LONDON (AdAge.com) -- The U.K. government is facing international embarrassment over its failure to safeguard British citizens' privacy from behavioral targeting on the internet.
The European Commission has started the second phase of legal action against the U.K. in response to a new targeting system, which works directly with internet service providers. It was tested in 2006 and 2007 without the knowledge of consumers.
Most targeting systems work with publishers or search engines and offer consumers the chance to opt in or out, but the controversial trial, carried out by behavioral-targeting specialist Phorm, worked anonymously with one of Britain's biggest ISPs, BT.
The U.K. authorities now have two months to satisfy the European Union that they have taken appropriate action and brought data-protection procedures in line with EU rules, which guarantee the confidentiality of electronic communication.
At the moment, the EU says the U.K. has no independent authority supervising the interception of communications and hearing complaints; that the principle of consent is too loosely interpreted; and that its sanctions against the interception of personal data are too limited.
Most targeted advertising makes use of internet traffic data collected via individual websites, but the Phorm trial was intercepting data at a different level, tracking data through the user's internet connection.
Karin Von Abrams, a senior analyst at eMarketer, said, "People are used to targeting -- when Amazon offers things we might like or others bought, for example -- but the system is incredibly transparent. If the targeter is unknown it raises issues. Consumers don't want to be owned and knocked about in this way, they want to be their own person."
Phorm has since claimed to have tightened up its technology to meet EU standards, so that it's less intrusive and more consumer-facing, and that they delete all the information gathered when a targeted ad has been served. Still, ISPs have distanced themselves from the company in the wake of the controversy and they have not gone live in the U.K., although it has launched successfully in Korea.
The publicity surrounding the Phorm trial has done nothing for consumer confidence in behavioral targeting, although one survey by the Internet Advertising Bureau and business law firm Olswang showed that 74% are comfortable with it when they are given information on what data is collected and how it can be controlled.
Ms. Von Abrams said, "We have to move beyond the polarized view that advertisers want to target and consumers don't want to be targeted. The debate is surrounded by vagueness because the technology is not widely understood. The wisest course of action is to build a strong legal framework and build a conscientious approach to consumers. Transparency is looking more and more like the only option."
The Internet Advertising Bureau in the U.K. is working hard to defend the online advertising industry by issuing guidelines and codes of practice that emphasize transparency and choice in the collection and use of information. The IAB has also set up a website, youronlinechoices.co.uk, that offers a guide to protecting your privacy on the internet.
Nick Stringer, the IAB head of regulatory affairs, said, "Targeted ads accounted for about 10% to 15% of the $1 billion online display market last year. Advertising helps to pay for services we use online and it's important to make that connection, but we recognize the privacy issue and the need to build trust."