U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

76–329 PDF 2012

S. HRG. 110–1179 

PRIVACY IMPLICATIONS OF ONLINE ADVERTISING 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JULY 9, 2008 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

DANIEL K. INOUYE, Hawaii, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

THOMAS R. CARPER, Delaware 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TED STEVENS, Alaska, Vice Chairman 

JOHN MCCAIN, Arizona 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

GORDON H. SMITH, Oregon 

JOHN ENSIGN, Nevada 

JOHN E. SUNUNU, New Hampshire 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel 

LILA HARPER HELMS, Democratic Deputy Staff Director and Policy Director 

CHRISTINE D. KURTH, Republican Staff Director and General Counsel 

PAUL NAGLE, Republican Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on July 9, 2008 ................................................................................. 1 

Statement of Senator Carper .................................................................................. 80 

Statement of Senator DeMint ................................................................................. 71 

Statement of Senator Dorgan ................................................................................. 1 

Prepared statement of Hon. Daniel K. Inouye ............................................... 3 

Prepared statement by Hon. Ted Stevens ...................................................... 68 

Statement of Senator Klobuchar ............................................................................ 68 

Statement of Senator Nelson .................................................................................. 75 

Statement of Senator Thune ................................................................................... 72 

Statement of Senator Vitter .................................................................................... 66 

WITNESSES

Crews, Jr., Clyde Wayne, Vice President for Policy/Director of Technology 

Studies, Competitive Enterprise Institute ......................................................... 47 

Prepared statement .......................................................................................... 48 

Dykes, Robert R., CEO, NebuAd, Inc. .................................................................... 17 

Prepared statement .......................................................................................... 19 

Harris, Leslie, President/CEO, Center for Democracy and Technology .............. 22 

Prepared statement .......................................................................................... 24 

Hintze, Michael D., Associate General Counsel, Microsoft Corporation ............. 55 

Prepared statement .......................................................................................... 57 

Horvath, Jane, Senior Privacy Counsel, Google, Inc. ........................................... 11 

Prepared statement .......................................................................................... 12 

Kelly, Chris, Chief Privacy Officer, Facebook, Inc. ............................................... 40 

Prepared statement .......................................................................................... 42 

Parnes, Lydia B., Director, Bureau of Consumer Protection, Federal Trade 

Commission ........................................................................................................... 4 

Prepared statement .......................................................................................... 5 

APPENDIX

Letter, dated July 9, 2008, to Hon. Daniel K. Inouye and Hon. Ted Stevens 

from Hon. Richard Blumenthal, Attorney General, State of Connecticut ....... 87 

Response to written questions submitted by Hon. Maria Cantwell to: 

Robert R. Dykes ................................................................................................ 97 

Leslie Harris ..................................................................................................... 96 

Jane Horvath .................................................................................................... 93 

Chris Kelly ........................................................................................................ 92 

Lydia B. Parnes ................................................................................................ 87 

Response to written questions submitted by Hon. David Vitter to: 

Clyde Wayne Crews, Jr. ................................................................................... 107 

Robert R. Dykes ................................................................................................ 98 

Leslie Harris ..................................................................................................... 97 

Michael D. Hintze ............................................................................................. 108 

Jane Horvath .................................................................................................... 95 

Chris Kelly ........................................................................................................ 93 

Lydia B. Parnes ................................................................................................ 90 

(1) 

PRIVACY IMPLICATIONS OF ONLINE 

ADVERTISING 

WEDNESDAY, JULY 9, 2008 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m., in room SR– 

253, Russell Senate Office Building, Hon. Byron L. Dorgan, presiding. 

OPENING STATEMENT OF HON. BYRON L. DORGAN, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. We are going to begin the hearing this morning. This is a hearing of the Senate Commerce Committee. I am 

going to begin the hearing now. We will have other Senators join 

us, but at the moment there is scheduled a series of five votes beginning at 11:15. That may slip a bit. It may slip to 11:30, which 

means that I would have until 11:45 to leave the room in order to 

still make the vote. That would give us an hour and 45 minutes. 

If we do not finish the hearing in an hour and 45 minutes, we will 

have to recess. The recess will last at least an hour to an hour and 

a half because five votes take that long. 

So my hope would be that we can finish this hearing in about 

an hour and 45 minutes. I do not want to shortchange the subject. 

This is a very important subject. We will be holding another hearing on this subject, but for now, as an opening, I want to at least 

give an opening statement, and then I am going to call on all of 

the witnesses to provide the testimony. And then we will have time 

for questions by Senators who come to the hearing. 

I want to thank all of you for joining us today to discuss an important topic of privacy in the context of marketing for online advertising. The Commerce Committee has always had an interest in 

this subject of protecting privacy and doing so in a way that is 

thoughtful and appropriate. And we need to take a closer look, I 

think, at Internet users’ privacy as the field of online advertising 

develops. 

I understand, first of all, there are many, many benefits to online 

advertising. I understand that the free Internet and the open architecture of the Internet allows Internet service providers and Internet companies to provide services and products and information in 

a way that is almost breathtaking, and I understand the backbone 

of much of that is supported by advertising, by online Internet advertising. 

2 

The questions that we discuss and raise today are not meant to 

suggest that advertising has no value as it relates to the Internet. 

Quite the contrary is the case. But I think there are issues that 

are developing that are important issues and those are issues 

about the invisibility of data collection, the collection of information 

about online users, the security of the information that has been 

collected, and the use of that information. I am concerned about 

the ability of users of the Internet to choose to allow others access 

to their data with an understanding of where it will be transferred 

and how it will be used. I am concerned about the users’ ability to 

control this information. 

Most of the discussion about advertising on the Internet these 

days is about—not all of the discussion, but most of it is about behavioral advertising. The companies that have been gathering information about those who use the Internet are companies that 

wish to find ways to better target advertising. 

I was actually this morning visiting with my college-aged daughter about this subject, and she was asking about the hearing. And 

I said, well, think about going to a big shopping center and going 

to four stores, and you stop at the cosmetics section, you stop at 

the shoe section, you shop for a dress, and you go to CVS, and 

there is someone behind you with a notebook making notes about 

every place you are stopping and the products you are searching 

and looking at. That becomes part of a data bank they send to 

someone. 

Well, that is what happens in many cases now with respect to 

your use of the Internet. Someone is gathering information about 

where you traveled and what you viewed, and that goes into a data 

bank and it can be sold or resold and becomes the process by which 

companies will use the information in which to target advertising 

directly to you. 

I think that the issue here of privacy, who is collecting what kind 

of information, how does that information exist in what identifiable 

form or how might that be used, who is it sold to, does the consumer know, all of those issues I think are very, very important. 

And the issues that surround them I think need to be discussed by 

the Congress in the context of trying to decide are there protections, further protections, necessary, not only what protections now 

exist, but are further protections necessary. 

Companies believe that by gathering information about online 

users, they can serve more relevant advertisements to individuals 

and increase the amount that they can charge per ad. And I understand all that. And revenue is important to the operation of diverse 

websites, but it is also important for us to ask the questions about 

protection for users’ privacy and whether they should have a choice 

about whether they want to have data shared about what they are 

doing on the Internet. 

There is some discussion about self-regulation, and the principles 

proposed by the Federal Trade Commission I think some would 

suggest are a good start. Some would suggest they are short of 

what is necessary. The FTC might need to go further and ensure 

the enforcement of any guidelines. Congress may need to address 

our patchwork of privacy laws because all of this is a developing 

3 

area, and when you are talking about the individual’s right to privacy, it is very, very important. 

I do want to mention additionally that I had invited the Internet 

service providers to testify today, and they declined the invitation. 

So I am going to do another hearing and that hearing will only be 

with the Internet service providers because I think they have to be 

a part of this discussion. 

I do appreciate all of those who have decided to come at our invitation and give us their perspective on these important issues. And 

we are going to begin today by hearing from Lydia Parnes, who is 

the Director of the Bureau of Consumer Protection at the Federal 

Trade Commission. Then I have asked the panelists to be seated 

at the table, and we are going to hear from all of those on panel 

two and then we will ask questions. 

I say to Senator Vitter I do not want to do opening statements. 

I will be happy to recognize you for a moment, but what I want 

to do—we have a vote starting at 11:15. What I would like to do— 

if that slips, we may be able to stay here until 11:45, but I want 

to get all the witnesses to testify and then have an opportunity for 

questions. 

Senator VITTER. All right. 

Senator DORGAN. All right. 

Ms. Parnes, you have testified before this Committee before. We 

appreciate your being here again. Let me ask consent, as I recognize you, for the statement by Senator Inouye to be made a part 

of the permanent record. 

[The prepared statement of Senator Inouye follows:] 

PREPARED STATEMENT OF HON. DANIEL K. INOUYE, U.S. SENATOR FROM HAWAII

In the United States of America, privacy is a treasured right, but it is also a right 

that seems to come under regular attack. 

Today, commercial entities using digital means can track nearly all of our marketplace moves. Websites and Internet service providers can watch where we go online, 

what we purchase over the web, and where we linger on the Internet. 

Too many consumers spend time on the Internet without knowledge or notice that 

they are under commercial surveillance. They assume they are in the privacy of 

their own home and that this privacy will be respected. Unfortunately, this is not 

always the case. 

I am troubled by the current state of affairs. I fear that our existing patchwork 

of sector-specific privacy laws provides American consumers with virtually no protection. At the same time consumers in other countries are treated with more respect and concern by the very same companies who so freely collect our most private 

information without warning. 

American consumers deserve better. With so much of our commerce and entertainment migrating to the Internet, consumers should not be asked to surrender 

their privacy each time they go online. 

Ensuring that every consumer’s right to privacy is appropriately protected will require the Congress’s continued attention. Today’s hearing on privacy and online advertising represents merely a start, and I look forward to holding additional hearings on these matters later this year. 

Senator DORGAN. Ms. Parnes, you may proceed. We have asked 

all of you to take 5 minutes for your oral testimony, and the permanent record will include your full statements. 

4 

STATEMENT OF LYDIA B. PARNES, DIRECTOR, BUREAU OF 

CONSUMER PROTECTION, FEDERAL TRADE COMMISSION 

Ms. PARNES. Thank you, Chairman Dorgan. I appreciate the opportunity to appear before you today to discuss the Commission’s 

work on issues related to online behavioral advertising. 

Balancing consumers’ online privacy interests against the development of successful online business models has been a top priority 

for the Commission over the past decade. Behavioral advertising, 

the use of tracking data to target advertisements to online consumers, is a challenging issue. It may provide benefits to consumers in the form of advertising that is more relevant to their interests, as well as a reduction in unwanted ads. It may also help 

support a diverse range of free online content that consumers 

would otherwise have to pay for, for example, blogging, search engines, social networking, and instant access to newspapers from 

around the world. 

At the same time, many consumers express discomfort about the 

privacy and data security implications of being tracked. Without 

adequate safeguards in place, consumer tracking data could fall 

into the wrong hands or be used for unanticipated purposes. These 

concerns are exacerbated when tracking involves, for example, sensitive information about children’s health or a consumer’s finances. 

Further, particular concerns have been raised about tracking done 

by network advertisers across many sites, and most recently we 

saw significant consumer concern when one ISP announced and 

then abandoned plans to track every move of its customers as they 

navigate online. 

The FTC has examined behavioral advertising for more than a 

decade, almost since the Internet transformed into a commercial 

medium. Our most recent efforts began in November of 2006 when 

we held 3 days of public hearings on technology issues likely to affect consumers in the next decade. Following these hearings, Commission staff held a series of meetings with stakeholders to learn 

more about behavioral advertising, and in November 2007, the 

Commission hosted a town hall devoted exclusively to behavioral 

advertising. 

Several key points emerged at the town hall. 

First, participants confirmed that online behavioral advertising 

may provide valuable benefits to consumers. 

Second, the invisibility of the practice to consumers raises privacy concerns, as does the risk that data collected for behavioral 

advertising could be misused. 

And third, business and consumer groups alike expressed support for transparency and consumer control in the online marketplace. 

In December 2007, following the town hall, Commission staff 

issued and requested comments on proposed principles for online 

behavioral advertising to spur continuing public dialogue and encourage meaningful self-regulation. In brief, the proposed principles identify four issues to consider in developing a self-regulatory scheme. 

First, companies that collect information for behavioral advertising should provide meaningful disclosures to consumers about 

5 

1The views expressed in this statement represent the views of the Commission. My oral presentation and responses to any questions are my own, however, and do not necessarily reflect 

the views of the Commission or any individual Commissioner. 2See Federal Trade Commission, ‘‘Ehavioral Advertising: Tracking, Targeting, and Technology,’’ available at http://www.ftc.gov/bcp/workshops/ehavioral/index.shtml. 

the practice, as well as choice about whether their information is 

collected for this purpose. 

Second, companies should provide reasonable security for behavioral data so that it does not fall into the wrong hands and should 

retain data only as long as necessary to fulfill a legitimate business 

or law enforcement need. 

Third, before a company uses behavioral data in a manner that 

is materially different from promises made when the data was initially collected, it should obtain affirmative express consent from 

the consumer. 

Fourth, companies should obtain affirmative express consent before they use sensitive data for behavioral advertising. 

Commission staff received over 60 thoughtful, constructive, and 

diverse comments on the principles. The comment period has 

closed, and we are carefully evaluating the comments that we have 

received. Included in the comments were a number of specific proposals for how self-regulation could be implemented, as well as reports about steps taken to address privacy concerns since the town 

hall. Although there clearly is more work to be done, the Commission is cautiously optimistic that the privacy issues raised by online 

behavioral advertising can be effectively addressed through selfregulation. In such a dynamic and diverse environment, self-regulation may, indeed, be the best means to develop workable approaches to privacy. 

The Commission, of course, will continue to monitor the marketplace to keep pace with developments, gain a better understanding 

of the issues, and take appropriate action to protect consumers as 

circumstances warrant. 

Thank you for your attention, and I would, of course, be happy 

to answer any questions. 

[The prepared statement of Ms. Parnes follows:] 

PREPARED STATEMENT OF LYDIA B. PARNES, DIRECTOR, 

BUREAU OF CONSUMER PROTECTION, FEDERAL TRADE COMMISSION

I. Introduction 

Chairman Inouye, Vice Chairman Stevens, and Members of Committee, I am 

Lydia Parnes,1 Director of the Bureau of Consumer Protection at the Federal Trade 

Commission (the ‘‘FTC’’ or ‘‘Commission’’). I appreciate the opportunity to appear before you today to discuss the Commission’s activities regarding online behavioral advertising, the practice of collecting information about an individual’s online activities in order to serve advertisements that are tailored to that individual’s interests. 

Over the past year or so, the Commission has undertaken a comprehensive effort 

to educate itself and the public about this practice and its implications for consumer 

privacy. This testimony will describe the Commission’s efforts, which have included 

hosting a ‘‘Town Hall’’ meeting and issuing for public comment FTC staff’s proposed 

online behavioral advertising principles.2

The Commission’s examination of behavioral advertising has shown that the 

issues surrounding this practice are complex, that the business models are diverse 

and constantly evolving, and that behavioral advertising may provide benefits to 

consumers even as it raises concerns about consumer privacy. At this time, the 

6 

3 Although FTC staff has proposed self-regulation to address the general privacy concerns 

raised by behavioral advertising, the Commission will of course continue to bring enforcement 

actions to challenge law violations in appropriate cases. 4The advertisements are typically based upon data collected about a given consumer as he 

or she travels across the different websites in the advertising network. A website may belong 

to multiple networks. 5See Larry Ponemon, ‘‘FTC Presentation on Cookies and Consumer Permissions,’’ presented 

at the FTC’s Town Hall ‘‘Ehavioral Advertising: Tracking, Targeting, and Technology’’ (Nov. 1, 

2007), at 7, available at http://www.ftc.gov/bcp/workshops/ehavioral/presentations/ 

31ponemon.pdf (survey found that 55 percent of respondents believed that an online ad that targeted their individual preferences or interests improved, to some degree, their online experience). See also TRUSTe/TNS Presentation, TRUSTe and TNS Global, ‘‘Consumer Attitudes 

about Behavioral Advertising’’ at 10 (March 28, 2008) (72 percent of respondents found online 

advertising annoying when it was not relevant to their interests or needs). But see infra note 

13 and accompanying text. 

Commission is cautiously optimistic that the privacy concerns raised by behavioral 

advertising can be addressed effectively by industry self-regulation.3

II. Behavioral Advertising 

Many businesses use online behavioral advertising in an attempt to increase the 

effectiveness of their advertising by targeting advertisements more closely to the interests of their audience. The practice generally involves the use of ‘‘cookies’’ to 

track consumers’ activities online and associate those activities with a particular 

computer or device. In many cases, the information collected is not personally identifiable in the traditional sense—that is, the information does not include the consumer’s name, physical address, or similar identifier that could be used to identify 

the consumer in the offline world. Many of the companies engaged in behavioral advertising are so-called ‘‘network advertisers,’’ companies that serve advertisements 

across the Internet at websites that participate in their networks.4

An example of how behavioral advertising might work is as follows: a consumer 

visits a travel website and searches for airline flights to New York City. The consumer does not purchase any tickets, but later visits the website of a local newspaper to read about the Washington Nationals baseball team. While on the newspaper’s website, the consumer receives an advertisement from an airline featuring 

flights to New York City. 

In this simple example, the travel website where the consumer conducted his research might have an arrangement with a network advertiser to provide advertising 

to its visitors. The network advertiser places on the consumer’s computer a cookie, 

which stores non-personally identifiable information such as the web pages the consumer has visited, the advertisements that the consumer has been shown, and how 

frequently each advertisement has been shown. Because the newspaper’s website is 

also part of the advertising network, when the consumer visits the newspaper 

website, the network advertiser recognizes the cookie from the travel website as its 

own and identifies the consumer as likely having an interest in traveling to New 

York. It then serves the corresponding advertisement for airline flights to New 

York. 

In a slightly more sophisticated example, the information about the content that 

the consumer had selected from the travel website could be combined with information about the consumer’s activities on the newspaper’s website. The advertisement 

served could then be tailored to the consumer’s interest in, not just New York City, 

but also baseball (e.g., an advertisement referring to the New York Yankees). 

As these examples illustrate, behavioral advertising may provide benefits to consumers in the form of advertising that is more relevant to their interests. Consumer 

research has shown that many online consumers value more personalized ads, 

which may facilitate shopping for the specific products that consumers want.5 Further, by providing advertisements that are likely to be of interest to the consumer, 

behavioral advertising also may reduce the number of unwanted, and potentially 

unwelcome, advertisements consumers receive online. 

