High Tech Ignored Consumer Privacy; Now a Criminal Investigation Looms

Federal privacy concerns, once focused on such high-profile corporations as Apple (AAPL), Microsoft (MSFT), Google (GOOG), and Facebook, are now spreading out, and heaven help the tech industry. Music service Pandora revealed through an SEC filing that it received a federal grand jury subpoena earlier this year for documents.

Pandora thinks that the grand jury is investigating "the information sharing processes of certain popular applications that run on the Apple and Android mobile platforms," and that "similar subpoenas were issued on an industry-wide basis to the publishers of numerous other smartphone applications." According to the WSJ, the investigation is looking into whether app vendors illegally obtain and use personal data from consumers and violate the Computer Fraud and Abuse Act.

Chickens, roost
For years, high tech has ignored warnings over government concern about consumer privacy. Now things have reached a grand jury, which means not civil or administrative action, but criminal. Granted, no charges may come of this. But the ultimate outcome could also make an FTC inquiry look like a pleasant luncheon chat. And the ones likely to first face the music will be smartphone app makers, many of whom won't have particularly deep pockets.

Which means that an investigation could just start with app vendors and then proceed upwards. Talk to enough former prosecutors and you learn that they tend to first focus on those who have fewer resources for defense. Prosecutors apply pressure to get cooperation so they can move the investigation forward and upward. Ideally, they want people lower down willing to testify about the involvement of those above. That could get embarrassing.

Apple has talked of its commitment to customer privacy. But were all the protestations simply a front? Could it really not have known what vendors were doing, given the company's control of the app approval process? As for Google, what does Larry Page do? Say, "We were too busy eavesdropping on Wi-Fi traffic and then settling a privacy case with the FTC to check on what app developers were doing?"

No free pass for app makers
Not that the app makers get a pass. But they were following what looked like common practice in the industry. For years, high tech has assumed that data is just data and should be available. Call it self-permission marketing, where executives look at each other and say, "If it's OK with you, it's OK with me." Call it the immaturity of the industry, call it arrogance, call it what you will.

Whatever. It was a foolish mistake because it was so unnecessary. There have been abundant early warning signs from the FTC and Congress. How long will it take for executives to realize that ignoring growing problems don't make them go away? Wait, the answer is obvious: long enough for the subpoenas to arrive.

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