MoneyWatch Tech

Here Comes the Obama Privacy Steamroller to Flatten High Tech

By Erik Sherman

Updated on: November 12, 2010 / 2:29 PM EST / MoneyWatch

Barack Obama's administration is apparently readying a new Internet privacy program that would include new privacy laws and a new federal office to oversee them. That would be a big change in direction for the country, but given bipartisan interest in the subject, it's a turn that is likely to happen.

You might be tempted to blame the likes of Google (GOOG) and Facebook for this development, but look -- if it hadn't been them, it would have been someone else. Now any number of high-tech companies may face onerous new requirements designed to hinder the trafficking in consumer data that creates so much wealth in the Internet industry.

Online privacy has been brewing as an issue for years. In 2006, under a Republican-controlled administration and Congress, the FTC first reviewed behavioral marketing. That's the practice of tracking consumers in their online activities to reap information that allows companies to better target advertising. The online advertising industry kept pleading for the chance to self-regulate and Congress kept saying yes, but warning that time was running out.

In 2008, for an Advertising Age article, I interviewed Colin O'Malley, at the time vice-president of strategic partnerships and programs at TRUSTe, which certifies website privacy standards. He said:

We're at a turning point where the advertising that folks can see is all of a sudden going to escalate in terms of spook factor. If the market as a whole doesn't take steps to get proactive with their notices to consumers and to minimize the invasiveness, then the market will be stuck before it gets out of the gate.

I also spoke at that time with Douglas Wood, a partner with law firm Reed Smith and an expert in advertising media law. Here was his view:

There's clearly the risk of class actions there, of litigation. With the typical cavalier of marketers, they keep increasing their risks when there's no resistance until there's an explosion and someone gets burned.

There has been litigation, with both Facebook and Google as targets. The latter recently settled a class-action lawsuit over the launch of Buzz, its social networking product. The upshot was $8 million, which is small potatoes for the company.

But that's nothing compared to tighter regulation, which would carry a much higher cost, and not in the oh-it's-so-expensive-to-be-compliant whining in which corporations often indulge. Instead, companies would probably find themselves having to enforce opt-in, rather than opt-out, consumer participation; greater restrictions on collecting, using, and sharing data; and provisions to allow consumers to remove their data, among other things.

In short, many of the tools that the industry uses to collect data to justify higher revenue from advertising and data licensing might be gone. The industry's collective income could take an enormous hit.

Recent talk of increased regulation in Europe was a clear sign that governments overseas had finally become fed-up with corporate activity, even with the stricter privacy laws already in place there.

Now, following one privacy scandal after another, we're likely to see increased regulation in the U.S., as well. Even Rep. Joe Barton, likely new chair of the House Energy and Commerce Committee, has an interest in privacy issues. And there are more earthy political considerations, as well. Some groups point to the "exceptionally close relationship" the current administration has with Google, with some saying that Obama plays Bush to Google's Halliburton. Given the trouncing the Democrats had in the mid-term elections, Obama may feel the need to, well, encourage more oversight. Notice that once the Federal Trade Commission closed its investigation of Google collecting personal data from Wi-Fi networks, the Federal Communications Commission stepped in.

All in all, advertising-driven businesses in the technology industry had better brace themselves. There will be much weeping and wailing and draining of bank accounts.

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Image: RGBStock.com user mzacha, site standard license.