More broadly, the revenue model for the Internet is, to a large extent, advertisingbased, and using behavioral techniques can increase the cost-effectiveness of online 

advertising. Thus, behavioral advertising may help subsidize and support a diverse 

range of free online content and services that otherwise might not be available or 

that consumers would otherwise have to pay for—content and services such as 

blogging, search engines, social networking, and instant access to newspapers and 

information from around the world. 

At the same time, however, behavioral advertising raises consumer privacy concerns. As described below, many consumers express discomfort about the privacy implications of being tracked, as well as the specific harms that could result. In particular, without adequate safeguards in place, consumer tracking data may fall into 

7 

6 As a result of these concerns, a number of consumer groups and others have asked the Commission to take action in this area. See, e.g., Center for Digital Democracy and U.S. Public Interest Research Group Complaint and Request for Inquiry and Injunctive Relief Concerning Unfair 

and Deceptive Online Marketing Practices (Nov. 1, 2006), available at http:// 

www.democraticmedia.org/files/pdf/FTCadprivacy.pdf; Ari Schwartz and Alissa Cooper, Center 

for Democracy and Technology, ‘‘CDT Letter to Commissioner Rosch,’’ (Jan. 19, 2007), available 

at http://www.cdt.org/privacy/20070119rosch-behavioral-letter.pdf; Mindy Bockstein, ‘‘Letter to 

Chairman Majoras Re: DoubleClick, Inc. and Google, Inc. Merger,’’ New York State Consumer 

Protection Board (May 1, 2007), available at http://epic.org/privacy/ftc/google/cpb.pdf. 7See, e.g., Jeremy Kirk, ‘‘AOL Search Data Reportedly Released,’’ Computerworld (Aug. 6, 

2007), available at http://computerworld.com/action/article.do?command=viewArticleBasic& 

taxonomyName=privacy&articleId=9002234&taxonomyId=84. 8See Michael Barbaro and Tom Zeller, ‘‘A Face Is Exposed for AOL Searcher No. 4417749,’’ 

www.nytimes.com, Aug. 9, 2006, available at http://www.nytimes.com/2006/08/09/technology/ 

09aol.html. 9 In one now-famous example, a man had bought a ring for his wife as a surprise; the surprise 

was ruined when his wife read about his purchase on the man’s user profile page. See, e.g., 

Ellen Nakashima, ‘‘Feeling Betrayed, Facebook Users Force Site to Honor Privacy,’’ 

Washingtonpost.com, (Nov. 30, 2007), available at http://www.washingtonpost.com/wp-dyn/content/article/2007/11/29/AR2007112902503lpf.html. 10See Facebook home page, http://www.facebook.com, viewed on March 21, 2008. 11MoveOn.org Civic ActionTM created an online petition for consumers to express their objection to Facebook’s Beacon program. The petition stated, ‘‘Sites like Facebook must respect my 

privacy. They should not tell my friends what I buy on other sites—or let companies use my 

name to endorse their products—without my explicit permission.’’ MoveOn.org Civic Action Petition, available at http://www.civic.moveon.org/facebookprivacy/, viewed June 9, 2008. 12See Reuters News, ‘‘Facebook Makes Tweak After Privacy Protest,’’ RedHerring.com, Nov. 

30, 2007, available at http://www.redherring.com/Home/23224. 13See Alan Westin, ‘‘Online Users, Behavioral Marketing and Privacy: Results of a National 

Harris/Westin Survey’’ (March 2008) (almost 60 percent of respondents were ‘‘not comfortable’’ 

to some degree with online behavioral marketing); TRUSTe/TNS Presentation, ‘‘Behavioral Advertising: Privacy, Consumer Attitudes and Best Practices,’’ at 10 (April 23, 2008) (57 percent 

of respondents were not comfortable with advertisers using browsing history to serve ads, even 

if the information is not connected to personally identifiable information). 14See Ponemon Presentation, supra note 5, at 11. 

the wrong hands or be used for unanticipated purposes.6 These concerns are exacerbated when the tracking involves sensitive information about, for example, children, 

health, or a consumer’s finances. 

Recent high-profile incidents where tracking data has been released have magnified consumers’ concerns. In August 2006, for example, an employee of Internet 

service provider and web services company AOL made public the search records of 

approximately 658,000 customers.7 The search records were not identified by name, 

and, in fact, the company had taken steps to anonymize the data. By combining the 

highly particularized and often personal searches, however, several newspapers, including the New York Times,8 and consumer groups were able to identify some individual AOL users and their queries, challenging traditional notions about what data 

is or is not personally identifiable. 

Another incident involved the social networking site Facebook. In November 2007, 

Facebook released a program called Beacon, which allowed users to share information about their online activities, such as the purchases they had made or the videos 

they had viewed. The Beacon service tracked the activities of logged-in users on 

websites that had partnered with Facebook. If a user did not opt out of this tracking, Facebook’s partner sites would send to Facebook information about the user’s 

purchases at the partner sites. Facebook then published this information on the 

user’s profile page and sent it to the user’s Facebook ‘‘friends.’’ 

The Beacon program raised significant concerns among Facebook users.9 Approximately 30 groups formed on Facebook to protest Beacon, with one of the groups representing over 4,700 members,10 and over 50,000 Facebook users signed a petition 

objecting to the new program.11 Within a few weeks, Facebook changed its program 

by adding more user controls over what information is shared with ‘‘friends’’ and 

by improving notifications to users before sharing their information with others on 

Facebook.12

Surveys confirm that consumers are concerned about the privacy of their activities 

as they navigate online. For example, in two recent surveys, a majority of consumers expressed some degree of discomfort with having information about their online activities collected and used to serve advertising.13 Similarly, only 20 percent 

of consumers in a third survey stated that they would allow a marketer to share 

information about them in order to track their purchasing behaviors and to help 

predict future purchasing decisions.14 Another survey found that 45 percent of consumers believe that online tracking should be banned, and another 47 percent would 

8 

15See George R. Milne, ‘‘Information Exchange Expectations of Consumers, Marketing Managers and Direct Marketers,’’ University of Massachusetts Amherst (presented on Nov. 1, 2007), 

available at http://www.ftc.gov/bcp/workshops/ehavioral/presentations/3gmilne.pdf. 16Telemarketing Sales Rule: Final Rule, 16 C.F.R. Part 310 (2003), available at http:// 

www.ftc.gov/os/2003/01/tsrfrn.pdf. 17See, e.g., FTC ID theft website, available at www.ftc.gov/idtheft. In one recent effort, the 

FTC coordinated with the U.S. Postal Service to send a letter to every American household containing information about how to protect against identity theft. See Press Release, ‘‘Postmaster 

General Sends Advice to Prevent ID Theft,’’ U.S. Postal Service (Feb. 19, 2008), available at 

http://www.usps.com/connnunications/newsroom/2008/pr08l014.htm. 18See, e.g., Federal Trade Commission, ‘‘Protecting Personal Information: A Guide for Business,’’ available at http://www.ftc.gov/infosecurity/; see also http://onguardonline.gov/ 

index.html. 19Since 2001, the Commission has obtained twenty consent orders against companies that allegedly failed to provide reasonable protections for sensitive consumer information. See In the 

Matter of The TJX Companies, FTC File No. 072–3055 (Mar. 27, 2008, settlement accepted for 

public comment); In the Matter of Reed Elsevier Inc. and Seisint Inc., FTC File No. 052–3094 

(Mar. 27, 2008, settlement accepted for public comment); United States v. ValueClick, Inc., No. 

CV08–01711 (C.D. Cal. Mar. 13, 2008); In the Matter of Goal Financial, LLC, FTC Docket No. 

C–4216 (April 15, 2008); In the Matter of Life is Good, Inc., FTC Docket No. C–4218 (Apr. 18, 

2008); United States v. American United Mortgage, No. CV07C 7064, (N.D. Ill. Dec. 18, 2007); 

In the Matter of Guidance Software, Inc., FTC Docket No. C–4187 (Apr. 3, 2007); In the Matter 

of CardSystems Solutions, Inc., FTC Docket No. C–4168 (Sept. 5, 2006); In the Matter of Nations 

Title Agency, Inc., FTC Docket No. C–4161 (June 19, 2006); In the Matter of DSW, Inc., FTC 

Docket No. C–4157 (Mar. 7, 2006); United States v. ChoicePoint, Inc., No. 106–CV–0198 (N.D. 

Ga. Feb. 15, 2006); In the Matter of Superior Mortgage Corp., FTC Docket No. C–4153 (Dec. 

14, 2005); In the Matter of BJ’s Wholesale Club, Inc., FTC Docket No. C–4148 (Sept. 20, 2005); 

In the Matter of Nationwide Mortgage Group, Inc., FTC Docket No. 9319 (Apr. 12, 2005); In the 

Matter of Petco Animal Supplies, Inc., FTC Docket No. C–4133 (Mar. 4, 2005); In the Matter 

of Sunbelt Lending Services, FTC Docket No. C–4129 (Jan. 3, 2005); In the Matter of MTS Inc., 

d/b/a Tower Records/Books/Video, FTC Docket No. C–4110 (May 28, 2004); In the Matter of 

Guess?, Inc., FTC Docket No. C–4091 (July 30, 2003); In the Matter of Microsoft Corp., FTC 

Docket No. C–4069 (Dec. 20, 2002); In the Matter of Eli Lilly & Co., FTC Docket No. C–4047 

(May 8, 2002). 20Since 2004, the Commission has initiated eleven spyware-related law enforcement actions. 

Detailed information regarding each of these law enforcement actions is available at http:// 

www.ftc.gov/bcp/edu/microsites/spyware/lawlenfor.htm. Since 1997, when the FTC brought 

its first enforcement action targeting unsolicited commercial e-mail, or ‘‘spam,’’ the FTC has 

brought 94 law enforcement actions. See generally Report on ‘‘Spam Summit: The Next Generation of Threats and Solutions’’ (Nov. 2007), available at http://www.ftc.gov/os/2007/12/ 

071220spamsummitreport.pdf. 21See discussion infra pp. 9–12. 

allow such tracking, but only with some form of consumer control.15 These surveys 

underscore the importance of online privacy to consumers and highlight the fundamental importance of maintaining trust in the online marketplace. 

III. FTC Initiatives Concerning Consumer Privacy and Behavioral 

Advertising 

Since privacy first emerged as a significant consumer protection issue in the mid1990s, it has been one of the Commission’s highest priorities. The Commission has 

worked to address privacy issues through consumer and business education, law enforcement, and policy initiatives. For example, the FTC has promulgated and enforced the Do Not Call Rule to respond to consumer complaints about unsolicited 

and unwanted telemarketing; 16 has waged a multi-faceted war on identity theft; 17

has encouraged better data security practices by businesses through educational initiatives 18 and a robust enforcement program; 19 has brought numerous enforcement 

actions to reduce the incidence of spun and spyware; 20 and has held numerous 

workshops to examine emerging technologies and business practices, and the privacy and other issues they raise for consumers.21 In early 2006, recognizing the 

ever-increasing importance of privacy to consumers and to a healthy marketplace, 

the Commission established the Division of Privacy and Identity Protection, a division devoted exclusively to privacy-related issues. 

In developing and implementing its privacy program, the FTC has been mindful 

of the need for flexibility and balance—that is, the need to address consumer concerns and harms without stifling innovation or imposing needless costs on consumers and businesses. 

A. 1999 Workshop on Online Profiling 

The Commission first examined the issue of behavioral advertising in 1999, when 

it held a joint public workshop with the Department of Commerce on the practice— 

then called ‘‘online profiling.’’ The workshop examined the practice of tracking consumers’ activities online, as well as the role of self-regulation in this area. 

9 

22 Briefly, the NAI Principles set forth guidelines for online network advertisers and provide 

a means by which consumers can opt out of behavioral advertising at a centralized website. For 

more information on the FTC workshop and NAI, see Online Profiling: A Report to Congress 

(June 2000) at 22 and Online Profiling: A Report Congress Part 2 Recommendations (July 2000), 

available at http://www.ftc.gov/os/2000/06/onlineprofilingreportjune2000.pdf and http:// 

www.networkadvertising.org. As discussed further below, NAI recently proposed for public comment revised NAI Principles. 23The purpose of the Tech-ade hearings, held in November 2006, was to examine the technological and consumer protection developments anticipated over the next decade. See generally 

http://www.ftc.gov/bcp/workshops/techade/index.html. 24See CDD et al., Complaint and Request for Inquiry and Injunctive Relief, supra note 6. 

Many of these concerns were amplified by the announcement of the proposed merger between 

Google and DoubleClick in April 2007. The Commission approved the merger on December 20, 

2007, at the same time that it issued FTC staff’s proposed self-regulatory guidelines. See ‘‘Staff 

Proposes Online Behavioral Advertising Policy Principles,’’ Federal Trade Commission (Dec. 20, 

2008), available at http://www.ftc.gov/opa/2007/12/principles.shtm. The Principles are discussed infra at 13. 25 According to critics, the NAI Principles’ opt-out mechanism is difficult to locate and use because it is located on the NAI website, where consumers would be unlikely to find it. As noted 

above, in April of this year, the NAI issued a proposed revised set of self-regulatory principles 

designed to address criticisms of the original NAI Principles and to respond to the FTC staff’s 

call for stronger self-regulation. The NAI has sought comment on its proposed revised principles, 

and comments were due June 12, 2008. See ‘‘Self-Regulatory Principles for Online Preference 

Marketing By Network Advertisers,’’ Network Advertising Initiative (issued April 10, 2008), 

available at http://www.networkadvertising.org/pdfs/NAIlprinciples.pdf. 26Since the Town Hall, some of these industry groups, as well as several online companies 

and privacy groups, have sought to address the concerns raised about behavioral advertising. 

Continued 

In response to the concerns highlighted at the workshop, industry members 

formed the Network Advertising Initiative (‘‘NAI’’), a self-regulatory organization 

addressing behavioral advertising by network advertisers. Shortly thereafter, the 

NAI issued the NAI Self-Regulatory Principles (‘‘NAI Principles’’) governing collection of information for online advertising by network advertisers.22 In the early 

2000s, however, with the ‘‘burst’’ of the dot com bubble, many network advertisers— 

including most of the NAI membership—went out of business. 

Emblematic of the highly dynamic nature of the online environment, by the time 

the FTC held its public hearings on Protecting Consumers in the Next Tech-ade 

(‘‘Tech-ade’’) only a few years later,23 the issue of online tracking and advertising 

had reemerged. In the intervening years, behavioral advertising had become a highly successful business practice, and a number of Tech-ade participants raised concerns about its effects on consumer privacy. 

B. The FTC Town Hall on Online Behavioral Advertising 

Beginning in Fall 2006, the Commission staff held a series of meetings with numerous industry representatives, technology experts, consumer and privacy advocates, and academics to learn more about the practice of behavioral advertising. The 

purpose of these meetings was to explore further the issues raised at Tech-ade, 

learn about developments since the FTC’s 1999 Workshop, and examine concerns 

about behavioral advertising that had been raised by privacy advocates and others.24 Seeking a broader forum in which to examine and discuss these issues, and 

particularly the privacy issues raised by the practice, the FTC held a two-day Town 

Hall meeting on behavioral advertising in November 2007. 

From the Town Hall, as well as the meetings preceding it, several key points 

emerged. First, as discussed above, online behavioral advertising may provide many 

valuable benefits to consumers in the form of free content, personalization that 

many consumers value, and a potential reduction in unwanted advertising. Second, 

the invisibility of the practice to consumers raises privacy concerns, as does the risk 

that data collected for behavioral advertising—including sensitive data about children, health, or finances—could be misused. Third, business and consumer groups 

alike expressed support for transparency and consumer control in the online marketplace. 

Many participants at the Town Hall also criticized the self-regulatory efforts that 

had been implemented to date. In particular, these participants stated that the NAI 

Principles had not been sufficiently effective in addressing the privacy concerns 

raised by behavioral advertising because of the NAP s limited membership, the limited scope of the NAI Principles (which apply to network advertisers but not to other 

companies engaged in behavioral advertising), and the NAI Principles’ lack of enforcement and cumbersome opt-out system.25 Further, while other industry associations had promulgated online self-regulatory schemes to address privacy issues, 

these schemes had not generally focused on behavioral advertising.26

10 

See, e.g., Interactive Advertising Bureau, ‘‘Privacy Principles,’’ (adopted Feb. 24, 2008), available 

at http://www.iab net/iablproductslandlindustrylservices/1421/1443/1464; Comment 

‘‘Online Behavioral Advertising: Moving the Discussion Forward to Possible Self-Regulatory 

Principles,’’ Microsoft Corp. (April 11, 2008), available at http://www.ftc.gov/os/comments/ 

behavioraladprinciples/080411microsoft.pdf; Comment ‘‘FTC Staff Proposed Online Behavioral 

Advertising Principles: Comments of AOL, LLC,’’ AOL, LLC (April 11, 2008), available at 

http://www.ftc.gov/os/comments/behavioraladprinciples/080411aol.pdf; Ari Schwartz, Center 

for Democracy and Technology, et al., ‘‘Consumer Rights and Protections in the Behavioral Advertising Sector,’’ (Oct. 31, 2007) (proposing a ‘‘Do Not Track List’’ designed to increase consumers’ control over tracking of their activities online), available at http://www.cdt.org/privacy/20071031consumerprotectionsbehavioral.pdf. 27 Recent news reports have highlighted concerns about behavioral advertising involving Internet Service Providers (‘‘ISPs’’). The ISP-based model for delivering behaviorally-targeted advertising may raise heightened privacy concerns because it could involve the tracking of subscribers 

wherever they go online and the accumulation of vast stores of data about their online activities. 

Further, information about the subscriber’s activities potentially could be combined with the 

personally identifiable information that ISPs possess about their subscribers. In issuing the proposed Principles for public comment, FTC staff intended the Principles to apply to ISPs. 28For more information and guidance on the use of disclosures in online advertising, see Dot 

Com Disclosures, Information About Online Advertising, http://www.ftc.gov/bcp/conline/pubs/ 

buspubs/dotcom/index.shtml (May 2000). 29The FTC has highlighted the need for reasonable security in numerous educational materials and enforcement actions to date. See supra notes 18–19. 30See, e.g., Gateway Learning Corp., Docket No. C–4120 (Sept. 10, 2004), http://www.ftc.gov/ 

opa/2004/07/gateway.shtm (company made material changes to its privacy policy and allegedly 

applied such changes to data collected under the old policy; opt-in consent required for future 

such changes). 31 Commission staff also sought comment on the potential uses of tracking data beyond behavioral advertising. 

