Before the

FEDERAL TRADE COMMISSION
Washington, DC 20580

Public Workshop on Online Profiling

Docket No. 990811219-9219-01

Comments of Information Technology Association of America

Mark Uncapher
Vice President & Counsel
Information Services & Electronic Commerce Division,
Information Technology Association of America (ITAA)
1616 N Ft. Myer Dr., Arlington, Va. 22209

October 18, 1999

Introduction

The Information Technology Association of America (ITAA) applauds the Federal Trade Commission ("FTC" or "Commission") and the Department of Commerce ("Department") for its solicitation of public comments on the important issues outlined in the Commission's September 15, 1999 Federal Register notice ("Notice") captioned Public Workshop on Online Profiling. As the Internet emerges as increasingly important medium of commerce, it is important that government, private industry, consumer advocates, and other interested parties maintain an open dialogue on these issues.

Founded in 1961, the ITAA has been at the forefront of key technology industry issues such as the Year 2000 computer problem and the IT industry worker shortage. The Association represents 11,000 direct and affiliate member information technology companies working on the front lines of computer software, Internet and electronic commerce, telecommunications, systems integration, outsourcing, consulting and more. Our members include most leading IT companies, such as: AT&T, AOL, Dun & Bradstreet, Compaq, EDS, IBM, Lexis-Nexis, MCI WorldCom, Microsoft, and Yahoo. Every day our members deliver products and services that are making the promise of the information age a reality.

ITAA's comments on online profiling address a limited number of the general issues outlined in the Notice. We believe that it is vital to thoroughly understand the technology underlying the particular medium at issue. The Department and the Commission deserve credit for working with interested parties to understand the development of Internet communication.

We understand that the online profiling workshop intends to focus on a fairly narrow subset of Internet personalization, specifically limited to Internet advertising. ITAA will leave any discussion of these operational processes to others with more direct experience with it. As a result, we do not seek to participate at the November 8^th workshop. Our primary intent is to highlight the general contribution that Internet personalization makes to create a consumer friendly medium. The specific issues that the workshop is considering should be weighed in this broader context.

Consumer Personalization

The personalization of consumer communications to customize consumer contact and engage the consumer in an "automated dialogue" is a benefit of the Internet. Sophisticated retention of past buying patterns and other data can help a marketer personalize their contact with a customer. The openness and communications power of the Internet provides strong incentives for e-commerce companies to keep their customers satisfied. For example, search engines and other related tools compete with each other in their ability to identify and access desired content.

A company doing business on the Web which fails to meet consumer expectations can expect the word to spread quickly, much more quickly than in more traditional vendor/customer environments. ITAA members are strongly committed to providing their customers with an online environment that discourages fraud and promotes pro-customer behavior.

Online sites are, in fact, seeking to duplicate the same personalized attention that consumers get from the best brick and mortar merchants. A traditional merchant often knows based upon past experience, or even conjecture, to be able to make recommendations. Consumers value the personal attention that this requires.

In many respects, the interactive nature of online communication is far more similar to a conversation with a brick & mortar merchant than it is with more conventional electronic medium. Not only can the consumer reject the merchant's recommendations, but also he can guide the dialogue in a direction that results in a more mutually satisfactory conclusion. Online processes that replicate familiarity with consumer preferences are a positive characteristic of online commerce.

Americans are accustomed to making pragmatic choices about their privacy in our information economy. As consumers, we can choose to pay in cash to preserve our anonymity. But we regularly choose to give information about ourselves. We know that credit card purchases produce a "paper trail" of information about our lifestyle and other characteristics. We also know that by ordering products through a mail order catalog, we will get future offers for related products. Consumers need to be given more credit for understanding their choice when they opt for convenience.

The growth of the Internet has sparked renewed attention to consumer privacy. Numerous consumer surveys and newspaper stories conclude that one of the hurdles to e-commerce is satisfying consumers' demands for privacy. Despite this, acceptance of Internet commerce is occurring at an unprecedented speed.

