December 17, 2010, 2:42 PM

The Commerce Department proposes an online privacy bill of rights

The recommendations could force retailers to change their online marketing tactics.

Lead Photo

The Department of Commerce this week recommended adoption of a privacy bill of rights that could change the way online marketers use consumers’ personal data.

The proposal would require web sites that collect consumers’ personal data to notify those consumers what information they are collecting and how they are using it. The sites would also be required to allow consumers to opt out of having their data collected.

The recommendations from the Commerce Department come after the Federal Trade Commission earlier this month called for the passage of “Do Not Track” legislation aimed at preventing the collection of data about the behavior of online consumers.

The Commerce Department also calls for the creation of a privacy office within the federal agency, as well as the development of a voluntary privacy code of conduct that the FTC would enforce. The Commerce Department says Internet companies and other groups would help develop the privacy rules.

If the proposed changes take effect, they would represent a dramatic shift the U.S. government’s approach to Internet regulation, says Lisa Sotto, of law firm Hunton & Williams LLP, who has worked with a number of retailers on privacy-related issues.

"The Commerce Department was dormant on the issue for a decade and now, for the first time in 10 years, they're being extremely active in the conversation," she says.

To date the federal government has allowed Internet companies to operate without clear privacy regulations while 46 state governments have their own regulations.

The changes would bring U.S. privacy practices more in line with those of other countries. Canada, for instance, has an Office of Privacy tasked with protecting consumers’ privacy rights.

“Disparate approaches to commercial data privacy can create barriers to both trade and commerce, harming both consumers and companies,” says the report.

Although many of the changes would prevent consumers’ data from being collected without their knowledge, two consumer advocacy groups, the Consumer Federation of America and Consumer Watchdog, say the Commerce Department doesn’t go far enough.

“The solution is not more self-regulation,” says Susan Grant, CFA’s director of consumer protection. “We’ve tried that, and it’s clearly inadequate. We need a privacy law that sets the rules of the road, including prohibiting some data practices that are not acceptable and giving consumers real control over their personal information, and that provides for strong enforcement by the states, the Federal Trade Commission, and consumers themselves.”

Consumer Watchdog says the proposed office’s placement will not help consumers.

“There is a fundamental conflict of interest in putting the administration's Privacy Policy Office in the Commerce Department,” says John M. Simpson, the group’s consumer advocate. “The department's job is to promote business. Protecting consumers is simply not on its agenda.”

However, even if the Commerce Department’s proposals are inadequate to protect consumers, the report will help generate a public debate about privacy policies, says Consumer Watchdog.

The Direct Marketing Association, a trade group for direct-to-consumer marketers and retailers, welcomed the Commerce Department’s recommendations. “We agree that the best way to achieve effective privacy protection for consumers is through innovation and flexible industry-driven efforts, which is why we have spent the past year developing just such a program,” says Linda Woolley, the group’s executive vice president of government affairs. 

In October, the group and its association partners launched a program that features an “Advertising Option Icon.” Online advertisers would display the icon, which consumers could click to view an advertiser’s privacy policies.

While its unclear when exactly the codes of conduct will be written, Sotto says she expects the Commerce Department will encourage the stakeholders to act quickly. However, what those codes look like remains to be seen, she says.

"I really have no idea what it will look like with so many different principles likely to weigh in and each of them having their own interests," she says.

While the codes of conduct will be voluntary retailers may feel pressure to adopt them, particularly if a large retailer seeks to use its adoption of the code as a differentiator, she says. 

"If that happens the pressure will be on for others to follow suit," she says.

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