C. The FTC’s Proposed Self-Regulatory Principles 

In December 2007, in response to the issues discussed at the Town Hall and in 

public comments received in connection with that event, Commission staff issued 

and requested comment on a set of proposed principles titled, ‘‘Behavioral Advertising: Moving the Discussion Forward to Possible Self-Regulatory Principles’’ (the 

‘‘Principles’’). The proposed Principles address the central concerns about online behavioral advertising expressed by interested parties; they also build upon existing 

‘‘best practices’’ in the area of privacy, as well as (in some cases) previous FTC guidance and/or law enforcement actions. At the same time, the Principles reflect FTC 

staff’s recognition of the potential benefits provided by online behavioral advertising 

and the need to maintain vigorous competition in this area. 

The purpose of the proposed Principles is to encourage more meaningful and enforceable self-regulation. At this time, the Commission believes that self-regulation 

may be the preferable approach for this dynamic marketplace because it affords the 

flexibility that is needed as business models continue to evolve. 

In brief, the staff proposal identifies four governing principles for behavioral advertising.27 The first is transparency and consumer control: companies that collect 

information for behavioral advertising should provide meaningful disclosures to consumers about the practices, as well as choice about whether their information is collected for this purpose.28 The second principle is reasonable security: companies 

should provide reasonable security for behavioral data so that it does not fall into 

the wrong hands, and should retain data only as long as necessary to fulfill a legitimate business or law enforcement need.29 The third principle governs material 

changes to privacy policies: before a company uses behavioral data in a manner that 

is materially different from promises made when the data was collected, it should 

obtain affirmative express consent from the consumer.30 This principle ensures that 

consumers can rely on promises made about how their information will be used, and 

can prevent contrary uses if they so choose. The fourth principle states that companies should obtain affirmative express consent before they use sensitive data—for 

example, data about children, health, or finances—for behavioral advertising.31

IV. Next Steps 

In response to the request for public comment, Commission staff received over 60 

comments on the Principles, representing many thoughtful and constructive views 

from diverse business sectors, industry self-regulatory bodies, privacy advocates, 

technologists, academics, and consumers. The comment period for the Principles has 

closed, and Commission staff is carefully evaluating the comments received. 

Included in the comments were a number of specific proposals for how self-regulation could be implemented, as well as reports regarding steps taken to address privacy concerns since the Town Hall. The FTC is encouraged by the efforts that have 

11 

32 Current NAI members include DoubleClick, Yahoo! Inc., TACODA, Inc., Acerno, 

AlmondNet, BlueLithium, Mindset Media, Revenue Science, Inc., 24/7 Real Media Inc., and Undertone Networks. 33See supra note 26. Although many organizations and consumer groups have undertaken efforts to address FTC staff’s proposed Principles, a few organizations have expressed concern that 

implementing the Principles would be too costly and would undermine continued development 

of the online marketplace. FTC staff is evaluating all of these comments as it considers next 

steps in this area. 

already been made by the NAI 32 and some other organizations and companies 33

and believes that the self-regulatory process that has been initiated is a promising 

one. Although there is more work to be done in this area, the Commission is cautiously optimistic that the privacy issues raised by online behavioral advertising can 

be effectively addressed through meaningful, enforceable self-regulation. The dynamic and diverse online environment demands workable and adaptable approaches 

to privacy that will be responsive to the evolving marketplace. Nevertheless, the 

Commission will continue to closely monitor the marketplace so that it can take appropriate action to protect consumers as the circumstances warrant. 

V. Conclusion 

The Commission appreciates this opportunity to discuss its work on behavioral 

advertising. The Commission is committed to addressing new and emerging privacy 

issues such as online behavioral advertising and looks forward to working further 

with the Committee on this important consumer issue. 

Senator DORGAN. Ms. Parnes, thank you very much. 

Next we will hear from Ms. Jane Horvath, the Senior Privacy 

Counsel at Google, Incorporated. Ms. Horvath? 

STATEMENT OF JANE HORVATH, SENIOR PRIVACY COUNSEL, 

GOOGLE, INC. 

Ms. HORVATH. Senator Dorgan and Senator Vitter, the most important point I would like to make this morning is simple. Google 

makes privacy a priority because our business depends on it. If our 

users are uncomfortable with how we manage their personal information, they are only one click away from switching to a competitor’s services. 

Putting our users first means that we are deeply committed to 

their privacy, and succeeding in online advertising and protecting 

our users’ privacy are not mutually exclusive goals. 

This morning I will first discuss how online advertising benefits 

advertisers, website publishers, and Internet users. Second, I will 

discuss Google’s approach to privacy. And finally, I will make recommendations for how government and industry can better protect 

Internet users’ privacy. 

So let me first touch on the benefits of online advertising. 

Google’s two primary advertising programs, AdWords and AdSense, 

provide users with highly relevant ads, match advertisers with 

users who are interested in their products, and provide revenue for 

website publishers who place our ads on their sites. For example, 

in Minneapolis, taxi driver Kenny Kormendy, built a website for 

out-of-state travelers called Gopher State Taxi and used Google’s 

AdWords program to compete online with bigger taxi companies. 

Today Gopher State Taxi has grown to a network of over 36 cabs, 

and Mr. Kormendy credits Google with connecting 9 out of 10 of 

its customers. 

When someone clicks on one of our ads on a website, Google also 

shares revenue from that ad with the website owner. Last year we 

paid a total of $4.5 billion in ad revenue to website publishers 

across the United States. 

12 

Next, let me talk about Google’s approach to privacy. As I said 

earlier, Google makes privacy a priority because our business depends on it. We make sure that three design fundamentals are the 

bedrock of our privacy practices. 

First, transparency. We have been an industry leader in finding 

new ways to educate users about privacy such as through our 

Google Privacy Channel on YouTube where we feature videos that 

explain our privacy policies in plain language. 

Second, choice. We strive to design our products in a way that 

gives users meaningful choices about what information they provide to us. For example, our Google Talk instant messaging service 

includes an ‘‘off the record’’ feature that prevents either party from 

storing the chat. 

And third, security. We take seriously the protection of data that 

our users entrust with us. Google employs some of the world’s best 

engineers in software and network security and has teams dedicated to developing information safeguards. Google’s advertising 

products are primarily driven by context rather than behavior. Unlike other companies we have built our business on showing ads 

that are relevant to what a user is looking for, not by building detailed profiles based on a user’s online behavior. 

As we continue to incorporate DoubleClick’s display ad serving 

capabilities into our business, Google will continue to be a leader 

in offering products that respect privacy. 

Finally, let me turn to our efforts to innovate in the area of privacy protection. Feedback from our users and outside parties, as 

well as our own internal discussions, has led us to several privacy 

innovations, including our decision last year to anonymize our server logs after 18 months. In that spirit of innovation today, we offer 

the following recommendations for both government and the private sector. 

First, Google supports the passage of a comprehensive Federal 

privacy law that will establish a uniform framework for privacy 

and put penalties in place to punish and dissuade bad actors. 

Second, we support the Federal Trade Commission’s efforts to develop principles relating to online privacy and behavioral advertising, and we hope that revised principles will be adopted widely 

by the online ad industry. 

And third, we believe that greater labeling of online display ads 

should be adopted as an industry standard. 

As I conclude my testimony this morning and welcome the Committee’s questions, I would like to show a brief excerpt from one of 

the videos on our Google Privacy YouTube Channel. This video 

shows a user how to easily remove cookies from their web browsers. Thank you. 

[Video shown.] 

[The prepared statement of Ms. Horvath follows:] 

PREPARED STATEMENT OF JANE HORVATH, SENIOR PRIVACY COUNSEL, GOOGLE, INC. 

Chairman Inouye, Vice Chairman Stevens, Members of the Committee. 

I’m pleased to appear before you this morning to discuss online advertising and 

the ways that Google protects our users’ privacy. My name is Jane Horvath, and 

I am Google’s Senior Privacy Counsel. In that role I am responsible for working with 

13 

our product teams and other privacy professionals at Google to ensure compliance 

with privacy laws and develop best practices for protecting our users’ privacy. 

Google’s mission is to organize the world’s information and make it universally 

accessible and useful. The best known way that we do this today is through our 

search engine, which is available for free to Internet users throughout the world. 

The availability of Google search and our other products—and the improvements 

that we make to our products on a daily basis—is funded by online advertising, by 

far our primary source of revenue. 

Online advertising is relatively young and a very small piece of the advertising 

market as a whole. It is a dynamic business characterized by strong competition, 

significant innovation, and continuing growth. Online advertising has succeeded because it helps businesses find customers more efficiently and effectively than 

through other media. It has also helped to create entirely new and innovative small 

businesses that generate revenue through advertising, often in partnership with 

Google. 

At Google we believe that our online advertising business has succeeded because 

our most important advertising goal is to deliver ads that benefit our users. From 

its inception, Google has focused on providing the best user experience possible. We 

do this, for example, by ensuring that advertising on our site delivers relevant content that is not a distraction. In fact, our goal is to make our ads just as useful 

to Google’s users as search results themselves. 

We’ve also made a commitment to never compromise the integrity of our search 

results, for example by manipulating rankings to place our partners higher in our 

search results. And advertising on Google is always clearly identified as a ‘‘Sponsored Link’’ to ensure that our users know the difference between our search results 

and any advertising that we provide. 

Putting our users first also means that we are deeply committed to their privacy, 

and our products and policies demonstrate that commitment. We believe that success in online advertising and protecting our users’ privacy are not mutually exclusive goals. We work hard to provide advertising in a way that is transparent to 

users, provides them with appropriate choices, and protects any personal information that we collect from inappropriate access by third parties. 

In my testimony this morning, I would like to cover three key points: 

First, I’ll explain Google’s main advertising products and the significant benefits 

that we at Google believe online advertising brings to advertisers, online publishers, and individual Internet users. 

Second, I’ll discuss Google’s approach to privacy, specific steps that we take to 

protect our users’ privacy, and privacy issues involving our advertising business. 

And finally, I’ll explore ideas and make recommendations for how to better protect Internet users’ privacy both with respect to advertising as well as more 

generally as more and more information moves to the Internet cloud. 

The Benefits of Online Advertising 

Google offers three main advertising products: AdWords, AdSense for Search, and 

AdSense for Content. Our AdWords product allows us to provide ads on Google.com 

in response to search queries entered by our users, as well as to provide ads on our 

AdSense for Content and AdSense for Search services. AdSense for Search allows 

us to provide ads in response to search queries entered by users of our partners’ 

search engines, including AOL and Ask.com. AdSense for Content allows us to provide ads to visitors of our third-party publisher partners’ websites. AdSense for Content ads are provided based on the content of the page that is being viewed by a 

user. The vast majority of the revenue that Google generates comes from these three 

products. 

All three advertising products are primarily easy-to-create text ads, which is one 

of the many reasons that hundreds of thousands of small businesses advertise with 

us. We also provide the capability to show display ads—ads that incorporate graphics in addition to text—through AdSense for Content, and we plan to enhance our 

display ad serving capabilities with our recent acquisition of DoubleClick, a display 

ad serving technology company. 

Advertisers, online publishers, and consumers all benefit from our advertising 

network. I’ll start with consumers—our users—on whom our business depends. 

In our experience, users value the advertisements that we deliver along with 

search results and other web content because the ads help connect them to the information, products, and services they seek. The ads we deliver to our users complement the natural search results that we provide because our users are often 

searching for products and services that our advertisers offer. Making this connecVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
14 

tion is critical, and we strive to deliver the ads that are the most relevant to our 

users, not just the ones that generate the most revenue for us. We do this through 

our innovative ad auction system, which gives weight to the relevancy—the usefulness—of the ad to our users based on their search queries or the content that they 

are viewing. And in our pay-per-click pricing model we only generate revenue when 

a user is interested enough to click on an ad. 

The revenue that we generate from online advertising makes it possible for Google 

to offer dozens of free products to our users—everything from search and e-mail to 

our word processing application, Google Docs. Each of these products underscores 

our commitment to improving our users’ online experience. For example, Google 

Docs allows multiple users to edit a single document, presentation, or spreadsheet 

at the same time. And, despite the popularity of tools like Google Earth and 

YouTube, each of our products is free to individuals for personal use. Our online 

advertising business model subsidizes the creation, development, and ongoing improvements to and support for these and future products. 

And our ads aren’t always commercial. We run a program called Google Grants 

that provides free advertising to not-for-profit organizations engaged in areas such 

as science and technology, education, global public health, the environment, youth 

advocacy, and the arts. For example, we have provided Google Grants to non-profits 

such as Room to Read (www.roomtoread.org), which educates children in Vietnam, 

Nepal, India, and Cambodia, and CoachArt (www.coachart.org), which provides 

therapeutic art and athletic lessons to underprivileged children with life-threatening 

illnesses. Since April 2003, our grantees have collectively received almost $300 million in free advertising. 

Our advertising network also enables small businesses to connect with consumers 

that they otherwise would not reach, and to do so affordably, efficiently, and effectively. The advertiser decides the maximum amount of money it wishes to spend on 

advertising and, as noted above, in the cost-per-click payment model the advertiser 

only pays Google when a user actually clicks on an ad. 

Here are just two of many stories of small businesses succeeding thanks to Google 

advertising. Suzanne Golter owns the Happy Hound dog daycare 

(www.happyhound.com) in Oakland, California. She estimates that 90 percent of her 

business is generated through Google AdWords, which helps her bring in approximately 40 new clients per month. In Minneapolis, Minnesota, Kenny Kormendy, a 

then-struggling taxi driver built a site for out-of-state travelers called Gopher State 

Taxi (www.gopherstatetaxi.com) and utilized AdWords to compete online with bigger 

taxi companies. In under 3 years, Gopher State Taxi has grown to a network of over 

36 cabs, and Mr. Kormendy credits AdWords with connecting nine out of ten customers that his company services. 

Online advertising also promotes freer, more robust, and more diverse speech. It’s 

no coincidence that blogs have proliferated over the past few years. Our AdSense 

product enables bloggers and other publishers to generate revenue from ads that we 

place on their websites. Without online advertising, the individuals who run these 

sites would not be able to dedicate as much time and attention to their publications 

as they do today. In fact, we know that many website owners can afford to dedicate 

themselves to their sites full time because of online advertising. 

AdSense revenues support hundreds of thousands of diverse websites, and a significant percentage of the revenue we earn from advertising ends up in the hands 

of the bloggers and website operators who partner with us by featuring ads provided 

by Google. Last year we paid $4.5 billion in advertising revenue from our AdSense 

program to our publishing partners. In Nevada, Arizona, Florida, and Washington 

alone over 100,000 of our publishing partners collectively generated nearly $100 million from AdSense in 2007. 

The vast majority of these AdSense partners are small businesses. For example, 

in Oregon, Hope Pryor, a grandmother of four, uses AdSense on her site— 

Cooksrecipes.com—to generate her primary source of income. And in Massachusetts, 

honey bee aficionado and retiree Albert Needham uses AdSense revenue generated 

from his Bees-online.com website to fund personal vacations. Similar small business 

success stories are found all across the United States. 

It’s no mistake that I’ve focused mainly on individual users, small publishers, and 

small advertisers. Google’s business model has concentrated on what’s known as the 

‘‘long tail’’ of the Internet—the millions of individuals and small businesses that 

cater to and need to connect with niche interests and markets. Google’s advertising 

programs lower the barrier to entry for small publishers and advertisers alike, and 

connect them with users who are interested in what they have to say or sell. As 

our advertising business continues to grow and evolve, we will continue working 

hard to encourage the development of the long tail. 

15 

Google and Privacy 

We believe user trust is essential to building the best possible products. With 

every Google product, we work hard to earn and keep that trust with a long-standing commitment to protect the privacy of our users’ personal information. We make 

privacy a priority because our business depends on it. In fact, if our users are uncomfortable with how we manage their personal information, they are only one click 

away from switching to a competitor’s services. 

Because user trust is so critical to us, we’ve ensured that privacy considerations 

are deeply embedded in our culture. Though I am Google’s Senior Privacy Counsel, 

I am just one of many individuals at Google who work on privacy. For example, we 

have product counsels who work with engineers and product managers from the beginning of product development to ensure that our products protect our users’ privacy. We also have product managers dedicated to privacy and other trust and safety issues. And we have a Privacy Council, which is comprised of a cross-functional 

group of Google employees that convenes on a regular basis to help Google address 

privacy issues. 

Google’s focus on user trust and privacy means that our product teams are thinking about user privacy by building privacy protections into our products from the 

ground up. For example, we have designed most of our products to allow people to 

use them anonymously, and to ensure that none of our products use any personally 

identifiable data unless that use is fully disclosed in our privacy policy. 

We have also made sure that three design fundamentals—all of them rooted in 

fair information principles—are at the bedrock of our privacy products and practices: 

• Transparency: We believe in being upfront with our users about what information we collect and how we use it so that they can make informed choices about 

their personal information. We have been an industry leader in finding new 

ways to educate users about privacy, such as through our Google Privacy Channel on YouTube (found at www.youtube.com/googleprivacy) where we feature 

privacy videos that explain our privacy policies, practices, and product features 

in simple, plain language. 

• Choice: We strive to design our products in a way that gives users meaningful 

choices about how they use our services and what information they provide to 

us. Many of our products, including our Search service, do not require users to 

provide any personally identifying information at all. When we do ask for personal information, we also endeavor to provide features that give users control 

over that information. For example, our Google Talk instant messaging service 

includes an ‘‘off the record’’ feature that prevents either party from storing the 

chat. 

• Security: We take seriously the protection of data that our users entrust with 

us. Google employs some of the world’s best engineers in software and network 

security and has teams dedicated to developing and implementing policies, practices and technologies to protect this information. More information about our 

approach to security can be found in a recent post at the Official Google Blog 

located at googleblog.blogspot.com/2008/03/how-google-keeps-your-information.html. 

One of our newest products is Google Health, which enables individuals to consolidate and store their medical records and personal health information online. Google 

Health demonstrates our commitment to all three design fundamentals. For example, we have provided significant transparency about Google Health’s privacy features through blog posts and the product’s easy-to-understand privacy policy and 

frequently asked questions. In addition, Google Health provides users choice by empowering them with the decision of what information to import, share, and delete, 

and easy tools for accomplishing each. 

The online advertising products that we offer today are also privacy-friendly because they are primarily contextual in nature. That is, we generally provide ads in 

response to what a user is searching for or viewing at the time, rather than based 

on who we believe the user may be or an extended history of the user’s activities 

either online or off. 

