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FTC Backs Web-Ad Self-Regulation

In a much-anticipated report on Internet advertising, the Federal Trade Commission on Thursday endorsed industry self-regulation as a means of protecting consumer privacy in the fast-growing sector of "targeted" online ads.

In its report, the FTC laid out principles of privacy practices tied to online behavioral targeting, in which a company tracks consumers' online activities, such as the searches they perform and the Web sites they visit. Companies can then deliver ads based on consumers' likely interests -- showing ads for Bahamas hotels to someone who previously searched for Caribbean vacations, for example.

Most big Internet companies and industry trade groups applauded the FTC's backing of self regulation, but some commissioners warned that further regulation is imminent if the industry fails to step up its own efforts.

"If the industry doesn't do a better job at explaining what they are doing with consumers' information and giving them a choice, then it could easily move to a more regulatory approach," FTC Commissioner Jon Leibowitz said in an interview.

The FTC said that companies should collect sensitive personal data -- such as information related to finances, children, health and Social Security numbers -- for behavioral advertising only after obtaining express consent from consumers.

The report also states that privacy protections should cover any data that can be traced back to a particular consumer, computer or other device. Internet companies have typically concentrated on protecting personally identifiable information, such as bank accounts and social security numbers, but not necessarily online searches or profiles on social networks.

The report comes as companies pour resources into developing more robust ad-targeting technologies. Many industry executives say future advertisers will rely heavily on their ability to tap into the vast amounts of digital information available about their potential customers. As these technologies have become more sophisticated, lawmakers, privacy advocates and consumers have expressed growing concern.

The report drew criticism from privacy advocates who said the new guidelines do little to protect consumers. "The time for self-regulation has passed," said Jeff Chester, executive director at the Center for Digital Democracy in Washington, D.C. "Technologies have gotten much more sophisticated, much more pervasive."

A Yahoo Inc. spokeswoman said the company is "happy to engage in a discussion about federal regulation," but believes that it will be difficult to implement given how fast the industry is moving.

Pablo Chavez, senior policy counsel for Google Inc., said in a blog post: "A self-regulatory approach is the best way to protect consumers and promote innovation." Yahoo and Google are the two largest sellers of online advertising.


Emily Steel and Jessica E. Vascellaro, The Wall Street Journal. February 13, 2009

Copyright © 2008 Dow Jones & Company, Inc.. All rights reserved.