FTC Launches Investigation into DoubleClick

Controversial Internet advertising agency DoubleClick, Inc. disclosed Wednesday that the Federal Trade Commission (FTC) has launched an inquiry into its methods of gathering and using information about online consumers.

Earlier this week, DoubleClick announced a public relations initiative, including an advertising campaign with 50 million banner impressions, to provide the general public with privacy-related information at its Privacy Education Campaign Web site.

The campaign, however, drew the wrath of privacy groups that want strong federal legislation to protect consumer privacy online. These groups maintain that DoubleClick’s policies represent a major threat to consumer privacy.

DoubleClick, which handles the advertising for about 1,500 Web sites, was also the subject of a class action lawsuit last month. Consumers claimed that the company deceptively obtained and tracked personal and financial information such as name, age, address, and shopping patterns without their consent or knowledge.

Trouble Builds for DoubleClick

Last week, the Electronic Privacy Information Center (EPIC) filed a complaint with the FTC alleging that DoubleClick engaged in “unfair and deceptive trade practices.” The FTC has obviously listened and decided to take action.

Marc Rotenberg, executive director of the EPIC, told the E-Commerce Times, “We think the FTC’s action is significant. DoubleClick said that our claim was without merit, but the FTC is obviously pursuing some investigation.”

Rotenberg added, “We’re hoping this will result in some action by the FTC. We want DoubleClick to delete all data it obtained by Internet users without their permission. We also want them to agree not to collect any more personally identifiable information unless it is done on an opt-in basis. We also want the FTC to impose appropriate fines and sanctions.”

Rotenberg said that DoubleClick originally claimed it would only use anonymous profiling when collecting data on individuals, meaning that it would not use information that could be traced to a specific individual. Instead, he said, DoubleClick now collects information on consumers’ specific shopping patterns in order to target specific ads to each shopper.

DoubleClick recently spent $1.7 billion (US$) to acquire Abacus Direct Corp., a direct-marketing services company that maintains an extensive database that tracks the purchasing power of American households.

Privacy advocates fear that DoubleClick will assemble a voluminous database of online purchasing records of U.S. consumers, along with personal information such as addresses and phone numbers. In addition to feeding up “targeted” online advertisements, privacy advocates fear that the information will also be sold to telephone and mail-based direct marketers, health organizations, insurance companies and any other organization that wants to buy the information for a fee.

Legal Problems Mounting

To compound DoubleClick’s already mounting legal problems, the New York State Attorney General’s office revealed Wednesday that it is conducting its own separate informal inquiry into online advertising — and will specifically focus on DoubleClick.

DoubleClick says it is fully cooperating with both the FTC and New York inquiries.

Public Relations Nightmare for DoubleClick

Armed with a new sense of urgency, DoubleClick unveiled a five-point privacy initiative Monday that is aimed at keeping critics at bay.

In addition to its education campaign, DoubleClick announced its intention to do business only with Web sites that have clear privacy policies, to establish a Consumer Privacy Advisory Board and to create a Chief Privacy Officer.

Many critics, however, have said that the damage is already done and that federal legislation is the only way to make certain that consumers’ privacy will be protected.

DoubleClick’s stock closed Wednesday at 106-5/8, off 4-13/16. The news of the FTC inquiry, however, was not released until late in the trading session.

Tempest in a Teapot?

When news of the investigation was released, one Wall Street analyst was quoted as saying that the company would not be affected. “This is a tempest in a teapot,” said Richard Petersen, an analyst at Credit Suisse First Boston, Inc.

Other analysts, however, believe that this inquiry will serve to help bring the privacy issue into sharper focus. The main complaint against DoubleClick is that consumers are really not aware of the implications of being tracked on the Internet.

As an example, DoubleClick’s database reportedly had information about a consumer’s health inquiries, travel plans made on the Web, and the names of videos in which the consumer showed an interest.

While the information, in theory, could be sold to video stores to pitch similar movies or to travel companies to pitch a vacation spot, information might also be provided to an insurance company to decide whether it wants to sell the consumer a health-related insurance policy.

Critics maintain that when consumers understand the full implications of having their behavior tracked on the Internet, they will almost universally opt out of such tracking. As such, they want our basic laws to require that consumers opt in before their behavior is tracked.