To respond to our users’ desire for more relevant advertising, and to advertisers’ 

desire to provide more relevant advertising to Internet users, we are experimenting 

with some forms of online advertising that do involve more than the current search 

query to provide an ad. For example, we are currently experimenting in Google.com 

search with providing ads based on both the current query and a previous search. 

A user who types ‘‘Italy vacation’’ into the Google search box, for instance, might 

see ads about Tuscany or affordable flights to Rome. If the user were to subseVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
16 

quently search for ‘‘weather,’’ we might assume that there is a link between ‘‘Italy 

vacation’’ and ‘‘weather’’ and deliver ads regarding local weather conditions in Italy. 

However, Google does not build a profile of the user to serve these ads that is stored 

and used later to serve other ads to the user. 

As we continue to incorporate DoubleClick into our business, our focus on display 

advertising—ads that feature images in addition to text—will increase across our 

advertising product offerings, as will our ability to provide metrics and an improved 

user experience to our AdSense network. We believe that expanding into display advertising products is one way that we can compete effectively in the highly competitive online advertising environment. This transition will not undermine Google’s 

focus on privacy or our commitment to the fundamental principles of transparency, 

choice, and security. As we move to offer more display advertising and other advertising products, Google intends to continue to be a leader in offering products that 

protect and respect the privacy of our users. 

Google’s Efforts to Continue Innovating in Privacy 

In our quickly evolving business environment, ensuring that we earn and keep 

our users’ trust is an essential constant for building the best possible products. With 

every Google product, we work hard to earn and keep that trust with a long-standing commitment to protect the privacy of our users’ personal information. As stated 

above, the bedrock of our privacy practices are three design fundamentals: transparency, choice, and security. 

Another constant that we have found in our business is that innovation is a critical part of our approach to privacy. To best innovate in privacy, we welcome the 

feedback of privacy advocates, government experts, our users, and other stakeholders. This feedback, and our own internal discussions about how to protect privacy, has led us to several privacy innovations including our decision last year to 

anonymize our server logs after 18 months. 

In the interest of continuing to protect individuals’ privacy, we offer the following 

policy and technology recommendations—some of which can be accomplished by the 

private sector and some of which involve a government role—in the spirit of continuing the effort to innovate on consumer privacy. Our ideas and recommendations 

endorse a baseline and robust level of privacy protections for all individuals. On top 

of that baseline platform we believe that the private sector and government should 

cooperate to educate and inform consumers about privacy issues and to establish 

best practices that will help guide the development of the quickly evolving and innovative online advertising space. Finally, we believe that Google and others in the 

online advertising industry should work to provide tools to better protect individuals’ privacy, and that government should encourage companies to experiment with 

new and innovative ways of protecting consumers’ privacy. 

Comprehensive Federal Privacy Law 

Google supports the passage of a comprehensive Federal privacy law that would 

accomplish several goals such as building consumer trust and protections; establishing a uniform framework for privacy, which would create consistent levels of privacy from one jurisdiction to another; and putting penalties in place to punish and 

dissuade bad actors. We believe that as information flows increase and more and 

more information is processed and stored in the Internet cloud—on remote servers 

rather than on users’ home computers—there is a greater need for uniform data 

safeguarding standards, data breach notification procedures, and stronger procedural protections relating to government and third party litigant access to individuals’ information. 

Behavioral Advertising Principles 

We have participated actively in the Federal Trade Commission’s efforts to develop privacy principles relating to online privacy and behavioral advertising. Our 

hope is that revised principles will be adopted widely by the online advertising industry and serve as a model for industry self-regulation in jurisdictions beyond the 

United States. In order for the principles to achieve such broad adoption, however, 

they need to be revised to ensure that they can be operationalized by industry and 

that they will give consumers appropriate transparency, choice, and security. In 

order for that to happen, the principles would, among other things, need to make 

a distinction between personally identifiable information (PII) and non-PII. 

Consumer Education 

Transparency is one of Google’s bedrock design principles because we believe that 

informed and knowledgeable users are best able to protect their privacy. We believe 

that both the private sector and the government, including agencies like the FTC, 

can and should provide more information about what kinds of personal information 

17 

are collected by companies, how such data is used, and what steps consumers can 

take to better protect their privacy. 

At Google, for example, we take great pride in our effort to provide our users with 

a better understanding of how we collect, use, and protect their data through a series of short videos available at Google.com and on YouTube, as well as through blog 

posts. Too often, website operators view their online privacy policy—which is typically impenetrable to the average user—as the beginning and end of their privacy 

obligations. Web companies that interact with individuals need to do more than simply provide and link to privacy policies; we need to offer consumer-friendly materials 

in different media to better help their users understand how their information is 

collected and used, and what choices they have to protect their privacy. 

Transparency and Choice in Display Advertising 

Google text ads are generally labeled ‘‘Ads by Google’’ or ‘‘Sponsored Links’’ and 

are accompanied by an explanation of what they are so that users understand that 

they are advertisements and that they have been provided by Google. We believe 

that this kind of notice and explanation should be adopted by industry and applied 

not only to text ads but also to display ads. We also believe that industry should 

continue working together to provide, for example, effective mechanisms that empower consumers with the ability to opt out of behaviorally targeted advertising. 

Development of Technology to Empower Users 

Products like Google Toolbar let a user choose to not have data collected, and that 

choice persists even if all cookies are cleared and until the user chooses to have data 

collected. Google also offers features like Web History, which allows users to view 

and search all search queries they have made on Google search while logged into 

Google. Web History also lets users delete and thus disassociate from their account 

information any searches that they conduct while they are logged in. Users can also 

pause Web History altogether if they do not want their searches to be associated 

with their account information—and this choice persists until users choose to resume Web History. We believe that more can be done by industry to ensure the persistence of users’ choices, and we look forward to exploring such tools with industry 

and other stakeholders. 

Conclusion 

Chairman Inouye, Vice Chairman Stevens, and Members of the Committee, thank 

you for the opportunity to testify today. I appreciate the opportunity to explain the 

benefits of our advertising business to consumers, advertisers, and publishers, and 

the chance to explain how Google protects our users’ privacy. 

I look forward to answering any questions you might have about our efforts, and 

Google looks forward to working with Members of the Committee and others in the 

development of better privacy protections for Internet users everywhere. 

Thank you. 

Senator DORGAN. Ms. Horvath, does that complete your testimony? 

Ms. HORVATH. Yes. Thank you very much. 

Senator DORGAN. Ms. Horvath, thank you very much. 

Next we will hear from Mr. Robert Dykes, who is the Chairman 

and CEO of NebuAd, Incorporated. Mr. Dykes, welcome. You may 

proceed. 

STATEMENT OF ROBERT R. DYKES, FOUNDER, CHAIRMAN, 

AND CEO, NEBUAD, INC. 

Mr. DYKES. Thank you, Chairman Dorgan and Senator Vitter. 

My name is Bob Dykes, CEO of NebuAd, Inc., a recent entrant into 

the online advertising industry that partners with Internet service 

providers, otherwise known as ISP’s. I come from a security background, serving for many years as Executive Vice President of 

Symantec Corporation. 

When we launched NebuAd several years ago, it was at a time 

when many people had particularly heightened concerns about data 

security. As part of its mission, NebuAd sought to address these 

18 

privacy and security concerns. As you will see, NebuAd systems are 

designed so that no one, not even the government, can determine 

the identity of our users. 

Currently online advertising solutions and data collection methods operate in many locations throughout the Internet ecosystem, 

from users’ computers to individual websites, to networks of 

websites. The NebuAd service, in partnership with ISP’s, provides 

consumers with significant benefits serving them with more relevant ads which they want, while ensuring that they have robust 

privacy protections and control over their online experience. 

NebuAd’s ad network also is designed to benefit two groups that 

provide substantial benefit to the Internet: many smaller websites 

and general use sites that have difficulty maintaining free access 

to their content; the ISP’s who need to upgrade their infrastructure 

to provide increased bandwidth for consumers who increasingly 

want access to Internet delivered videos. NebuAd creates these 

benefits by using a select set of a user’s Internet activities to construct anonymous inferences about likely interests which are then 

used to select and serve the most relevant advertisements. 

The NebuAd service is architected and its operations are based 

on principles essential to strong privacy protection. We provide 

users with prior robust notice about the service and opportunity to 

express informed choice about whether to participate both before 

the service takes effect and persistently thereafter. We do not collect or use personally identifiable information, or PII. We do not 

store raw data linked to identifiable individuals, and we provide 

state-of-the-art security for the limited amount of information we 

do store. In other words, allegations by others that we do not provide an opportunity to opt out in our robust notice to users or that 

we collect entire web traffic of users are simply not accurate. 

To repeat, NebuAd provides robust notice and the opportunity to 

express informed choice, and there is no collection or use of any 

personally identifiable information or even a significant portion of 

users’ web traffic, nor any information from password-protected 

sites, web mail, e-mail, instant messages, or VoIP traffic. 

We understand that to gain the public’s trust, we need to adopt 

strong privacy protections. Ours have been reviewed by such entities as the Ponemon Institute, and we are engaging a Big Four 

audit firm to conduct an audit to verify that we do what we say 

we do. 

This Committee has long been involved with the creation of privacy statutes covering the cable and telecommunications industries, as well as specific statutes addressing online privacy for children, telemarketing, and spam. Yet even though these and other 

privacy statutes have been developed one at a time, there are common threads running through them all. When more sensitive data 

is collected and when the collection and disclosure of the data could 

harm or embarrass a consumer, more rigorous disclosure and consent requirements tend to be imposed. When raw data linked to an 

identifiable individual is stored for longer periods, there is an 

emerging trend that more rigorous disclosure, consent, and security 

requirements should be imposed. 

NebuAd supports the privacy paradigm which provides users 

with consistent expectations and substantial protections. This paraVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00022 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76329.TXT JACKIE
19 

1 It is an axiom that advertising has more value when the advertiser believes the user is more 

interested in the advertiser’s product. Such interest is not obvious when a user visits generalpurpose news and information sites, which are some of the very ones noted by the FTC Staff 

as standing to benefit from online advertising. Accordingly, the online advertising industry is 

constantly seeking other ways to infer user interest and then bring that knowledge to bear on 

the placement of ads on these sites. That is, behavioral advertising drives value and supports 

those sites on the Internet that provide society with great value. 

digm also is technology- and business-neutral, and it is the basis 

upon which NebuAd built its technology and operations. NebuAd 

urges the Committee to maintain both the paradigm and the principle of technology and business neutrality. 

Thank you. 

[The prepared statement of Mr. Dykes follows:] 

PREPARED STATEMENT OF BOB DYKES, CEO, NEBUAD, INC. 

Chairman Inouye, Ranking Member Stevens, and Members of the Committee, 

thank you for inviting me to appear today regarding the privacy implications of online advertising. My name is Bob Dykes, CEO of NebuAd, Inc., a recent entrant into 

the online advertising industry that partners with Internet Service Providers (ISPs). 

I have spent considerable time over the past year with Federal policymakers at the 

Federal Trade Commission (FTC), Federal Communications Commission, and in 

Congress—as well as with consumer and privacy advocates—discussing NebuAd’s 

technology, operations, and privacy protections and welcome the opportunity to discuss all of this further with the Committee. 

Introduction 

Online advertising is a phenomenon of the Internet age. It permits advertisers to 

provide more relevant messages to consumers and in turn fuels the development of 

website publishers, both large and small. In fact, advertising is the engine for the 

free Internet. The FTC has found online advertising benefits consumers by enabling 

‘‘access to newspapers and information around the world, provided free because it 

is subsidized by online advertising; tailored ads that facilitate comparison shopping 

for the specific products that consumers want; and, potentially, a reduction in ads 

that are irrelevant to consumers’ interests and that may therefore be unwelcome.’’ 1

Within this world of online advertising, NebuAd is a newcomer, just entering 

among industry giants like Google, Yahoo!, Microsoft, Amazon, and countless 

website publishers. That means we have a steep hill to climb, but it also means we 

have great opportunities. We are able to learn the lessons of the industry and construct state-of-the-art technology that delivers ads that are more relevant to users 

while providing them with robust and industry-leading privacy protections. Indeed, 

as I will discuss, these privacy protections are built into our technology and designed into our policies from the ground up. 

Let me explain our privacy motivation more fully. I come from a security background, serving for many years as Executive Vice President of Symantec Corporation, a global leader in providing security solutions for computers and computer networks. When we launched NebuAd several years ago, it was at a time when many 

people had particularly heightened concerns about data security. Hackers were 

piercing firewalls, seeking to capture seemingly random strands of data to find the 

identity of users. The government was ordering ISPs and other network providers 

to turn over data on their users. As part of its mission, NebuAd sought to address 

these privacy and security concerns. 

The NebuAd service is architected and its operations are based on principles essential to strong privacy protection: 

• Provide users with prior, robust notice and the opportunity to express informed 

choice about whether to participate, both before the service takes effect and persistently thereafter; 

• Do not collect or use personally-identifiable information (‘‘PII’’); 

• Do not store raw data linked to identifiable individuals; and 

• Provide state-of-the art security for any information stored. 

As a result, NebuAd’s service is designed so that no one—not even the government—can determine the identity of our users. That means our service for ISP 

users, including the ad optimization and serving system, does not collect or use any 

PII. In addition, NebuAd requires its Internet service provider (‘‘ISP’’) partners to 

20 

2The anonymous user profiles do not contain any original raw data, such as URLs navigated, 

but only consist of a set of numbers that represent the anonymous inferences about the user’s 

level of qualification for a predefined set of market segment categories. 3 NebuAd understands that the definition of ‘‘sensitive’’ information will evolve. We stated in 

our comments to the FTC on the ‘‘Staff’s Proposed Principles for the Self-Regulation of Behavioral Advertising’’ that we would adopt the Staff’s definition of ‘‘sensitive’’ information, assuming 

it is not limitless. We also would consider additional reasonable limitations proposed by other 

stakeholders. 4 NebuAd has enhanced the industry-standard opt-out ‘‘cookie’’ based system with the use of 

proprietary techniques. This enables the opt-out to be more persistent. NebuAd’s entire enhanced opt-out system is linked to individual computers and browsers, and it informs users of 

this fact in assisting them in understanding the nature of their opt-out choice. 

provide robust, advance notice about our operations and our privacy protections to 

their subscribers, who at any time can exercise their choice not to participate. And, 

finally, we have located our servers in highly secure data centers. 

The NebuAd Technology and its Advertising Operations 

Currently, online advertising solutions operate in many locations throughout the 

Internet ecosystem—from users’ computers to individual websites to networks of 

websites. When an Internet user visits the sites of web publishers, like Yahoo! or 

Amazon, these sites typically collect information about the user’s activities to target 

ads based on that information. When an Internet user conducts a search, the search 

company may collect information from the user’s activity, which in turn may be 

used to improve the relevance of the ads shown. And when a user visits a website 

within an online advertising network, some of which include thousands of sites, the 

visits help the network advertising company categorize a user for targeted advertising. All of these activities are well-entrenched in the Internet and, given the enormous and growing use of the Internet, have proven to have mutual benefits for 

users, publishers—large and small—advertisers, and ad networks. 

NebuAd provides online advertising in partnership with ISPs. The NebuAd advertising service has been architected to use only a select set of a user’s Internet activities (only a subset of HTTP traffic) to construct anonymous inferences about the 

user’s level of qualification for a predefined set of market segment categories (‘‘anonymous user profiles’’), which are then used to select and serve the most relevant advertisements to that user. The NebuAd advertising service does not collect or use 

any information from password-protected sites (e.g., HTTPS traffic), web mail, email, instant messages, or VoIP traffic. Using only non-PII, NebuAd constructs and 

continuously updates these unique and anonymous user profiles.2

In the course of these business operations, NebuAd’s ad optimization and serving 

system does not collect PII or use information deemed to be sensitive (e.g., information involving a user’s financial, sensitive health, or medical matters).3 In addition, 

NebuAd requires its ISP partners to provide robust disclosure notices to users prior 

to initiating any service and permits them to opt-out of having their data collected 

and receiving targeted ads. Once a user opts-out, NebuAd deletes that user’s anonymous user profile and will ignore the user’s subsequent web navigation activity.4

Finally, NebuAd’s ad optimization and serving system operates similar to traditional ad networks. It makes standard use of cookies for accepted ad serving purposes. It makes standard use of pixel tags that operate only within the security 

framework of the browser to invoke the placement of ad network cookies and that 

contain no uniquely identifying number, subscriber identifier, or any other subscriber information. In sum, NebuAd’s code used for standard ad serving purposes 

is both clean in its purpose and function. 

The Privacy Paradigm in the United States and NebuAd’s Privacy 

Protections 

In contrast to the European Community, where omnibus privacy law covers all 

industries, in the United States, privacy statutes have been developed in a largely 

sector-specific fashion. This Committee has long been part of that trend, having 

overseen the creation of privacy statutes generally covering the cable and telecommunications industries, as well as specific statutes addressing online privacy for 

children, telemarketing, and spam. Yet, even though these and other privacy statutes have been developed one at a time, there are common threads running through 

them: 

• When more sensitive data is collected, and when the collection and disclosure 

of the data could harm or embarrass a consumer, more rigorous disclosure and 

consent requirements tend to be imposed. 

21 

5 A just released survey of U.S. Internet users by TRUSTe showed that 71 percent of online 

consumers are aware their web-surfing information may be collected for the purpose of advertising and 91 percent wanted to have the tools to assure they could protect their privacy. 

NebuAd has strived to provide users with this transparency by educating users about its activities and their choices regarding whether to participate in NebuAd’s services. 6 NebuAd seeks to ensure that users are fully informed of its activities and are given full opportunity to choose whether to participate. To that end, we are developing enhanced notification 

mechanisms. 7The user, of course, will continue to receive ads. 

• When raw data linked to an identifiable individual is stored for longer periods, 

there is an emerging trend that more rigorous disclosure, consent, and security 

requirements should be imposed. 

NebuAd supports this privacy paradigm, which provides users with consistent expectations and substantial protections. This paradigm also is technology and business-neutral, and it is the basis upon which NebuAd built its technology and operations. NebuAd urges the Committee to maintain both the paradigm and the principle of technology and business-neutrality. 

In implementing this privacy paradigm, NebuAd not only relied on the expertise 

of its own personnel, it turned to leading privacy experts, including Fran Maier, Executive Director and President of TRUSTe, the consumer privacy organization, Dr. 

Larry Ponemon of the Ponemon Institute, and Alan Chapell of Chapell & Associates. 

These experts provided important input into NebuAd’s initial privacy program. They 

were particularly stringent in recommending that NebuAd should not collect PH or 

sensitive information and that it provide consumers with robust notice and choice. 

