Washington Report

Keeping Members Informed About Regulatory Issues

Contents
July 2000

INTERNET ISSUES

HOUSE PASSES ANTI-SPAM BILL WITH ONLY ONE DISSENTING VOTE

On July 18th the House of Representatives passed the Unsolicited Commercial Electronic Mail Act of 2000 (H.R. 3113), introduced by Heather Wilson (R-NM) by a vote of 427-1. The bill prohibits sending an unsolicited commercial e-mail message unless the message contains a valid e-mail address, conspicuously displayed, to which the recipient may send a request not to receive further messages. Such a request is considered to terminate any pre-existing business relationship between the sender and the recipient, and the sender is prohibited from sending other unsolicited commercial e-mail messages after a reasonable period of time following the request.

The bill also bans falsifying any part of the e-mail's routing information and requires that the message be identified as unsolicited commercial e-mail. The bill allows Internet service providers (ISP's) to enforce a policy regarding unsolicited commercial e-mail messages that complies with the requirements of the bill. The ISP is protected against liability for: (1) blocking the transmission or receipt of such messages; or (2) re-transmitting unsolicited bulk commercial mail messages unless the provider has knowledge that a transmission is prohibited..

The Federal Trade Commission (FTC) will be responsible for enforcing the law, but the bill also allows for a private right of action by an individual recipient or an ISP against e-mail initiators who violate the bill's requirements. Internet service providers will be able under the proposed law to sue violators for up to $500 per message, with a maximum of $50,000.

The DMA opposes the provision allowing ISP's to set rules that force compliance with the bill, which in effect allows private corporation to make its own laws. We also object to permitting a private right of action with no limits, which opens the door to excessive class action suits, and we are concerned that the bill doesn't define "initiator" clearly enough. We will work for changes in the bill before it passes the Senate.

FEDERAL TRADE COMMISSION ISSUES REPORT ON ONLINE PROFILING

The Federal Trade Commission issued the second part of its report on online profiling by network advertisers July 27th. The Commission unanimously applauded the Network Advertising Initiative (NAI) for developing an innovative self-regulatory proposal which addresses the privacy concerns consumers have about online profiling. This report follows an initial report released on June 13, 2000, which described the nature of online profiling practices, consumer privacy concerns about these practices, and the Commission's efforts to address these concerns.

The report also calls for Congress to enact legislation to provide privacy protection for consumers with regard to such online profiling practices. According to the FTC, such legislation "would serve to complement the NAI self-regulatory structure by guaranteeing compliance by non-member network advertising companies." NAI members will put their self-regulatory principles into effect immediately while Congress considers the Commission's recommendations concerning online profiling.

The Network Advertising Initiative (NAI), whose members are 24/7 Media, AdForce, AdKnowledge, Avenue A, Burst! Media, DoubleClick, Engage, and MatchLogic, was formed in response to a previous FTC workshop to develop a framework for self-regulation of the online profiling industry. Following the workshop, the NAI companies submitted drafts of self-regulatory principles for consideration by FTC and Department of Commerce staff. The FTC feels that the principles that resulted from this process "will reasonably implement the fair information practice principles of notice, choice, access, and security which have guided the Commission with respect to online privacy issues."

The NAI Principles address the four information practice principles in the following ways:

Under the NAI Principles, the choice method depends on the type of information collected and the consumers' knowledge about, and level of control over, the original collection of information. Any linkage of previously collected non-personally identifiable data to personally identifiable data cannot take place without the affirmative consent (opt-in) of the consumer. "Robust" notice and opt-out choice is required for prospective uses of personally identifiable information. Use of non-personally identifiable information would require opt-out choice.

Access: The NAI Principles promise that consumers will be given reasonable access to personally identifiable information and other information that is associated with personally identifiable information retained by a network advertiser for profiling.

Security: Under the NAI proposal, network advertisers will make reasonable efforts to protect the data they collect for profiling purposes from loss, misuse, alteration, destruction, or improper access.

In addition, under the NAI principles, network advertisers have committed to working with an independent third-party enforcement program, such as a seal program, to ensure compliance with the Principles. If no such program is available within six months, the NAI companies will submit to independent compliance audits, the results of which will be made publicly available.

The Commission vote to issue the report was 4-1, with Commissioner Leary concurring in part and dissenting in part, and Commissioner Orson Swindle dissenting. Their reasons for dissenting are interesting.

Commissioner Swindle "wholeheartedly endorse[d] the language in the Commission's report commending NAI" for its self-regulatory principles. However, he dissented from the report because of its "recommendation that, despite NAI's laudable self-regulatory efforts, legislation is needed as a "backstop." The legislative recommendation calls for mandating the same "overly burdensome and unwarranted" four fair information practices that the Commission recently recommended be imposed to address online privacy.

Moreover, Commissioner Swindle objected to imposing such "burdensome regulation on an entire industry to address the 10% of advertisers who are not members of NAI," which is a group of advertisers that the Commission "can neither define nor identify." According to Commissioner Swindle, "[w]e should not recommend legislation and regulation if we cannot demonstrate that the problems they are intended to resolve are real and significant." Finally, Commissioner Swindle posed the question of why the majority was unwilling to give recent "promising developments" in self-regulation and technology "a chance before resorting to the heavy hand of government intervention."

Commissioner Mozelle W. Thompson called on the network advertising industry to educate consumers about the benefits of data collection. In his statement, the Commissioner said "this program alone will not provide all that consumers need and want in this area. Members of the profiling industry need to do more than derive self-benefit from gathering information from consumers that they follow around the World Wide Web. They must incorporate their self-regulatory program into a plan to demonstrate how consumers will benefit from information gathering and profiling."

