Published on .

March 16, 2001

By Ira Teinowitz

The first Federal Trade Commission privacy workshop on March 13 helped to calm marketers who feared imminent government

The privacy wars continued this week in Washington.
regulation of some of their practices. But the FTC hinted that it may still want to add a new element to privacy policies.

The Washington event focused on issues raised by the use of third-party data in profiling consumers.

Some marketing groups at the workshop tried to show the threat posed by privacy regulations, offering studies indicating efficiency losses and cost increases totaling billions of dollars to their industry, while the FTC seemed to focus on whether marketers need to tell consumers more about profiling.

Disclose use of data
Even before the FTC's workshop ended, Trust-e, a nonprofit privacy organization, said it would implement new policies that required companies wanting its privacy seal to disclose their use of third-party information whenever personally identifiable consumer profiles are put together.

FTC Chairman Robert Pitofsky told those attending the workshop that the commission wouldn't seek legislation on profiling, and that it simply wanted to understand what marketers were doing.

"We are not looking for enforcement targets. We are not looking for legislative proposals. We are trying to find out what is going on," he said. "This in not designed to come up with policy proposals."

Understanding profiling
Commissioner Orson Swindle added that the FTC's interest was to try to understand profiling.

"This is not about sound bites or exposing people in public. This is about how to balance legitimate rights," he said.

A frequent refrain during the workshop from Mr. Pitofsky and some other commissioners was that many of the same privacy issues affecting online profiling, such as cookies, also could impact offline direct marketers as well.

The all-day session included discussion of a range of profiling activities, but many of the questions from FTC officials focused on whether marketers needed to do a better job disclosing when they were buying information from list brokers and information consolidators.

Possible consumer benefits
Marketers and information consolidators told the commission they use the data to more thoroughly understand the interests or demographics of existing customers or profile potential new customers. They said profiling helped to increase efficiency while benefiting consumers by providing them mail and information tailored to their needs.

Several panelists, however, questioned whether marketers were adequately informing customers of the profiling or giving consumers the chance to correct errors in the profiles.

Mary Culnan, a professor of management and technology at Bentley College, said because consumers don't have a direct relationship with compilers, marketers who buy and use the information should tell consumers where they get it from, and compilers should provide an easy way to opt out.

Junkbusters coment
Jason Catlett, president of Junkbusters Corp., a company that specializes in privacy software, said consolidators should allow consumers to examine their files.

While some attendees urged the FTC to do more to require disclosure, others questioned whether consumers really wanted to receive notices.

Fred Cate, a professor of law at Indiana University, suggested that consumers don't want to be "bothered" with privacy notices. He pointed out the undue expense companies would incur producing privacy notices that that most people would ignore or throw away.

Before the hearing, several groups issued reports warning that attempts to implement restrictions on information because of privacy could be expensive, saying that the information exchanges helps ensure competition and efficiency.

In one report, the Direct Marketing Association and the Privacy Leadership Initiative said restrictions that would cut the access to third-party information could force catalog companies, for example, to spend more to send out additional catalogs to get the same response rates, boosting catalog apparel prices rise 3.5% to 11%.

Copyright March 2001, Crain Communications Inc.

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