NebuAd followed that guidance in developing our privacy program.5

The following are the key privacy protections upon which NebuAd has architected 

into its technology and based its operations: 

1. NebuAd’s service does not collect or use PII from ISP subscribers. The entire 

ad optimization and serving system does not collect or use any PII, nor does 

it collect any information from password-protected sites, web mail, e-mail, instant messages, or VoIP traffic. 

2. NebuAd stores only a set of numbers that represent the user’s level of qualification for a predefined set of market segment categories (‘‘anonymous user profiles’’). NebuAd does not store raw data such as URLs navigated or IP addresses 

associated with an identifiable individual. Rather, the NebuAd service constructs anonymous inferences about the user’s level of qualification for a 

predefined set of market segment categories, and then discards the raw data 

that was used to create or update a user’s anonymous profile. This mechanism 

of constructing anonymous inferences about the user’s level of qualification and 

not storing raw data provides a strong additional layer of privacy protection 

that goes beyond the standards used by many Internet companies today. 

3. NebuAd’s ISP Partners are required to provide robust, direct notice in advance 

of launch of the service. The notice discloses to the user that the ISP is working 

to ensure that advertisements shown will be more relevant advertisements, that 

to deliver these ads its partner creates anonymous profiles based on part of the 

user’s web-surfing behavior, which does not include the collection of PII, and 

that the user may opt-out of the service. For existing subscribers, the notice is 

required to be delivered 30 days prior to the launch of the service by postal 

mail, e-mail, or both.6 For new subscribers, the notice is required to be placed 

clearly and conspicuously in the new subscriber sign-up flow and outside the 

privacy policy. All subscribers can opt-out at any time, and ongoing disclosure 

and opportunity to opt-out is required to be provided within the ISP’s privacy 

policy. 

4. NebuAd and its ISP partners offer users advance and on-going choice of opting-out of the service. Users are provided with a clear statement of what optout means and the way it operates. Once the opt-out option is chosen, NebuAd 

honors that choice and ignores the user’s subsequent web surfing activity and 

thus does not serve the user with behaviorally targeted ads.7

5. NebuAd’s service only creates anonymous user profiles, which contain no PII 

and no raw data, and its placement of ads is completely anonymous. NebuAd 

uses proprietary algorithms and techniques, including one-way encryption of 

data, so that no one—not even NebuAd’s engineers who designed the system— 

can reverse-engineer an anonymous identifier, or the anonymous user profile associated with it, to an identifiable individual. 

22 

6. NebuAd avoids any sensitive websites or product categories. NebuAd does not 

track or serve ads based on visits related to adult content, sensitive medical information, racial or ethnic origins, religious beliefs or content of a sexual nature, and does not have market segment categories for illegal products. 

7. NebuAd does not permit either complexity of data or narrowness of data to 

be reverse-engineered into PII. This protection is accomplished because anonymous user profiles are constructed by anonymous inferences about the consumer’s level of qualification for a predefined set of market segment categories. 

Raw data is simply not stored as part of the anonymous user profile. In addition, the NebuAd service does not have narrowly-defined segments. Finally, the 

anonymous profile identifier is the result of multiple encryptions, and based on 

multiple data elements including the hashed IP address. 

8. There is no connection or link between the ISP’s registration data systems and 

NebuAd. That means that no user-specific data is exchanged between NebuAd 

and ISP data systems. This boundary is preserved further and inadvertent disclosure is prevented because NebuAd immediately performs a one-way 

encryption of the IP address and other anonymous user identifiers used within 

the NebuAd system. 

9. NebuAd installs no applications on users’ computers, has no access to users’ 

hard drives, and has no access to secure transactions. As such, NebuAd does not 

control a user’s computer or web-surfing activity in any way (e.g., by changing 

computer settings or observing private or sensitive information). 

10. NebuAd’s Data Centers are professionally operated and secured. NebuAd’s 

servers are located at secure sites with state-of-the-art protections against any 

intrusion, electronic or physical. 

NebuAd is proud of these protections—all of which were adopted to comply with 

both the spirit and letter of the government’s privacy paradigm—and, it continuously seeks to enhance them. 

Conclusion 

As I stated at the outset, I have spent years seeking to ensure that users have 

robust and transparent privacy protections. In a very real sense, NebuAd is the 

product of that work—It has adopted and implemented state-of-the-art privacy protections, and, equally as important, it has established a process to continuously improve on them. The Internet is a highly dynamic environment, where new technologies are constantly developed to address new challenges, and we both want and 

need to take advantage of them. NebuAd takes its responsibilities to its users very 

seriously. It looks forward to continuing to work with government policymakers as 

they examine online advertising and privacy issues. 

Senator DORGAN. Mr. Dykes, thank you very much. We appreciate your being here. 

Next we will hear from Ms. Leslie Harris, who is the President 

and Chief Executive Officer of the Center for Democracy and Technology. Ms. Harris, you may proceed. 

STATEMENT OF LESLIE HARRIS, PRESIDENT AND CEO, 

CENTER FOR DEMOCRACY AND TECHNOLOGY 

Ms. HARRIS. Thank you. Chairman Dorgan, Members of the Committee, I thank you for the opportunity testify today. 

I want to make three points and offer several recommendations 

for the Committee. 

First, while behavioral advertising is growing, consumers are 

largely uncomfortable with the practice and they are ill-equipped 

to take meaningful steps to protect their privacy. We do recognize 

that advertising is an important engine of Internet growth and that 

ad revenue supports a rich diversity of online content. However, 

massive increases in data processing and storage have allowed advertisers to track, collect, and aggregate information about consumers’ web browsing across sites over time and to compile individual profiles, and while each piece of consumer information in a 

23 

profile may itself not be personally identifiable, the aggregation of 

this information into rich profiles means it may be more readily 

tied to a person’s identity. 

All this is happening in an environment where more data is 

being collected, retained for longer periods of time, often in a form 

where it can be re-identified. Existing privacy protections are outstripped by technology and there is a lack of transparency about 

behavioral advertising practices and an absence of meaningful controls to help consumers make informed decisions about the use of 

their data. 

When consumers do find out about behavioral advertising, they 

are uncomfortable. In a recent study, 59 percent of the respondents 

said they were not comfortable with online companies using their 

browsing behavior to target advertising to their interests even 

when they were told that advertising supports free services. 

Second, there is an emerging behavioral advertising model that 

partners ISPs with ad networks, and this does add new legal complexity and additional risks for privacy. While online websites and 

networks can track what you see on their sites or the sites associated with their networks, an ISP model may—and I do say ‘‘may’’— 

provide access to everything you do online. And that would include 

noncommercial sites that could reveal political preferences, charitable, religious associations, and the like. 

Consumers simply do not have an expectation that their web 

traffic is being intercepted by their ISP and shared with an unknown third party for profiling. And in our view, the law does not 

permit it. We read the Wiretap Act which prohibits interception 

and disclosure of electronic communications, including the content 

of Internet traffic, to require unavoidable notice and affirmative express consent for ISP-based behavioral targeting. And many state 

communications laws require two-party consent, which further 

complicates the legal landscape. And of course, the Cable Communications Policy Act also prohibits the collection or disclosure of 

personal information without prior consent. 

The implementation that we have seen thus far completely fails 

to acknowledge, let alone comply with, these laws. No one has 

sought consent. 

Finally, self-regulation is not a full answer. CDT has always 

been supportive of self-regulation, but the Network Advertising Initiative that was launched 8 years ago has been largely a failure. 

The model fell short when it was announced. It has failed to evolve 

over time. And only now when the FTC has turned its attention to 

the issues has the Initiative proposed modest improvements. 

We acknowledge that there are a number of individual companies that have worked hard to educate and improve their users’ 

privacy. We are prepared to continue to work with them and the 

NAI to continue to improve privacy protection. 

Self-regulation was never expected to be a full solution. And 

when the NAI was created, the FTC at that point noted that backstop legislation would still be required to ensure consumers’ privacy is protected. 

We have made a number of recommendations for Committee action in our written testimony. Let me just briefly highlight a few. 

24 

1 ‘‘Behavioral Advertising on Target . . . to Explode Online,’’ eMarketer (Jun. 2007), http:// 

www.emarketer.com/Article.aspx?id=1004989. 2 No fewer than five major mergers and acquisitions have been completed in the last 18 

months: Google purchased online advertising company DoubleClick, Inc.; WPP Group, a large 

ad agency, acquired the online ad company 24/7 Real Media; Yahoo! acquired ad firm 

RightMedia; Microsoft acquired online ad service provider aQuantive; AOL purchased Tacoda, 

a pioneering firm in the area of behavioral advertising. 

First, Senator Dorgan, we agree with you that more hearings are 

necessary on the ISP question and on other questions like sensitive 

information and secondary use. 

Second, we really urge this Committee to set a goal of enacting 

general privacy legislation in the next year based on well-established fair information practices. We have been advocating for this 

for years. We think it is time to act. 

Third, we do think the FTC should issue its guidelines. We think 

they need to be enforceable whether they are under current authority or under targeted legislation. We think the Committee should 

make that clear to the FTC. 

And finally, we think Congress should encourage the FTC to investigate how technological solutions, including perhaps a ‘‘Do Not 

Track’’ regime—we were part of a group that proposed that—can 

give consumers better control over their online information. 

We do think Congress has a critical role to play in ensuring privacy protection in this increasingly complex online advertising environment, and I look forward to answering your questions. 

[The prepared statement of Ms. Harris follows:] 

PREPARED STATEMENT OF LESLIE HARRIS, PRESIDENT/CEO, 

CENTER FOR DEMOCRACY AND TECHNOLOGY

Chairman Inouye and Members of the Committee: 

On behalf of the Center for Democracy and Technology (‘‘CDT’’), I thank you for 

the opportunity to testify today. We applaud the Committee’s leadership in examining the privacy impact of new online advertising models. 

I. Summary 

CDT recognizes that advertising is an important engine of Internet growth. Consumers benefit from a rich diversity of content, services and applications that are 

provided without charge and supported by advertising revenue. However, as sophisticated new behavioral advertising models are deployed, it is vital that consumer 

privacy be protected. Massive increases in data processing and storage capabilities 

have allowed advertisers to track, collect and aggregate information about consumers’ web browsing activities, compiling individual profiles used to match advertisements to consumers’ interests. All of this is happening in the context of an online environment where more data is collected—and retained for longer periods— 

than ever before and existing privacy protections have been far outpaced by technological innovation. 

Behavioral advertising represents a small but rapidly growing part of the online 

advertising market. Market research firm eMarketer reported last year that spending on behaviorally targeted online advertising is expected to reach $1 billion this 

year and to quadruple by 2011.1 The recent spate of acquisitions of the online advertising industry’s largest players by major Internet companies is powerful evidence 

that the online advertising marketplace is headed toward more data aggregation 

tied to a single profile—and one that may be more readily tied to a person’s identity.2 And while we have yet to see evidence that this new advertising model will 

reap the promised rewards, it is already migrating from individual websites to the 

infrastructure of the Internet itself: In the last year, Internet Service Providers 

(‘‘ISPs’’) have begun to form partnerships with ad networks to mine information 

from individual web data streams for behavioral advertising. Ad networks that partner with ISPs could potentially collect and record every aspect of a consumer’s web 

browsing, including every web page visited, the content of those pages, how long 

25 

each page is viewed, and what links are clicked. E-mails, chats, file transfers and 

many other kinds of data could all be collected and recorded. 

The ISP model raises particularly serious questions. Thus far, implementations 

appear to defy reasonable consumer expectations, could interfere with Internet 

functionality, and may violate communications privacy laws. 

Notwithstanding the recent growth of behavioral advertising, most Internet users 

today do not know that their browsing information may be tracked, aggregated and 

sold. After almost a decade of self-regulation, there is still a profound lack of transparency associated with these practices and an absence of meaningful consumer controls. 

There are several efforts underway to respond to the new online advertising environment. First, the Federal Trade Commission staff recently released a draft of proposed principles for self-regulation, which represent a solid step forward. However, 

it is not clear whether the FTC will formally adopt the principles or put its enforcement power behind them. 

The Network Advertising Initiative (‘‘NAI’’) is also in the process of revising its 

guidelines. This is a welcome but long-overdue development. Unfortunately, self-regulation has not worked to date and, even if strengthened, will never by itself fully 

protect consumers’ privacy interests. 

Congress needs to take a comprehensive look at the current and emerging practices associated with behavioral advertising and the risks those practices pose to 

consumer privacy and control. We recommend that Congress take the following 

steps to address the significant privacy concerns raised by behavioral advertising: 

• The Committee should hold a series of hearings to examine specific aspects of 

behavioral advertising, in particular the growing involvement of ISPs, the use 

of sensitive information, and secondary uses of behavioral profiles. 

• The Committee should set a goal of enacting in the next year a simple, flexible 

baseline consumer privacy law that would protect consumers from inappropriate 

collection and misuse of their personal information, both online and offline. 

• The Committee should strongly urge the Federal Trade Commission to exercise 

its full enforcement authority over online advertising practices. 

• Congress should examine and strengthen existing communications privacy laws 

to cover new services, technologies and business models with consistent rules. 

The Electronic Communications Privacy Act (‘‘ECPA’’) is decades old, and its application in today’s online world is often unclear. 

• Congress should encourage the FTC to investigate how technology can be harnessed to give consumers better control over their online information. Simple 

tools that put consumers in controls of their information, such as a ‘‘Do Not 

Track’’ list, deserve consideration. 

II. Understanding Online Advertising Practices 

Commercial websites that supply content to consumers free of charge are often 

supported by online advertising. These sites—known as ‘‘publishers’’ in the advertising world—make available certain portions of space on their pages to display ads. 

That space is sold to advertisers, ad agencies, or online ad intermediaries that find 

and place advertisements into the space. These intermediaries may also make arrangements to collect information about user visits to the publisher pages. Since 

very few publishers supply their own advertising, it is common that when a consumer visits a publisher site, the consumer’s computer also connects to one or more 

advertisers, ad agencies, or ad intermediaries to send data about the consumer’s 

visit to the site and receive the advertising on the site. 

One type of ad intermediary is known as an ‘‘advertising network.’’ At their most 

basic level, ad networks contract with many different publishers on one side and 

many different advertisers on the other. Armed with a pool of space in which to display ads on publisher sites, and a pool of ads to display, ad networks are in the 

business of matching up the two by using the data they collect about consumers’ 

site visits. 

A. Contextual Advertising 

There are many different ways for an ad network to determine which advertisement should be placed in which space. The two most often discussed are ‘‘contextual’’ advertising and ‘‘behavioral’’ advertising. Contextual advertising, which is 

often used to generate ads alongside search results, matches advertisements to the 

content of the page that a consumer is currently viewing—a consumer who visits 

a sports site may see advertisements for golf clubs or baseball tickets on that site. 

The privacy risks associated with contextual advertising vary. If the practice is 

transparent to the user and data collection and retention is minimal, the practice 

26 

3Michael Barbaro and Tom Zeller, Jr., ‘‘A Face Is Exposed for AOL Searcher No. 4417749,’’ 

The New York Times (Aug. 2006), http://www.nytimes.com/2006/08/09/technology/ 09aol. 

html?lr=1&ex=1312776000&adxnnl=1&oref=slogin&adxnnlx=1215021816 

2Dj7kbrLxHU1hCdcMyNqHEbA. 4See, e.g., Microsoft, Privacy Protections in Microsoft’s Ad Serving System and the Process of 

‘‘De-identification’’ (Oct. 2007), http://download.microsoft.com/download/3/1/d/31df6942-ed99 

-4024-a0e0-594b9d27a31a/Privacy%20Protections%20in%20Microsoft%27s%20Ad%20serving%20 

system%20 and%20the%20Process%20of%20De-Identification.pdf. 5 Acxiom runs Relevance-X, an online ad network. Last year Experian acquired the online 

data analysis company Hitwise. See Acxiom, Acxiom: Relevance-X (last visited Jul. 2008), 

http://www.acxiom.com/Relevance-X; Experian, ‘‘Acquisition of Hitwise’’ (Apr. 2007), http:// 

www.experiangroup.com/corporate/ news/releases/2007/2007-904-17b/. 6See, e.g., Peter Whoriskey, ‘‘Every Click You Make,’’ The Washington Post (Apr. 2008), 

http://www.washingtonpost.com/wp-dyn/content/article/2008/04/03/AR2008040304052.html? 

nav=hcmodule; Saul Hansell, ‘‘I.S.P. Tracking: The Mother of All Privacy Battles,’’ The New 

poses little risk. By contrast, privacy concerns are heightened if the user data is retained in an identifiable or pseudonymous form (i.e., linked to a user identifier) for 

long periods of time even if it is not immediately used to create advertising profiles. 

B. Behavioral Advertising 

By contrast, behavioral advertising matches advertisements to the interests of the 

consumer as determined over time. If a consumer visits several different travel sites 

before viewing a news site, he or she might see a behaviorally targeted travel advertisement displayed on the news page, even if the news page contains no travel content. A traditional behavioral ad network builds up profiles of individual consumers 

by tracking their activities on publisher sites in the network (although this model 

is evolving, as we discuss below). When the consumer visits a site where the ad network has purchased ad space, the ad network collects data about that visit and 

serves an advertisement based on the consumer’s profile. Diagrams illustrating this 

process are included in Appendix A. 

Consumers’ behavioral advertising profiles may incorporate many different kinds 

of data that are in and of themselves not personally identifiable. Many networks 

avoid linking profiles to what has traditionally been considered ‘‘personally identifiable information’’ (‘‘PII’’): names, addresses, telephone numbers, e-mail addresses, 

and other identifiers. But as the comprehensiveness of consumer advertising profiles 

increases, the ability of marketers and others to link specific individuals to profiles 

is also growing. In 2006, for example, AOL released 3 months’ worth of search queries generated by half a million users; in the interest of preserving users’ anonymity, AOL replaced individuals’ screen names with numbers. Based solely on search 

terms associated with one number, reporters at The New York Times were able to 

pinpoint the identity of the user who generated them.3 The risk of supposedly nonpersonally identifying data being used to identify individuals has spurred several ad 

networks to take extra steps to de-identify or remove personal information from 

their data storage.4

Profiles may also be intentionally tied to PII. For example, data collected online 

by a merchant or by a service provider may permit an advertising profile to be tied 

to an individual’s e-mail account. Offline data may also be merged with online profiles. For years, data service companies have maintained profiles about consumers 

based on information gleaned from public sources such as property and motor vehicle records, as well as records from sources like catalog sales and magazine subscriptions. These data companies are now also entering the online advertising business, potentially allowing the linking of online and offline profiles.5

C. The Evolution of Behavioral Advertising—More Data, More Data Sources 

As noted above, recent market consolidation facilitates more comprehensive data 

collection. Companies that run consumers’ favorite web-based services—web search, 

web mail, maps, calendars, office applications, and social networks—have all purchased behavioral advertising networks within the last year. In the past, major 

Internet companies could gather information about how an individual used its services and applications such as search, but did not have direct access to information 

about the user’s other web browsing habits. With the acquisition of behavioral advertising networks, these companies could potentially marry the rich data about an 

individual’s use of one site with a broad view of his or her activities across the web. 