In his statement, Commissioner Thomas B. Leary endorsed the report's recommendations relating to the NAI Principles, safe harbor protections for such principles, and the call for some "backstop legislation." However, Leary added that "legislation should focus on adequate 'Notice' and not mandate across-the-board standards for other elements of the so-called 'fair information practices.'"

Commissioner Leary concluded that "[t]his Report focuses on a particularly serious issue that applies uniquely to the online world and it gives appropriate recognition to a comprehensive self-regulatory scheme. In these circumstances, the particular legislative proposals that I consider overbroad have a relatively limited impact. I am optimistic that further dialogue will continue to narrow our remaining points of disagreement."

The DMA commends the FTC for their work, and we are pleased to have played a role in developing a self-regulatory proposal that will protect consumers' privacy online.

Copies of the report and the Commissioner's separate statements are available from the FTC's web site at http://www.ftc.gov/ and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357).

INTERNET PRIVACY BILL INTRODUCED IN THE SENATE

On July 26th a bipartisan group of senators introduced the "Consumer Internet Privacy Enhancement Act" (S. 2928), a bill that would require Web sites to disclose what kind of information they collect from consumers and how they use it. The legislation is cosponsored by Senators John McCain (R-AZ), Spencer Abraham (R-MI), John Kerry (D-MA), and Barbara Boxer (D-CA).

The bill would require commercial Web site operators to post "clear and conspicuous" notices about their information collection. It would also allow consumers to limit the amount of information collected or distributed.

In his remarks introducing the bill, Senator McCain gave the industry credit for working "diligently to develop and implement privacy policies utilizing the four fair information practices" and that the proposed legislation "should not be viewed as a failure on the part of industry to address privacy." However, he also noted that "there is much work to be done to improve the depth and clarity of privacy policies" and that consumer privacy suffers when "consumers are lost in a fog of legalese."

The provisions of the bill are enforceable by the FTC. States Attorneys General could also bring suits in federal court under the Act, using a mechanism similar to the Telemarketing Sales Rule. The proposed penalty is $22,000 per violation with a maximum fine of $500,000.

The legislation preempts state laws and directs the National Academy of Sciences to conduct a study of privacy to examine the off-line collection of personal information and methods of providing consumers with access to the information collected about them.

The DMA feels that the Senators have taken the right fundamental approach to the issue. The notice and opt-out requirements are the basis of The DMA's self-regulatory program.

EUROPEAN COMMISSION PROPOSES OPT-IN FOR E-MAIL

The Association for Interactive Media (AIM), a DMA subsidiary, reports that the European Commission adopted a proposal that requires an opt-in model for unsolicited commercial e-mail and has sent it on to the European Council of Ministers. Currently, different rules apply in each EU member state: four member states use opt-in, five use opt-out, and six member states have no rules on the issue.

The European Commission also addressed the issue of cookie collection, but took no formal action. However, if the industry does not address concerns of the Commission, amendments may be enacted to restrict the collection of cookies. No date has been set for the Council of Ministers' review of the Commission's proposal.

R.I.P. BILL READY IN BRITAIN

AIM also reports that the British government is about to enact what appears in the American view to be a rather appalling law called the Regulation of Investigatory Powers Bill (a.k.a. R.I.P.), now in its final stages in the House of Lords. The House of Commons, dominated by the Labor government which sponsored the bill, is expected to pass it.

The RIP bill requires Internet service providers to install and maintain (at their own expense) surveillance systems that can filter e-mail for use by the authorities. Concerns have been raised over the costs of the systems and the passing of these costs on to consumers but not, apparently, about invasion of privacy. This shows the wisdom of our Founding Fathers in enacting the Bill of Rights.

British authorities would have wide latitude to conduct surveillance and would not be required to obtain a traditional warrant. Failure by suspects to unencrypt data or messages could result in a prison sentence of up to two years.

SENATE CUTS COMPUTER EXPORT REVIEW TIME

To help the American computer industry, the Senate voted 86 to 11 to shorten the congressional review period for exports of high-performance computers from 180 days to 60 days. The measure, an amendment to a defense-authorization bill, has already been approved by the House and is supported by President Clinton. Supporters of the change pointed out that technology changes so fast that a computer can become obsolete in the six months currently required for the review. In addition, the restriction has given foreign computer companies the opportunity to beat out American computers in overseas markets.

GAO REPORT ON POTENTIAL LOST SALES TAXES SHOWS WIDE DISPARITY

At the request of Senator George V. Voinovich (R-OH), the General Accounting Office prepared a report on how much sales tax states and localities might lose in the future to Internet sales ("Sales Tax: Electronic Commerce Growth Presents Challenges; Revenue Losses Are Uncertain").

Because of "the considerable uncertainty surrounding the volume of Internet and all remote sales and any resulting tax losses," the GAO worked with different possible scenarios, based on different assumptions about the volume of Internet and remote sales, the proportion of sales that are taxable, the proportion of taxes actually collected, and other factors that affect tax revenue. The GAO developed lower and higher scenarios to demonstrate an overall range of uncertainty and the potential effects on revenue loss.

The introduction to the report notes that "[b]ecause of the uncertainty surrounding the assumptions, the scenarios are not estimates but, rather, are illustrations of the importance of the various assumptions." The report also observes that "[l]ittle empirical data exist on the key factors needed to calculate the amount of sales and use tax revenues that state and local governments lose on Internet and other remote sales. What information does exist is often of unknown accuracy."

The results of this uncertainty and the alternate-scenarios approach are high and low numbers so drastically different that the report will probably be cited by both sides of the use tax collection debate as supporting their point of view. Specifically, the numbers range from a low of $300 million to a high of $3.8 billion; however, even the high number represents only 2 percent of total sales tax revenues.

The full report is available in PDF format from the GAO web site (http://www.gao.gov/).

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