The Internet as a consumer medium is a little over four years old, so it is natural that different consumers may require varying degrees of comfort level using it. The reluctance of some consumers to engage in Internet commerce after such a short period should not be seen as a need for regulation. Internet commerce companies have a strong incentive to address effectively consumer concerns in order to advance online commerce. Portals, Internet Service Providers, e-commerce sales sites and other Web sites are striving to earn consumer confidence.

Consumer surveys and the speed of Internet adoption demonstrate that consumers are carefully weighing the impact on their privacy in participating in this new medium. Regulators should not place unnecessary barriers to offering consumers convenience, nor should they underestimate the capacity of consumers to make informed choices.

As the Internet grows, as more and more information is available on it, it will be an increasingly greater challenge to assist users to reach the information they want to select. Not accommodating mechanisms that help consumers reach where they want to go, could force them down online blind alleys. Online merchants understand that visitors who find their time wasted with futile detours are less likely to return. This reality operates as a powerful incentive for the e-commerce merchants to provide, and even anticipate, an individual consumer's preferences.

"Knowing your customer" online is not all that different than "knowing your customer" in the conventional brick and mortar world. The more successful a merchant is in anticipating a consumer's desires, the more valuable the merchant's service to the consumer.

Internet Regulation

An open and supportive legal environment has helped encourage the rapid development of the Internet. In a strikingly fast period of time, the World Wide Web has transformed competition and fueled dramatic economic growth. Our economy is on the brink of creating the largest and most vibrant marketplace of goods, services and ideas the world has ever known. As a broad principle, ITAA cautions against any regulations which would discriminate against online commerce by establishing requirements not faced in the more traditional brick and mortar economy. Many other studies have linked the productivity gains resulting from the information technology networks as a vital contributor to the long prosperity the country has enjoyed in this decade.

This past July the Federal Communications Committee released a thoughtful report, The FCC and the Unregulation of the Internet⁽¹⁾. It traces how a policy of government non-intervention in the data and information markets has contributed to the development of the Internet. That Commission has tried to maintain essentially a hands-off approach to these markets in order to encourage competition, consumer choice and speed to market. The FCC deserves great credit for pursuing these policies and resisting what may sometimes be the natural impulse of regulators to intervene. And, as a result of the FCC's wisdom, we all enjoy the benefits of a competitive marketplace. The incredible increase in performance with lower prices brings the Internet within reach to a majority of consumers.

We appreciate that the Federal Trade Commission has used similar restraint. The FTC has made effective use of its existing enforcement tools to address abuses on the Internet. The FTC has already demonstrated, in a variety of enforcement cases, that it has both the authority and the resources to address Internet-related consumer issues. For example the FTC has already addressed Internet consumer issues, such as spam, deceptive marketing, privacy and trademark violation. Great care should continue to be taken not to unintentionally harm this great resource of Internet- based commerce.

At stake is the speed by which we can unleash the benefits made possible by a powerful global network that does not recognize time zones or borders. Spanning the globe, the market for online commerce is expected to reach about $350 billion within five years. Millions of people conduct transactions online now and millions more will do so in the months and years ahead.

In 1996 there were under 40 million users connected to the Internet globally. By the end of 1997, that number had jumped to 96 million. Projections put the number of online users at nearly 1 billion by 2005. The Internet has penetrated our lives more quickly than any other technical advance in recent history. For many small and medium sized enterprises, the Internet and electronic commerce have lowered market entry barriers. They can now do business at a much lower cost, particularly internationally. There is no doubt that electronic commerce and the Internet is revolutionizing the way we communicate and interact with consumers.

Resources

ITAA believes that the online personalization is broadly a positive part of the online economy. However, to the extent that specific concerns about it are identified, there are resources to address these concerns.

Existing regulation

Beyond the restraint that consumers exercise in the use of personally identifiable information, there are numerous state and Federal laws that govern its use. This includes laws affecting financial, medical and children's information. Our privacy laws have generally focused on regulating the use of sensitive information, rather than attempting to dictate how consumer records are maintained. This American approach of focusing on the areas of greatest concern reflects a careful balancing of consumer interests.