The concerns about this aggregation of consumer data are heightened because many 

online companies retain data for months or years on end in identifiable or pseudonymous form, creating a host of privacy risks. 

Finally, ad networks are now turning to the most comprehensive and concentrated 

source of information about Internet use: the individual web data streams that flow 

through ISPs.6 In this emerging model, the ISP intercepts or allows an ad network 

27 

York Times: Bits Blog (Mar. 2008) at http://bits.blogs.nytimes.com/2008/03/20/isp-trackingthe-mother-of-all-privacy-battles/?scp =1-b&sq=the+mother+of+all+privacy+battles&st=nyt. 7 Alan F. Westin, How Online Users Feel About Behavioral Marketing and How Adoption of 

Privacy and Security Policies Could Affect Their Feelings (Mar. 2008). 8TRUSTe, ‘‘TRUSTe Report Reveals Consumer Awareness and Attitudes About Behavioral 

Targeting’’ (Mar. 2008), http://www.marketwire.com/mw/release.do?id=837437&sourceType=1 

(‘‘71 percent of online consumers are aware that their browsing information may be collected 

by a third party for advertising purposes. . . . 57 percent of respondents say they are not comfortable with advertisers using that browsing history to serve relevant ads, even when that information cannot be tied to their names or any other personal information.’’). 9 Am. Fed’n of Gov’t Employees v. Hawley, D.D.C., No. 07–00855, 3/31/08 (ruling, inter alia, 

that concerns about identity theft, embarrassment, inconvenience, and damage to financial suitability requirements after an apparent data breach constituted a recognizable ‘‘adverse effect’’ 

under the Privacy Act, 5 U.S.C. § 552(a) (citing Kreiger v. Dep’t of Justice, 529 F.Supp.2d 29, 

53 (D.D.C. 2008)). 10See Louise Story, ‘‘Online Pitches Made Just For You,’’ The New York Times (Mar. 2008), 

http://www.nytimes.com/2008/03/06/business/media/06adco.html. 

to intercept the content of each individual’s web data stream. The ad network then 

uses this traffic data for behavioral advertising, serving targeted ads to the ISP’s 

customers on publisher sites as the customers surf the web. We address the unique 

issues posed by this advertising model in detail below. 

III. The Privacy Risks of Behavioral Advertising 

Behavioral advertising poses a growing risk to consumer privacy; consumers are 

largely unaware of the practice and are thus ill equipped to take protective action. 

They have no expectation that their browsing information may be tracked and sold, 

and they are rarely provided sufficient information about the practices of advertisers 

or others in the advertising value chain to gauge the privacy risks and make meaningful decisions about whether and how their information may be used. In a recently released Harris Interactive/Alan F. Westin study, 59 percent of respondents 

said they were not comfortable with online companies using their browsing behavior 

to tailor ads and content to their interests even when they were told that such advertising supports free services.7 A recent TRUSTe survey produced similar results.8

It is highly unlikely that these respondents understood that this type of ad targeting 

is already taking place online every day. 

In most cases, data collection for behavioral advertising operates on an opt-out 

basis. Opt-out mechanisms for online advertising are often buried in fine print, difficult to understand, hard to execute and technically inadequate. Only the most sophisticated and technically savvy consumers are likely to be able to successfully negotiate such opt-out processes. Moreover, in most cases, opt-out mechanisms offered 

for behavioral advertising only opt the user out of receiving targeted ads, but do not 

opt the user out of data collection about his or her Internet usage. 

For behavioral advertising to operate in a truly privacy-protective way, data collection needs to be limited and data retention limits should be tied to the original 

purposes for collecting the data. Consumers need to be informed about what data 

is being collected about their Internet activities, how the information will be used, 

whether the information will be shared with others, and what measures are being 

taken to ensure that any transfer of data remains secure. They should be presented 

with this information in a manner that supports informed choice over their information and that choice should be honored persistently over time. Consumers must also 

have opportunities for legal redress for misuse of the data. As a recent D.C. District 

Court opinion established, data leakage and the concern for potential abuses of that 

data are recognizable harms standing alone, without any need to show misuse of 

the data.9 Consumers do not need to become victims of identity theft to suffer from 

an invasion of privacy. 

There is also a risk that profiles for behavioral advertising may be used for purposes other than advertising. For example, ad networks that focus on ‘‘re-targeting’’ 

ads may already be using profiles to help marketers engage in differential pricing.10

Behavioral profiles, particularly those that can be tied to an individual, may also 

be a tempting source of information in making decisions about credit, insurance, 

and employment. While the lack of transparency makes it almost impossible to 

know whether behavioral profiles are being used for other purposes, the lack of enforceable rules around the collection and use of most personal information leaves the 

door wide open for a myriad of secondary uses. 

Finally, because the legal standards for government access to personal information held by third parties are extraordinarily low, these comprehensive consumer 

28 

11See Center for Democracy and Technology, Digital Search & Seizure: Updating Privacy Protections to Keep Pace with Technology (2006), http://www.cdt.org/publications/digital-searchand-seizure.pdf at 7–9; Deirdre K. Mulligan, ‘‘Reasonable Expectations in Electronic Communications: A Critical Perspective on the Electronic Communications Privacy Act,’’ 72 Geo. Wash. 

L. Rev. 1557 (Aug. 2004); Daniel J. Solove, ‘‘Digital Dossiers and the Dissipation of Fourth 

Amendment Privacy,’’ 75 S. Cal. L. Rev. 1083, 1135 (2002). 12See Center for Democracy and Technology, Digital Search & Seizure: Updating Privacy Protections to Keep Pace with Technology (2006), http://www.cdt.org/publications/digital-searchand-seizure.pdf at 23–29. 

profiles are available to government officials by mere subpoena, without notice to 

the individual or an opportunity for the individual to object.11

IV. The Use of Sensitive Information for Behavioral Advertising 

The concerns about behavioral advertising practices are heightened because of the 

increasingly sensitive nature of the information that consumers are providing online 

in order to take advantage of new services and applications. Two data types of particular concern are health information and location information. 

A. Personal Health Information—Increasingly Available Online 

Personal health data is migrating online through an ever-expanding array of 

health information and search sites, online support groups, and personal health 

record sites. Federal privacy rules under the Health Information Portability and Accountability Act (‘‘HIPAA’’) do not cover personal health information once it moves 

online and out of the control of HIPAA-covered entities. Once it is posted online, 

it may have no more legal protection than any other piece of consumer information. 

In addition, information provided by consumers that is not part of a ‘‘medical 

record’’—such as search terms—may nevertheless reveal highly sensitive information. We do not know the full extent to which personal health data is being collected 

for behavioral advertising. We do know that the limits placed on its collection by 

the industry are inadequate and that there is an urgent need to develop a definition 

for personal health information in the Internet context that is robust enough to protect privacy. 

B. Location Information—Not Always Protected By Current Law 

As technologies converge and Internet services are provided over cellular phones 

and other mobile devices, the ability to physically locate consumers is spurring location-based advertising, targeted to where a user is at any given moment. Plans to 

incorporate location information into behavioral advertising are still in development. 

Although laws exist to protect location information collected by telecommunications 

carriers, applications providers are increasingly offering location-based services that 

fall completely out of that legal framework. Standards for government access to location information are also unclear, even as law enforcement has shown a greater interest in such information.12

V. The Emerging Use of ISP Data for Behavioral Advertising 

The use of ISP data for behavioral advertising is one area that requires close scrutiny from lawmakers. The interception and sharing of Internet traffic content for behavioral advertising defies reasonable user expectations, can be disruptive to Internet and Web functionality, and may run afoul of communications privacy laws. 

A. How ISP Data is Used for Behavioral Advertising 

In this new model, an ad network strikes a deal with an ISP that allows the network to receive the contents of the individual web traffic streams of each of the 

ISP’s customers. The ad network analyzes the content of the traffic in order to create a record of the individual’s online behaviors and interests. As customers of the 

ISP surf the Web and visit sites where the ad network has purchased ad space, they 

see advertisements targeted based on their previous Internet behavior. While the 

model as it exists today involves an ISP contracting with a third party that operates 

such an ad network, it would also be possible for ISPs to do the traffic content inspection, categorization, and advertising delivery themselves. 

B. Privacy Implications of the Use of ISP Data for Behavioral Advertising 

The privacy implications of behavioral advertising at large are amplified in this 

ISP model. Ad networks that partner with ISPs may potentially gain access to all 

or substantially all of an individual’s Web traffic as it traverses the ISP’s infrastructure, including traffic to all political, religious, and other non-commercial sites. 

While traditional ad networks may be large, few if any provide the opportunity to 

collect information about an individual’s online activities as comprehensively as in 

the ISP model, particularly with respect to activities involving non-commercial conVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
29 

13Saul Hansell, ‘‘Charter Suspends Plan to Sell Customer Data to Advertisers,’’ The New York 

Times: Bits Blog (Jun. 2008), http://bits.blogs.nytimes.com/2008/06/24/charter-suspends-planto-sell-customer-data-to-advertisers/?scp=3-b&sq=charter+nebuad&st=nyt. 14 Chris Williams, ‘‘CPW builds wall between customers and Phorm,’’ The Register (Mar. 

2008), http://www.theregister.co.uk/2008/03/11/ phormlshareslplummet/. 15 Robert M. Topolski, NebuAd and Partner ISPs: Wiretapping, Forgery and Browser Hijacking, Free Press and Public Knowledge (Jun. 2008), http://www.publicknowledge.org/ pdf/ 

nebuad-report-20080618.pdf. 16 Richard Clayton, The Phorm ‘‘Webwise’’ System (May 2008), http://www.cl.cam.ac.uk/rnc1/ 

080518-phorm.pdf. 17These types of behaviors have much in common with well-understood online security 

threats, and parts of the Internet security community are already investigating how to respond. 

See Anti-Spyware Coalition, ‘‘Anti-Spyware Coalition Aims to Address Behavioral Targeting’’ 

(Apr. 2008), http://antispywarecoalition.org/newsroom/20080425press.htm. 18 18 U.S.C. § 2511. 

tent. And although these ad networks currently inspect predominantly Web traffic, 

ISPs carry e-mails, chats, file transfers and many other kinds of data that they 

could decide to pass on to behavioral ad networks in the future. 

Moreover, the use of Internet traffic content for behavioral advertising defies user 

expectations about what happens when they surf the Web and communicate online. 

Absent unmistakable notice, consumers simply do not expect their ISP or its partners to be looking into the content of their Internet communications. Finding out 

that there is a middleman lurking between consumers and the websites they visit 

would come as a unwelcome surprise to most Internet users. ISPs are a critical part 

of the chain of trust that undergirds the Internet. Giving an unknown third party 

broad access to all or most consumer communications may undermine that trust. 

C. Current Implementations May Interfere With Normal Internet Use 

Despite these concerns, several ad network companies are moving forward with 

plans to use ISP data for behavioral advertising. The two most prominent ad networks engaged in this practice are NebuAd in the United States and Phorm in the 

UK. Charter Communications, a cable broadband ISP, recently announced—and 

then delayed—a plan to conduct trials of the NebuAd behavioral advertising technology.13 Several other ISPs, such as Wide Open West (WOW!), CenturyTel, Embarq 

and Knology also announced plans with NebuAd to trial or deploy its behavioral advertising technology. Although a number of these ISPs have put their plans on hold 

in the wake of a firestorm of criticism, NebuAd continues to work with U.S. ISPs 

and seek new ISP partners. Phorm, which originally announced deals with three of 

the UK’s largest ISPs and has sought partnerships with U.S. ISPs, is also now encountering hesitation from some of its partners.14

Independent analyses of both companies’ systems have revealed that by virtue of 

their ability to intercept Internet traffic in the middle of the network—and based 

on their desire to track individual Internet users—they engage in an array of practices that are inconsistent with the usual flow of Internet traffic. NebuAd reportedly 

injects computer code into Web traffic streams that causes numerous cookies to be 

placed on users’ computers for behavioral tracking, none of which are related to or 

sanctioned by the websites the users visit.15 When a user navigates to a particular 

website, Phorm reportedly pretends to be that website so that it can plant a behavioral tracking cookie linked to that site on the user’s computer.16 In addition to the 

privacy implications of tracking all of an individual’s Web activities, this kind of 

conduct has the potential to create serious security vulnerabilities in the network,17

hamper the speed of users’ Internet connections, and interfere with ordinary Web 

functionality. At a time when many different kinds of companies are working to 

build a trusted computing platform for the Internet, having ISPs work with partners 

whose practices undermine trust raises future cyber-security concerns. 

D. Current Implementations May Violate Federal Law 

Depending on how this advertising model is implemented, it may also run afoul 

of existing communications privacy laws. The Federal Wiretap Act, as amended by 

the Electronic Communications Privacy Act (‘‘ECPA’’), prohibits the interception and 

disclosure of electronic communications—including Internet traffic content—without 

consent.18 Although exceptions to this rule permit interception and disclosure without consent, we seriously doubt that any of them apply to the interception or disclosure of Internet traffic content for behavioral advertising purposes. Accordingly, we 

believe that the Wiretap Act requires unavoidable notice and affirmative opt-in consent before Internet traffic content may be used from ISPs for behavioral advertising purposes. Certain state laws may take this one step further, requiring consent 

from both parties to the communication: the consumer and the website he or she 

is visiting. A detailed CDT legal memorandum on the application of the Wiretap 

30 

19 House Representative Edward Markey and House Representative Joe Barton, Letter to 

Charter Communications CEO in Regards to the Charter-NebuAd Data Collection Scheme (May 

2008) http://markey.house.gov/docs/telecomm/ letterlcharterlcommlprivacy.pdf. A 1992 

amendment adding the phrase ‘‘other services’’ to the Cable Act’s privacy provision made it clear 

that the law covers Internet services provided by cable operators. 20 47 U.S.C. § 551(b)–(c). 21 Id. § 551(a)(2)(A). 22 Id. § 551(a)(2)(B). 23See Mike Masnick, ‘‘Where’s The Line Between Personalized Advertising And Creeping People Out?,’’ TechDirt (Mar. 2008), http://www.techdirt.com/articles/ 20080311/121305499.shtml; 

Peter Whoriskey, ‘‘Every Click You Make,’’ The Washington Post (Apr. 2008), http:// 

www.washingtonpost.com/wp-dyn/content/article/2008/04/03/AR2008040304052.html?nav=hc 

module. 24Federal Trade Commission, Online Profiling: A Report to Congress (Jul. 2000), http:// 

www.ftc.gov/os/2000/07/onlineprofiling.htm. 25The drawbacks of opt-out cookies have been well documented: they are confusing for the 

majority of consumers who do not understand the technology and counter-intuitive to those who 

are accustomed to deleting their cookies to protect their privacy. Cookies are susceptible to accidental deletion and file corruption. While the NAI is in the process of updating the principles, 

it has not proposed changes to the opt-out regime. See Center for Democracy and Technology, 

Applying the FTC’s Spyware Principles to Behavioral Advertising: Comments of the Center for 

Act, ECPA and relevant state wiretap laws to the use of ISP data for behavioral 

advertising is attached as Appendix B. 

As several Members of Congress have noted, the Cable Communications Policy 

Act also applies here.19 The law prohibits cable operators from collecting or disclosing personally identifiable information without prior consent 20 While the term 

‘‘personally identifiable information’’ in the law is defined by what it does not include—‘‘any record of aggregate data which does not identify particular persons’’ 21— we doubt that a user’s entire Web traffic stream, unique to that individual, often 

containing both PII and non-PII, would be considered aggregate data as that term 

is commonly understood. 

We do not believe that it is possible to shoehorn the collection and disclosure of 

a subscriber’s entire browsing history for advertising purposes into the statute’s exception for collection or disclosure of information that is necessary to render service.22 Thus, we conclude that cable-based ISPs that wish to disclose customer information to advertising networks would also have to meet the consent requirements 

of the Cable Communications Policy Act. 

The ISP models that have been deployed thus far have failed to obtain affirmative, express opt-in consent required by law. Several small U.S. ISPs, for example, 

have failed to meet this threshold requirement, burying vague information about 

their deals with NebuAd in the ISPs’ terms of service.23 Charter Communications, 

the largest U.S. ISP that had planned to partner with NebuAd, notified its subscribers that they would be receiving more relevant ads, but did not explain its 

plans to intercept subscribers’ traffic data, and did not provide a way for subscribers 

to give or withhold consent. Charter has since suspended its plans. 

Designing a robust opt-in consent system for ISP-based behavioral advertising 

presents a formidable challenge. We are less than sanguine that such a system can 

be easily designed, particularly since it must not only provide a way for consumers 

to give affirmative consent, but it must also provide a method for them to revoke 

that consent. The burden is on those who wish to move forward with the model to 

demonstrate that an express notice and consent regime can work in this context. 

VI. The Limits of Self-Regulation 

For almost a decade, the primary privacy framework for the behavioral advertising industry has been provided by the Network Advertising Initiative, a self-regulatory group of online advertising networks formed in response to pressure from the 

Federal Trade Commission and consumer advocates in the wake of privacy concerns 

over the merger of ad network DoubleClick and Abacus, an offline data broker. NAI 

members agree to provide consumers with notice and, at minimum, a method to opt 

out of behavioral advertising. They further pledged to use information collected only 

for marketing purposes. While at the time of their release CDT welcomed the NAI 

principles as an important first step, we also noted then that there were flaws in 

the approach that needed to be addressed and that self-regulation was not a complete solution. The FTC agreed, concluding in its July 2000 report to Congress that 

‘‘backstop legislation addressing online profiling is still required to fully ensure that 

consumers’ privacy is protected online.’’ 24 That remains true today. 

