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Update: Bill for Internet privacy drafted amid growing concerns

Updated: at 4:10 p.m. with comments from CDD executive director Jeffrey Chester and Hunton & Williams attorney Lisa Sotto.

Lawmakers released a draft Tuesday of proposed legislation aimed at protecting consumers' privacy online while encouraging commerce, the first concrete effort by the federal government to address an exploding interest by advertisers to collect information about Internet users.

Reps. Rick Boucher (D-Va.) and Cliff Stearns (R-Fla.) circulated a draft of their bill for public comment, and it has already receiving criticism from businesses and privacy groups.

The bill seeks to strike a balance between the interests of advertisers -- which generate $23 billion in revenue a year -- with sharp concerns by privacy and consumer groups, which say the federal government needs to be a better watchdog over those companies. They say Web sites are culling too much information about users and creating detailed profiles of them to sell products and services based on the backgrounds of Internet users and what they are buying, watching, reading and sharing online. They will likely protest that the bill doesn't go far enough to protect users.

"It is important that targeted advertising be allowed. We aren’t trying to prohibit it," Boucher said in a phone interview. "We are also trying to give consumers a greater level of confidence that their experience online is secure."

The draft bill requires Web sites to clearly explain how they collect data, how they use that information and how it is stored. Users' information will automatically be collected by Web sites unless consumers provide notification otherwise -- a point of contention as consumer groups say the default should be that information is not collected and used for advertisers unless otherwise instructed. Their most sensitive information -- finances, health, and sexual orientation -- would be available only on a voluntary basis, however.

And unless the information is volunteered, a Web site couldn't share consumer data with other companies. That rule wouldn't apply, however, to certain Web sites "that engage in particularly consumer-friendly practices associated with their membership in an advertising network," Boucher said.

Concerns over online privacy have heightened with an explosion in social networking through which users share pictures, videos and information about themselves on sites such as Facebook and with Google's Buzz application.

Privacy advocates have filed complaints with the Federal Trade Commission seeking sanctions against Facebook and Google, for example, for changes in business practices that they said made user data more publicly available to the detriment of users. They say users are often confused by changes in privacy settings and they argue that the default position for Web sites should be to keep information about consumers private unless a user volunteers to make it available to advertisers. The bill does the opposite.

""The bill still requires consumers to read the digital fine print, which often written with invisible ink," said Jeffrey Chester, executive director of the Center for Digital Democracy. "These privacy notices are inadequate in telling consumers what is going on in the process and are written purposefully to be vague."

The draft allows advertisers to hold user data for up to six months, a period that privacy groups say is too long and allows companies such as Yahoo, Google, Facebook and Amazon to create detailed profiles to target ads based on users' behavior. Some privacy groups say Web sites should be able to hold information about a user for only 24 hours and then dispense with that information unless instructed by a user. It also empowers the FTC to come up with a privacy rule that reflects the bill and gives the agency enforcement authority to punish violators and impose civil penalties.

The draft bill could become the first law over Internet applications such as Amazon, Facebook, Google and eBay. The FTC said it is working on a regulatory framework that addresses consumer protections of their personal data on social networking applications such as Google Buzz and Facebook.

"We applaud Rep. Boucher for engaging in a thoughtful, deliberative process by releasing a discussion draft prior to introducing legislation," Facebook spokesman Andrew Noyes said in a statement. "As public attitudes towards sharing and control over information evolve and become more diverse, Rep. Boucher has taken an important step in what promises to be a productive and vigorous public dialogue about privacy in the Internet age. We look forward to being part of the discussion."

Lisa Sotto, head of the privacy and information management practice at Hunton & Williams, said the draft bill will draw critics from businesses and privacy groups and is expected to go through a long process of comments that could lead to revisions.

She said some surprises that may not please advertisers is the broad definition of what is personal information -- which includes a user's name, IP addresses on computers, and contact information. Privacy advoacates won't be pleased, for example, with a provision that allows a company to share information of users within the organization. So, for example, The Washington Post could share user information with its educational entity Kaplan or cable holdings.

"There is clearly a lot of discussion to be had and a lot of negotiation to be done," Sotto said.

By Cecilia Kang  |  May 4, 2010; 12:00 PM ET
 
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