Notification to consumers when profiles are created would be completely unworkable and intrusive. Existing law, such Fair Credit Reporting legislation, already gives consumers access to those that might result in adverse decisions. These processes also give consumers the opportunity to amend their records with clarifying information.

We acknowledge that there should be special protections regarding children's privacy. For example, widely accepted industry privacy self-regulation standards, such as the Online Privacy Alliance principles, already have special provisions for children. The Children's Online Privacy Protection Act (COPPA) is on the books.⁽²⁾ We appreciate that the Federal Trade Commission has had to weigh in its rulemaking process a variety of competing interests, including the encouragement of more widespread Internet access by the young and the protection of their privacy.⁽³⁾

Technology

Given the rapid rates of technological innovation, regulation in 1999 cannot possibly anticipate possible future technologies and their uses. Government should not make law that is so technology specific.

Technological solutions also have the potential to give consumers even greater flexibility to exercise their privacy preferences. The Platform for Privacy Preferences or "P3P" being developed by the World Wide Web Consortium at the MIT Laboratory for Computer Sciences is new browser technology that would allow consumers to set their privacy preferences online. The browser would then automatically query online sites to determine whether those preferences are being met.⁽⁴⁾ This is an industry-supported initiative that is seeking to use technology to empower consumers to an even greater extent then they are already.

Self-regulation

The Clinton Administration, along with both regulatory and bipartisan congressional support, has supported an Internet policy that lets industry lead. Beginning last year ITAA, and many of its member companies were active in the formation of the Online Privacy Alliance.⁽⁵⁾ Within a matter of months, we worked out common privacy principles and established privacy practices.

This past spring an independent survey, the Georgetown Internet Privacy Policy Survey, conducted by Prof. Mary Culnan of the McDonough School of Business concluded that although 93% of surveyed websites collected personal information, 66% posted privacy policy notices.⁽⁶⁾ This is a dramatic improvement in just one year and confirms that the overwhelming majority of the most heavily trafficked online sites have now adopted and display privacy policies. Only a year earlier, a FTC survey of commercial web-sites had found that only 14% posted any disclosure regarding their information practices. ⁽⁷⁾ While more remains to be done, our industry has responded to its self-regulation challenge in "Internet time."

ITAA appreciates the FTC's support for this process. In its most recent report to Congress on self-regulation and privacy, the FTC, after reviewing the substantial activity toward self-regulation concluded "[T]he Commission believes that legislation to address online privacy is not appropriate at this time." ⁽⁸⁾

The speed with which the online industry has embraced privacy self-regulation reflects the industry's responsiveness to consumer concerns.

Conclusion

ITAA applauds the Commission's effort to better understand the Internet and agrees with its proposed common sense approach to the issues. ITAA cautions the FTC, however, to pursue a studied, cautious approach to the Internet in general and to online profiling in particular. The wholesale imposition of rules could negatively impact the Internet at a time when its use is growing and Internet-based electronic commerce is in its infancy. As is surely true of many other types of regulation, on the Internet, less is more.

Online consumer personalized interactions should no more be subject to special regulation than a should the index file card kept by clothing store merchant about his customers' sizes and style preferences.

1. The FCC and the Unregulation of the Internet, Federal Communications Commission, July 1999

2. The Children's Online Privacy Protection Act (COPPA), Title XIII of Pub. L. No. 105-277 (Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999), 112 Stat. 2681 (Oct. 21, 1998), prohibits unfair and deceptive acts and practices in connection with the collection and use of personally identifiable information from and about children on the Internet. The Act gives the Federal Trade Commission one year from the date of enactment, i.e., until October 21, 1999, to promulgate implementing rules.

5. For more information see, http://www.privacyalliance.org/

6. This report is available at http://www.msb.edu/faculty/culnamm/gippshome.html.

8. Federal Trade Commission, SELF-REGULATION AND PRIVACY ONLINE: A REPRORT TO CONGRESS, Washington, DC, and July 1999.