Eight years after the creation of the principles, few consumers are aware of behavioral advertising and fewer still have been able to successfully navigate the confusing and complex opt-out process.25 Although individual NAI companies have 

31 

Democracy and Technology in regards to the FTC Town Hall, ‘‘Ehavioral Advertising: Tracking, 

Targeting, and Technology’’ (Oct. 2007), http://www.cdt.org/privacy/20071019CDTcomments 

.pdf at 8. 26See, e.g., AOL, Mr. Penguin (last visited Jul. 2008), http://corp.aol.com/o/mr-penguin/; 

Yahoo!, Customized Advertising (last visited Jul. 2008), http://info.yahoo.com/relevantads/; 

Google, The Google Privacy Channel (last visited Jul. 2008), http://youtube.com/user/ 

googleprivacy. 27 Center for Democracy and Technology, Comments Regarding the NAI Principles 2008: The 

Network Advertising Initiative’s Self-Regulatory Code of Conduct for Online Behavioral Advertising (June 2008), http://www.cdt.org/privacy/20080612lNAIlcomments.pdf at 6–9. 28 CDT testing has revealed that only a tiny fraction of companies that collect data that could 

be used for behavioral advertising are NAI members. See Center for Democracy and Technology, 

Statement of The Center for Democracy and Technology before The Antitrust, Competition Policy 

and Consumer Rights Subcommittee of the Senate Committee on the Judiciary on ‘‘An Examination of the Google-DoubleClick Merger and the Online Advertising Industry: What Are the Risks 

for Competition and Privacy?’’ (Sept. 2007), http://www.cdt.org/privacy/20070927committeestatement.pdf. 29See Pam Dixon, The Network Advertising Initiative: Failing at Consumer Protection and at 

Self-Regulation (Nov. 2007), http://www.worldprivacyforum.org/pdf/WPFlNAIlreportl 

Nov2l2007fs.pdf at 16–17. 

launched their own consumer awareness initiatives, more work remains to be 

done.26 For those consumers who successfully opt out, the NAI’s reliance on flawed 

opt-out cookies means that user preferences are often not persistently honored. 

In addition, the NAI’s guidelines for the use of sensitive information have never 

been adequate to guard consumer privacy. Until recently, the definition was limited 

to a narrowly defined set of PII. While the definition is being revised, it still falls 

far short of what is needed to address the increasingly sensitive nature of consumer 

information online.27

Finally, the NAI principles only apply to companies that voluntarily join the Initiative. The NAI has no way to force companies to join; the current membership is 

missing numerous behavioral advertising firms, including some key industry players. In addition, measures to ensure compliance and transparency have withered on 

the vine.28 The original NAI principles provided for independent audits and enforcement against noncompliant members, but the audit results were never made public, 

and reporting on compliance with the principles has been inconsistent.29

For all these reasons, while we encourage more robust self-regulatory efforts, we 

continue to have doubts about the effectiveness of the self-regulatory framework. As 

online advertising becomes increasingly complex and data collection becomes more 

pervasive, Congress and the FTC must step in to ensure that consumer interests 

are fully protected. 

VII. The Role of Congress 

Congress should take action to address the significant privacy concerns raised by 

behavioral advertising: 

• As a first step, we urge the Committee to hold a series of hearings to examine 

specific aspects of behavioral advertising. In particular, we believe that further 

investigation of new models of behavioral advertising using ISP data is warranted, and that the Committee should explore how current laws such as ECPA, 

the Wiretap Act and the Cable Communications Policy Act apply. Secondary 

uses of behavioral advertising profiles for purposes other than marketing also 

deserve additional investigation and scrutiny, as does the use of sensitive information. 

• This Committee should set a goal of enacting in the next year general privacy 

legislation covering both the online and offline worlds. CDT has long argued for 

simple, flexible baseline consumer privacy legislation that would protect consumers from inappropriate collection and misuse of their personal information 

while enabling legitimate business use to promote economic and social value. In 

principle, such legislation would codify the fundamentals of fair information 

practices, requiring transparency and notice of data collection practices, providing consumers with meaningful choice regarding the use and disclosure of 

that information, allowing consumers reasonable access to personal information 

they have provided, providing remedies for misuse or unauthorized access, and 

setting standards to limit data collection and ensure data security. 

• The Federal Trade Commission has played a helpful role in consumer education 

efforts around behavioral advertising. But it also must exercise its authority 

under its deception and unfairness jurisdiction to issue enforceable guidelines 

for behavioral advertising. We ask the Committee to strongly urge the CommisVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
32 

30See Pam Dixon et al, Consumer Rights and Protections in the Behavioral Advertising Sector 

(Oct. 2007), http://www.cdt.org/privacy/20071031consumerprotectionsbehavioral.pdf. 

sion to exercise the full measure of its enforcement authority over online advertising practices. 

• Congress should also examine and strengthen existing communications privacy 

laws to cover new services, technologies and business models with consistent 

rules. ECPA was passed more than 20 years ago, long before there was a World 

Wide Web and the Internet became integrated into Americans’ daily lives. The 

application of the law to common online activities including Web search remains 

unclear and the legal protections it provides for the enormous amounts of personal data stored online are far too low. 

• Finally, Congress should encourage the FTC to investigate how technology can 

be harnessed to give consumers better control over their online information. The 

lack of effective controls and the difficulty that consumers have in exercising 

choice about their participation in online tracking and targeting was the motivation behind the ‘‘Do Not Track’’ list idea proposed by CDT and nine other consumer and privacy groups.30 Although the proposal has been controversial, the 

idea behind Do Not Track is both simple and important: provide consumers 

with an easy-to-use, technology-neutral, persistent way to opt out of behavioral 

advertising. Congress should promote further study of this idea and other innovative ways to put consumers in control of their information. 

VIII. Conclusion 

I would like to thank the Committee again for holding this important hearing. We 

believe that Congress has a critical role to play in ensuring that privacy is protected 

in an increasingly complex online advertising environment. CDT looks forward to 

working with the Committee as it pursues these issues further. 

APPENDIX A 

Simplified Illustration of a Traditional Online Ad Network 

Figure 1 below shows a simplified version of a traditional online ad network. Ad 

networks contract with advertisers on one side and publishers on the other. They 

take the ads they receive from advertisers and match them to open ad spaces on 

publisher sites. 

Figure 1. 


709HARR1.eps
33 

Figure 2 shows how an ad network collects data about a consumer’s web activities. When the consumer first visits a publisher site in the network (SF-hotel-review.com), the ad network places a cookie with a unique ID (12345) on the consumer’s computer. When the user subsequently visits other publisher sites in the 

network (including dogzblogs.com and social-network.net), the cookie containing the 

ID is automatically transmitted to the ad network. This allows the ad network to 

keep track of what sites the consumer has visited and build a behavioral profile 

based on that information, linked to the cookie ID. 

Figure 2. 

APPENDIX B 

An Overview of the Federal Wiretap Act, Electronic Communications 

Privacy Act, and State Two-Party Consent Laws of Relevance to the 

NebuAd System and Other Uses of Internet Traffic Content from ISPs 

for Behavioral Advertising—July 8, 2008 

Much of the content on the Internet (just like content in newspapers, broadcast 

TV, radio and cable) is supported in whole or part by advertising revenue. The 

Internet offers special opportunities to target ads based on the expressed or inferred 

interests of the individual user. There are various models for delivering targeted ads 

online. These range from the purely contextual (everyone who visits a travel site 

sees the same airline ad) to models that involve compiling information about the 

online behavior of individual Internet users, to be used in serving them advertisements. For years, websites have entered into agreements with advertising networks 

to use ‘‘cookies’’ to track individual users across websites in order to compile profiles. This approach has always been, and remains, a source of privacy concern, in 

part because the conduct usually occurs unbeknownst to most Internet users. Recent 

developments, including the mergers between online service providers and some of 

the largest online advertising networks, have heightened these concerns. The Center 

for Democracy and Technology has been conducting a major project on behavioral 

advertising, in which we have been researching behavioral advertising practices, 

consulting with Internet companies and privacy advocates, developing policy proposals, filing extensive comments at the FTC, and analyzing industry self-regulatory 

guidelines. 

This memo focuses on the implications of a specific approach to behavioral advertising being considered by Internet advertising networks and Internet Service Providers (ISPs). This new approach involves copying and inspecting the content of 


709HARR2.eps
34 

31See, e.g., Peter Whoriskey, Every Click You Make, Wash. Post (Apr. 3, 2008), http:// 

www.washingtonpost.com/wpdyn/content/article/2008/04/03/AR2008040304052.html?nav=hc 

module; Saul Hansell, I.S.P. Tracking: The Mother of All Privacy Battles, N.Y. Times: Bits Blog 

(Mar. 20, 2008), http://bits.blogs.nytimes.com/2008/03/20/isp-tracking-the-mother-of-all-privacy-battles/?scp=1-b&sq= the+mother+of+all+privacy+battles&st=nyt. 32Privacy concerns also apply to advertising-based models that have been developed for services, such as e-mail, that ride over ISP networks. See CDT Policy Post 10.6, Google GMail Highlights General Privacy Concerns, (Apr. 12, 2004), http://www.cdt.org/publications/policyposts/ 

2004/6 (recommending express prior opt-in for advertising-based e-mail service). 33 Additional questions have been raised under the Cable Communications Policy Act. See Rep. 

Edward Markey and Rep. Joe Barton, Letter to Charter Communications CEO in Regards to the 

Charter-NebuAd Data Collection Scheme (May 2008), http://markey.house.gov/docs/telecomm/ 

letterlcharterlcommlprivacy.pdf. In this memo, we focus on issues arising under the Federal 

Wiretap Act, as amended by the Electronic Communications Privacy Act. 34 18 U.S.C. §§ 2510–2522. 35 Id. § 2510(12). 

each individual’s Internet activity with the cooperation of his or her ISP.31 Under 

this new model, an advertising network strikes a deal with an ISP, and the ISP allows the network to copy the contents of the individual Web traffic streams of each 

of the ISP’s customers. The advertising network analyzes the content of these traffic 

streams in order to create a record of each individual’s online behaviors and interests. Later, as customers of the ISP surf the Web and visit sites where the advertising network has purchased advertising space, they see ads targeted based on 

their previous Internet behavior. 

NebuAd is one such advertising network company operating in the United States. 

In the past few months, it has come to light that NebuAd was planning to partner 

with Charter Communications, a cable broadband ISP, to conduct trials of the 

NebuAd behavioral advertising technology. Several other smaller ISPs, such as 

Wide Open West (WOW!), CenturyTel, Embarq, and Knology, have also announced 

plans with NebuAd to trial or deploy its behavioral advertising technology. In response to concerns raised by subscribers, privacy advocates, and policymakers, 

Charter, CenturyTel and Embarq have delayed these plans, but NebuAd and other 

similar companies are continuing to seek new ISP partners. 

The use of Internet traffic content from ISPs for behavioral advertising is different from the ‘‘cookie’’-based model in significant ways and raises unique concerns.32 Among other differences, it copies all or substantially all Web transactions, 

including visits to sites that do not use cookies. Thus, it may capture not only commercial activity, but also visits to political, advocacy, or religious sites or other noncommercial sites that do not use cookies. 

In this memo, we conclude that the use of Internet traffic content from ISPs may 

run afoul of Federal wiretap laws unless the activity is conducted with the consent 

of the subscriber.33 To be effective, such consent should not be buried in terms of 

service and should not be inferred from a mailed notice. We recommend prior, express consent, but we do not offer here any detailed recommendations on how to obtain such consent in an ISP context. Also, we note that that the California law requiring consent of all the parties to a communication has been applied by the state 

Supreme Court to the monitoring of telephone calls when the monitoring is done at 

a facility outside California. The California law so far has not been applied to Internet communications and it is unclear whether it would apply specifically to the 

copying of communications as conducted for behavioral monitoring purposes, but if 

it or another state’s all-party consent rule were applied to use of Internet traffic for 

behavioral profiling, it would seem to pose an insurmountable barrier to the practice. 

I. Wiretap Act 

A. Service Providers Cannot ‘‘Divulge’’ The Contents of Subscriber Communications, 

Except Pursuant to Limited Exceptions 

The Federal Wiretap Act, as amended by the Electronic Communications Privacy 

Act, protects the privacy of wire, oral, and electronic communications.34 ‘‘[E]lectronic 

communication’’ is defined as ‘‘any transfer of signs, signals, writing, images, 

sounds, data, or intelligence of any nature transmitted in whole or in part by a wire, 

radio, electromagnetic, photoelectronic or photooptical system . . ..’’ 35 Web browsing 

and other Internet communications are clearly electronic communications protected 

by the Wiretap Act. 

In language pertinent to the model under consideration, § 2511(3) of the Act states 

that ‘‘a person or entity providing an electronic communication service to the pubic 

shall not intentionally divulge the contents of any communications . . . while in 

35 

36 Id. § 2511(3)(a). Lest there be any argument that the disclosure does not occur while the 

communications are ‘‘in transmission,’’ we note that the Stored Communications Act (SCA) 

states that ‘‘a person or entity providing an electronic communication service to the public shall 

not knowingly divulge to any person or entity the contents of a communication while in electronic storage by that service.’’ Id. § 2702(a)(1). We do not comment further here on the SCA 

because, in our judgment, the approach that has been described so far clearly involves the divulging of communications ‘‘while in transmission.’’ 37 Id. § 2511(2)(a)(i) (emphasis added). This analysis focuses on the capture of electronic communications and definitions are abridged accordingly. 38 Id. § 2511(3)(b)(ii). 39 Id. § 2510(4). 40 Id. § 2511(1). 41 Id. § 2511(2). 42Separate from the consent provision for disclosure, the consent exception for interception 

is set forth in 18 U.S.C. § 2511(2)(d): ‘‘It shall not be unlawful under this chapter for a person 

not acting under color of law to intercept a[n] . . . electronic communication where such person 

is a party to the communication or where one of the parties to the communication has given 

prior consent to such interception. . . .’’ 43 Id. § 2510(5) (emphasis added). 44See, e.g., United States v. Rodriguez, 968 F.2d 130, 136 (2d Cir. 1992) (holding in context 

of telephone communications that ‘‘when the contents of a wire communication are captured or 

redirected in any way, an interception occurs at that time’’ and that ‘‘[r]edirection presupposes 

interception’’); In re State Police Litig., 888 F. Supp. 1235, 1267 (D. Conn. 1995) (stating in context of telephone communications that ‘‘it is the act of diverting, and not the act of listening, 

that constitutes an ‘interception’ ’’). 

transmission on that service to any person or entity other than an addressee or intended recipient. . . .’’ 36

There are exceptions to this prohibition on disclosure, two of which may be relevant here. One exception specifies that ‘‘[i]t shall not be unlawful under this chapter for an . . . electronic communication service, whose facilities are used in the 

transmission of a[n] . . . electronic communication, to intercept, disclose, or use that 

communication in the normal course of his employment while engaged in any activity which is a necessary incident to the rendition of his service or to the protection 

of the rights or property of the provider of that service.’’ 37 We will refer to this as 

the ‘‘necessary incident’’ exception. The second exception is for disclosures with the 

consent of one of the parties.38 We will discuss both exceptions below. We conclude 

that only the consent exception applies to the disclosure of subscriber content for 

behavioral advertising, and we will discuss preliminarily what ‘‘consent’’ would 

mean in this context. 

B. With Limited Exceptions, Interception Is Also Prohibited 

The Wiretap Act regulates the ‘‘interception’’ of electronic communications. The 

Act defines ‘‘intercept’’ as the ‘‘acquisition of the contents of any . . . electronic . . . 

communication through the use of any electronic, mechanical, or other device.’’ 39

The Wiretap Act broadly bars all intentional interception of electronic communications.40 The Act enumerates specific exceptions to this prohibition.41 Law enforcement officers, for example, are authorized to conduct interceptions pursuant to a 

court order. For ISPs and other service providers, there are three exceptions that 

might be relevant. Two we have mentioned already: the ‘‘necessary incident’’ exception and a consent exception.42

A third exception, applicable to interception but not to disclosure, arises from the 

definition of ‘‘intercept,’’ which is defined as acquisition by an ‘‘electronic, mechanical, or other device,’’ which in turn is defined as ‘‘any device or apparatus which 

can be used to intercept a[n] . . . electronic communication other than—(a) any telephone or telegraph instrument, equipment or facility, or any component thereof . . . 

(ii) being used by a provider of . . . electronic communication service in the ordinary 

course of its business. . . .’’ 43 This provision thus serves to limit the definition of 

‘‘intercept,’’ providing what is sometimes called the ‘‘telephone extension’’ exception, 

but which we will call the ‘‘business use’’ exception. 

C. The Copying of Internet Content for Disclosure to Advertising Networks Constitutes Interception 

When an ISP copies a customer’s communications or allows them to be copied by 

an advertising network, those communications have undoubtedly been 

‘‘intercept[ed].’’ 44 Therefore, unless an exception applies, it seems likely that placing 

a device on an ISP’s network and using it to copy communications for use in developing advertising profiles would constitute illegal interception under § 2511(1)(a); 

similarly, the disclosure or use of the intercepted communications would run afoul 

of § 2511(1)(c) or § 2511(1)(d), respectively. 

36 

45 18 U.S.C. § 2511(2)(a)(i). 46See United States v. Councilman, 418 F.3d 67, 82 (1st Cir. 2005) (en banc) (holding that 

service provider’s capture of e-mails to gain commercial advantage ‘‘clearly’’ was not within service provider exception); Berry v. Funk, 146 F.3d 1003, 1010 (D.C. Cir. 1998) (holding in context 

of telephone communications that switchboard operators’ overhearing of a few moments of phone 

call to ensure call went through is a ‘‘necessary incident,’’ but anything more is outside service 

provider exception). 47 18 U.S.C. § 2511(3)(a). 48 By adopting two different exceptions—‘‘necessary incident’’ and ‘‘ordinary course’’—Congress 

apparently meant them to have different meanings. Based on our reading of the cases, the necessary incident exception is narrower than the ordinary course exception. It is significant that 

the ‘‘necessary incident’’ exception applies to both interception and disclosure while the ‘‘ordinary course’’ exception is applicable only to interception. This suggests that Congress meant to 

allow service providers broader latitude in examining (that is, ‘‘intercepting’’ or ‘‘using’’) subscriber communications so long as they did not disclose the communications to third parties. 

This permits providers to conduct a range of in-house maintenance and service quality functions 

that do not involve disclosing communications to third parties. 49S. Rep. No. 99–541, at 1 (1986), reprinted in 1986 U.S.C.C.A.N. 3555. 

