privacy Act and the Computer Fraud and Abuse Act, as well as the common law tort of trespassing.

In a privacy statement on its Web site, MatchLogic said it "has taken numerous steps to provide online consumers with protection of their privacy and to lead the industry with technology solutions to that end."

The statement also notes that the company is "currently revising our Privacy Statement to provide yet more explicit information about MatchLogic's data acquisition and management practices to help online consumers understand and manage their identity online so they may make informed decisions."

MatchLogic provides Web advertising services, including anonymous tracking of Web surfers to serve targeted banner ads. The company also provides an "opt-in" email marketing service.

The company was acquired by Excite@Home in 1997 for an undisclosed amount.

In addition to targeting cookies, Monday's class-action complaints focused on the companies' use of "Web bugs," invisible markers used to track individuals who visit Web sites. Privacy Foundation's Smith warned that Web bugs can be used to collect information about people who visit a Web site or open an email.

Privacy advocates first raised alarms over targeted advertising networks last year, when online ad network DoubleClick announced a merger with offline marketer Abacus Direct. Consumer watchdogs were concerned that the two companies might combine their extensive customer databases, attaching names and addresses to anonymous online user profiles.

DoubleClick has since backed off plans to integrate the two databases but hasn't escaped further privacy scrutiny. The company was sued in January over its use of cookies.

Jason Catlett of Junkbusters, a privacy clearinghouse based in New Jersey, said that defendants in the current round of litigation have taken a more aggressive approach in advertising their services.

"Whereas DoubleClick has been saying in public that it tracks consumers less than is widely believed, Avenue A is boasting about its targeting ability," he said. "Online companies are now desperate for revenues, and it's putting obvious pressure on the marketing agencies to come up with more precise targeting abilities, and that means more privacy violations."

Class-action attorneys have also been drawn to privacy suits as they face tougher standards in bringing class-action security fraud suits.

New laws have made it harder for class-action firms such as Milberg Weiss to win settlements in such cases, making new fields such as privacy more attractive.

"There has definitely been a growing focus on this area," said Milberg Weiss spokesman David Rosenstein.

News.com's Patricia Jacobus contributed to this report.

 

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