Q&A: Privacy Attorney Reviews How Sears Settlement, FTC Initiative Will Hit Web Retailing

Last Updated Nov 30, 2010 6:56 PM EST

Retailers may have a new set of regulations to confront as the Federal Trade Commission considers online consumer privacy rights, an emerging area of governance that already has troubled Sears Holding (SHLD).

Earlier today, the FTC conducted the second of a three-part roundtable series, Exploring Privacy, designed to gather comments and to provide an indication on the direction it is taking as regards Internet privacy matters, including online behavioral advertising rules, protection of consumer online data, privacy disclosures and how to deal with information brokers.
The Sears incident, settled with the FTC last summer, is relevant to the roundtable series. Earlier, Sears had developed a web-based program, MY SHC Community, inviting website visitors to join and offering them $10 to do so. In return, members would download software Sears said would allow it to follow their web browsing. The FTC complaint against the company said that deep, too deep, in a user license agreement, the company informed that the software would track more personal information than the top-of-the-offer pitch indicated, including health, banking and other sensitive data. In the settlement, Sears, although it admitted no wrongdoing, agreed to destroy research data collected in the My SHC Community program and to make fuller and more explicit disclosures in connection with future behavioral tracking programs.

Reed Freeman, a Washington D.C.-based privacy partner with law firm Morrison & Foerster, has followed the FTC's initiative. He said that the FTC's privacy roundtable series is designed to help the commission decided how it would enforce existing authority to police unfair practices that impact consumers.

Online operations have been a bright spot for retailers lately. Freeman discussed the potential impact of the Sears settlement and the roundtable series with Bnet.

Bnet: What did Sears do to draw FTC ire regards privacy, what did it cost them, really, and what did they agree not to do?

Freeman: The commission's Sears case was designed to demonstrate to the business community that material disclosures should be presented in a clear and conspicuous way. In that case, the commission did not believe that an important disclosure relating to tracking was conspicuous enough. The case resulted in a stipulated injunction, which is enforceable by the commission and which, if violated, could result in civil penalties.

Bnet: How much will the Sears action influence what will go on as regards the roundtables?

Freeman: The Sears case is important for the overall privacy debate and is part of the commission's movement towards a new privacy paradigm under Section 5 of the FTC Act. Today's roundtable is about how technology can be associated with privacy harms and how technology can be used by consumers to prevent privacy harms. Accordingly, while important, the Sears case is unlikely to be much discussed today.

Bnet: What is the roundtable really about and does a genuine opportunity to influence the FTC exist?

Freeman: This roundtable is about technology: how can it be involved in privacy harms and how can it be used to prevent privacy harms. A real opportunity exists to both comment on the record and to participate in the roundtables in person, as a panelist. The commission will consider the entire record in connection with developing a new privacy paradigm, which will be outlined in a report that will come out -- according to the FTC -- in June or July. We do not yet know what form that report will take, or what it will say, of course.

Bnet: Does the FTC have a set agenda and how willing will the agency be to press what it wants to happen in the current political climate?

Freeman: I do not believe that the FTC has predetermined the outcome of the roundtables in terms of what it will present in its report in June or July. I believe that these roundtable events are designed to build a record that the FTC can draw from in creating the report and, in association with that, a new privacy framework.

Bnet: What should retailers watch out for in this process and what actions should they be prepared to take in maintaining their online operations -- which, of course, include data capture and analysis -- while staying within regulations?

Freeman: The most important thing for retailers to do now, as it relates to these privacy roundtables, is to check with their agencies to see where and how their online ads appear on other websites, and how third parties' online ads appear on their own websites. They should also consider how they use personal information generally, but especially sensitive personal information, and determine whether they think those uses are consistent with consumers' expectations under the circumstances. The FTC would like to see more transparency from all who collect personal information, and that includes how it is used and with whom it is shared.

Bnet: How much consumer involvement will there be and is this likely to become a high-profile discussion/regulatory process or is it more likely to take place behind the scenes?

Freeman: The ultimate report by the FTC, due out this summer, will be very important because the FTC has stated directly that it is looking for new ways to evaluate privacy practices under the Commission's existing authority found in Section 5 of the FTC Act. Once that new framework is published, it will be the FTC's view of the law and an implied statement that those who do not follow it are in violation of the law. We'll have to wait and see what the framework is, but it is possible that it could be a significant departure, at least with respect to certain practices, such as online behavioral advertising, the use of sensitive information, and the use of personal information for purposes other than that for which the consumer provided it.