D. The ‘‘Necessary Incident’’ Exception Probably Does Not Permit the Interception or 

Disclosure of Communications for Behavioral Advertising Purposes 

The Wiretap Act permits interception of electronic communications when the activity takes place as ‘‘a necessary incident to the rendition of [the ISP’s] service or 

to the protection of the rights or property of the provider of that service.’’ 45 The latter prong covers anti-spam and anti-virus monitoring and filtering and various antifraud activities, but cannot be extended to advertising activities, which, while they 

may enhance the service provider’s revenue, do not ‘‘protect’’ its rights. Courts have 

construed the ‘‘necessary incident’’ prong quite strictly, requiring a service provider 

to show that it must engage in the activity in order to carry out its business.46 It 

is unlikely that the copying, diversion, or disclosure of Internet traffic content for 

behavioral advertising would be construed as a ‘‘necessary incident’’ to an ISP’s 

business. Conceivably, an ISP could argue that its business included copying its subscribers communications and providing them to third parties for purposes of placing 

advertisements on websites unaffiliated with the ISP, but the ISP would probably 

have to state that that business existed and get the express agreement of its customers that they were subscribing to that business as well as the basic business of 

Internet access, which leads anyhow to the consent model that we conclude is necessary. 

E. While It Is Unclear Whether the ‘‘Business Use’’ Exception Would Apply to the Use 

of a Device Installed or Controlled by a Party Other than the Service Provider, 

the Exception Does Not Apply to the Prohibition Against Divulging a Subscriber’s Communications 

The ‘‘business use’’ exception, § 2510(5)(a), constricts the definition of ‘‘device’’ and 

thereby narrows the definition of ‘‘intercept’’ in the Wiretap Act. There are two 

questions involved in assessing applicability of this exception to the use of Internet 

traffic content for behavioral advertising: (1) whether the device that copies the content for delivery to the advertising network constitutes a ‘‘telephone or telegraph instrument, equipment or facility, or any component thereof,’’ and (2) whether an 

ISP’s use of the device would be within the ‘‘ordinary course of its business.’’ 

We will discuss the ‘‘business use’’ exception at some length, because there has 

been considerable discussion already about whether copying of an ISP subscriber’s 

communications for behavioral advertising is an ‘‘interception’’ under § 2511(1) of 

the Wiretap Act. However, even if the business use exception applied, an ISP would 

only avoid liability for the interception of electronic communications. It would still 

be prohibited from divulging the communications of its customers to an advertising 

network under the separate section of the Wiretap Act, § 2511(3), which states that 

a service provider ‘‘shall not intentionally divulge the contents of any communication . . . while in transmission on that service to any person or entity other than 

an addressee or intended recipient. . . .’’ 47 The business use exception does not 

apply to this prohibition against divulging.48

At first glance, it would seem that the business use exception is inapplicable to 

the facilities of an ISP because the exception applies only to a ‘‘telephone or telegraph instrument, equipment or facility, or any component thereof.’’ However, the 

courts have recognized that ECPA was motivated in part by the ‘‘dramatic changes 

in new computer and telecommunications technologies’’ 49 and therefore was intended to make the Wiretap Act largely neutral with respect to its treatment of various communications technologies. The Second Circuit, for example, concluded in a 

related context that the term ‘‘telephone’’ should broadly include the ‘‘instruments, 

37 

50 Hall v. Earthlink Network, Inc., 396 F.3d 500, 505 (2d Cir. 2005) (quoting S. Rep. No. 99– 

541 at 8). 51 United States v. Murdock, 63 F.3d 1391. 1396 (6th Cir 1995). 52 E.g., James v. Newspaper Agency Corp., 591 F.2d 579 (10th Cir. 1979). 53See, e.g., Adams v. City of Battle Creek, 250 F.3d 980, 984 (6th Cir. 2001). 54 Berry v. Funk, 146 F.3d 1003, 1009 (D.C. Cir. 1998) (workplace monitoring). 55See United States v. Van Poyck, 77 F.3d 285, 292 (9th Cir. 1996); United States v. Gangi, 

57 Fed. Appx. 809, 814 (10th Cir. 2003). 56See Arias v. Mutual Central Alarm Serv., Inc., 202 F.3d 553, 560 (2d Cir. 2000) (monitoring 

calls to an central alarm monitoring service). 57See id. (concluding that alarm company had legitimate reasons to tap all calls because such 

businesses ‘‘are the repositories of extremely sensitive security information, including information that could facilitate access to their customers’ premises’’); see also First v. Stark County 

Board of Comm’rs, 234 F.3d 1268, at *4 (6th Cir. 2000) (table disposition). 58Watkins v. L.M. Berry & Co., 704 F.2d 577, 582 (11th Cir. 1983). Watkins states: ‘‘We hold 

that a personal call may not be intercepted in the ordinary course of business under the exemption in section 2510(5)(a)(i), except to the extent necessary to guard against unauthorized use 

of the telephone or to determine whether a call is personal or not. In other words, a personal 

call may be intercepted in the ordinary course of business to determine its nature but never 

its contents.’’ 704 F.2d at 583. This language supports the conclusion that the business use exception could not cover wholesale interception of ISP traffic, no more than switchboard operators 

can perform wholesale monitoring of telephone traffic. 

equipment and facilities that ISPs use to transmit e-mail.’’ 50 Therefore, as a general 

matter, it should be assumed that the business use exception is available to ISPs. 

However, it is not certain that the device used to copy and divert content for behavioral advertising would be considered to be a component of the service provider’s 

equipment or facilities. In some of the behavioral advertising implementations that 

have been described, the monitoring device or process is not developed or controlled 

by the ISP but rather by the advertising network. 

The second question is whether an ISP’s use of a device to copy traffic content 

for behavioral advertising falls within the ‘‘ordinary course of its business.’’ There 

are a number of cases interpreting this exception, but none of them clearly addresses a situation where a service provider is copying all of the communications of its 

customers. Many of the cases arise in situations where employers are monitoring 

the calls of their employees for purposes of supervision and quality assurance. 

‘‘These cases have narrowly construed the phrase ‘ordinary course of business.’ ’’ 51

Often such cases also involve notice to the employees and implied consent.52 One 

court has stated that, even if an entity could satisfy the business use exception, notice to one of the parties being monitored would be required.53 Other cases involve 

the monitoring of prisoners. 

Some cases have interpreted ‘‘ordinary course’’ to mean anything that is used in 

‘‘normal’’ operations. The D.C. Circuit, for instance, has suggested that monitoring 

‘‘undertaken normally’’ qualifies as being within the ‘‘ordinary course of business.’’ 54

In the context of law enforcement taping of the phone calls of prisoners, the Ninth 

and Tenth Circuits have concluded that something is in the ‘‘ordinary course’’ if it 

is done routinely and consistently.55 It might be that courts would give equal or 

greater latitude to service providers in monitoring their networks than they would 

give to mere subscribers or users. 

Other circuit courts have used a more limited interpretation, concluding that ‘‘ordinary course’’ only applies if the device is being used to intercept communications 

for ‘‘legitimate business reasons.’’ 56 Although the courts have not been entirely clear 

as to what that means, some have suggested that it is much closer to necessity than 

to mere profit motive.57 One frequently-cited case explicitly holds that the business 

use exception does not broadly encompass a company’s financial or other motivations: ‘‘The phrase ‘in the ordinary course of business’ cannot be expanded to mean 

anything that interests a company.’’ 58

Normal principles of statutory interpretation would require that some independent weight be given to the word ‘‘ordinary,’’ so that the exception does not encompass anything done for business purposes. It is unclear, however, how much 

weight courts would give to the word ‘‘ordinary’’ in a rapidly changing market. It 

does not seem that the phrase ‘‘ordinary course of business’’ should preclude innovation, but courts might refer to past practices and normal expectations surrounding 

a line of business and specifically might look to what customers have come to expect. 

Viewed one way, it is hard to see how the copying of content for behavioral advertising is part of the ‘‘ordinary course of business’’ of an ISP. After all, the ISP is 

not the one that will be using the content to develop profiles of its customers; the 

profiling is done by the advertising network, which does not even disclose to the ISP 

the profiles of its own subscribers. (The profiles are proprietary to the advertising 

38 

59Watkins. 704 F.2d at 581 (‘‘Consent under title III is not to be cavalierly implied. Title III 

expresses a strong purpose to protect individual privacy by strictly limiting the occasions on 

which interception may lawfully take place.’’). 60Griggs-Ryan v. Smith, 904 F.2d 112, 117 (1st Cir. 1990). 61 In re Pharmatrak, Inc. Privacy Litig., 329 F.3d 9, 20 (1st Cir. 2003); see also United States v. Corona-Chavez, 328 F.3d 974, 978 (8th Cir. 2003). 62 Berry v. Funk, 146 F.3d 1003, 1011 (D.C. Cir. 1998) (internal quotation omitted). 63Watkins, 704 F.2d at 581; see also Deal v. Spears, 980 F.2d 1153, 1157 (8th Cir. 1992) (holding that consent not implied when individual is aware only that monitoring might occur, rather 

than knowing monitoring is occurring). 64 ‘‘The circumstances relevant to an implication of consent will vary from case to case, but 

the compendium will ordinarily include language or acts which tend to prove (or disprove) that 

a party knows of, or assents to, encroachments on the routine expectation that conversations 

are private. And the ultimate determination must proceed in light of the prophylactic purpose 

of Title III—a purpose which suggests that consent should not casually be inferred.’’ GriggsRyan, 904 F.2d at 117. 

network and it is careful not to disclose them to anyone.) Very few (if any) of the 

ads that are placed using the profiles will be ads for the ISP’s services; they will 

be ads for products and services completely unrelated to the ISP’s ‘‘ordinary course 

of business.’’ Moreover, the ads will be placed on websites having no affiliation with 

the ISP. On the other hand, the ISP could argue that part of its business model— 

part of what keeps its rates low—is deriving revenue from its partnership with advertising networks. 

The legislative histories of the Wiretap Act and ECPA weigh against a broad 

reading of the business use exception. Through these laws, Congress intended to 

create a statutory regime generally affording strong protection to electronic communications. Congress included limited, specific and detailed exceptions for law enforcement access to communications, and other limited, specific and detailed exceptions to allow companies providing electronic communications service to conduct ordinary system maintenance and operational activities. Congress gave especially high 

protection to communications content. If the business use exception can apply any 

time an ISP identifies a new revenue stream that can be tapped though use of its 

customers’ communications, this careful statutory scheme would be seriously undermined. 

F. The Consent Exception: The Context Weighs Heavily in Favor of Affirmative, OptIn Consent from ISP Subscribers 

Consent is an explicit exception both to the prohibition against intercepting electronic communications under the Wiretap Act and to the Act’s prohibition against 

disclosing subscriber communications. The key question is: How should consent be 

obtained for use of Internet traffic content for behavioral advertising? Courts have 

held in telephone monitoring cases under the Wiretap Act that consent can be implied, but there are relatively few cases specifically addressing consent and electronic communications. However, in cases involving telephone monitoring, one circuit court has stated that consent under the Wiretap Act ‘‘is not to be cavalierly implied.’’ 59 Another circuit court has noted that consent ‘‘should not casually be inferred’’ 60 and that consent must be ‘‘actual,’’ not ‘‘constructive.’’ 61 Yet another circuit court has stated: ‘‘Without actual notice, consent can only be implied when the 

surrounding circumstances convincingly show that the party knew about and consented to the interception.’’ 62 Furthermore, ‘‘knowledge of the capability of monitoring alone cannot be considered implied consent.’’ 63 The cases where consent has 

been implied involve very explicit notice; many of them involve the monitoring of 

prisoners’ phone calls.64

Consent is context-based. It is one thing to imply consent in the context of a prison or a workplace, where notice may be presented as part of the daily log-in process. 

It is quite another to imply it in the context of ordinary Internet usage by residential subscribers, who, by definition, are using the service for personal and often 

highly sensitive communications. Continued use of a service after a mailed notice 

might not be enough to constitute consent. Certainly, mailing notification to the bill 

payer is probably insufficient to put all members of the household who share the 

Internet connection on notice. 

Thus, it seems that an assertion of implied consent, whether or not users are provided an opportunity to opt out of the system, would most likely not satisfy the consent exception for the type of interception or disclosure under consideration here. 

Express prior consent (opt-in consent) is clearly preferable and may be required. 

While meaningful opt-in consent would be sufficient, courts would likely be skeptical 

of an opt-in consisting merely of a click-through agreement—i.e., a set of terms that 

a user agrees to by clicking an on-screen button—if it displays characteristics typical of such agreements, such as a large amount of text displayed in a small box, 

39 

65See, e.g., Specht v. Netscape Commc’ns Corp., 306 F.3d 17 (2d Cir. 2002) (rejecting online 

arbitration agreement because, among other things, site permitted customer to download product without having scrolled down to arbitration clause and agreement button said only 

‘‘Download’’); United States v. Lanoue, 71 F.3d 966, 981 (1st Cir. 1995) (‘‘Deficient notice will 

almost always defeat a claim of implied consent.’’). 66 In re DoubleClick Inc. Privacy Litig., 154 F.Supp.2d 497 (S.D.N.Y. 2001). 67The twelve states are California, Connecticut, Florida, Illinois, Maryland, Massachusetts, 

Michigan, Montana, Nevada, New Hampshire, Pennsylvania, and Washington. 68Fla. Stat. § 934.03(1). 69 Ill. Comp Stat. 5/14–1(a)(1). 70 Cal. Pen. Code § 631(a). 71 Id. 72 Id. § 632(a). The statute explicitly excludes radio communications from the category of confidential communications. 

no requirement that the user scroll through the entire agreement, or the opt-in provision buried among other terms of service.65

In regards to consent, the model under discussion here is distinguishable from the 

use of ‘‘cookies,’’ which were found to be permissible by a Federal district court in 

a 2001 case involving DoubleClick.66 In that case, the websites participating in the 

DoubleClick advertising network were found to be parties to the communications of 

the Internet users who visited those sites. As parties to the communications, the 

websites could consent to the use of the cookies to collect information about those 

communications. Here, of course, the ISPs are not parties to the communications 

being monitored and the interception or disclosure encompasses communications 

with sites that are not members of the advertising network. Therefore, the source 

of consent must be the IPS’s individual subscribers, as it would be impossible to obtain consent from every single website that every subscriber may conceivably visit. 

II. State Laws Requiring Two-Party Consent to Interception 

A. Summary 

In addition to the Federal Wiretap Act, a majority of states have their own wiretap laws, which can be more stringent than the Federal law. Most significantly, 

twelve states 67 require all parties to consent to the interception or recording of certain types of communications when such interception is done by a private party not 

under the color of law. 

In several of these states—for example, Connecticut—the all-party consent requirement applies only to the recording of oral conversations. In others, the allparty consent rule extends to both voice and data communications. For example, 

Florida’s Security of Communications Act makes it a felony for any individual to 

intercept, disclose, or use any wire, oral, or electronic communication, unless that 

person has obtained the prior consent of all parties 68 Similarly, the Illinois statute 

on criminal eavesdropping prohibits a person from ‘‘intercept[ing], retain[ing], or 

transcrib[ing an] electronic communication unless he does so . . . with the consent 

of all of the parties to such . . . electronic communication.’’ 69

The most important all-party consent law may be California’s, because the California Supreme Court held in 2006 that the law can be applied to activity occurring 

outside the state. 

B. California 

The 1967 California Invasion of Privacy Act makes criminally liable any individual who ‘‘intentionally taps, or makes any unauthorized connection . . . or who 

willfully and without the consent of all parties to the communication . . . reads, or 

attempts to read, or to learn the contents or meaning of any message . . . or communication while the same is in transit or passing over any wire, line, or cable, or 

is being sent from, or received at any place’’ in California.70 It also establishes liability for any individual ‘‘who uses, or attempts to use, in any manner . . . any information so obtained’’ or who aids any person in doing the same.71 The law has a separate section creating liability for any person eavesdropping upon or recording a 

confidential communication ‘‘intentionally and without the consent of all parties,’’ 

whether the parties are present in the same location or communicating over telegraph, telephone, or other device (except a radio).72

Consent can be implied only in very limited circumstances. The California State 

Court of Appeals held in People v. Garber that a subscriber to a telephone system 

is deemed to have consented to the telephone company’s monitoring of his calls if 

he uses the system in a manner that reasonably justifies the company’s belief that 

he is violating his subscription rights, and even then the company may only monitor 

40 

73 275 Cal. App. 2d 119 (Cal. App. 1st Dist. 1969). 74 Nissan Motor Co. v. Nissan Computer Corp., 180 F. Supp. 2d 1089 (C.D. Cal. 2002). 75 39 Cal. 4th 95 (2006). 76 Id. At 118. 

his calls to the extent necessary for the investigation.73 An individual can maintain 

an objectively reasonable expectation of privacy by explicitly withholding consent for 

a tape recording, even if the other party has indicated an intention to record the 

communication.74

In Kearney v. Salomon Smith Barney, Inc., the state Supreme Court addressed 

the conflict between the California all-party consent standard and Georgia’s wiretap 

law, which is modeled after the Federal one-party standard.75 It held that, where 

a Georgia firm recorded calls made from its Georgia office to residents in California, 

the California law applied. The court said that it would be unfair to impose damages 

on the Georgia firm, but prospectively the case effectively required out-of-state firms 

having telephone communications with people in California to announce to all parties at the outset their intent to record a communication. Clear notice and implied 

consent are sufficient. ‘‘If, after being so advised, another party does not wish to 

participate in the conversation, he or she simply may decline to continue the communication.’’ 76

C. The Implications of Kearney 

The Kearney case arose in the context of telephone monitoring, and there is a remarkable lack of case law addressing whether the California statute applies to 

Internet communications. If it does, or if there is one other state that applies its 

all-party consent rule to conduct affecting Internet communications across state 

lines, then no practical form of opt-in, no matter how robust, would save the practice 

of copying Internet content for behavioral advertising. That is, even if the ISP only 

copies the communications of those subscribers that consent, and the monitoring occurs only inside a one-party consent state, as soon as one of those customers has 

a communication with a non-consenting person (or website) in an all-party consent 

state that applies its rule to interceptions occurring outside the state, the ISP would 

seem to be in jeopardy. The ISP could not conceivably obtain consent from every 

person and website in the all-party consent state. Nor could it identify (for the purpose of obtaining consent) which people or websites its opted-in subscribers would 

want to communicate with in advance of those communications occurring. 

A countervailing argument could be made that an all-party consent rule is not applicable to the behavioral advertising model, since the process only copies or divulges one half of the communication, namely the half from the consenting subscriber. 

III. Conclusion 

The practice that has been described to us, whereby an ISP may enter into an 

agreement with an advertising network to copy and analyze the traffic content of 

the ISP’s customers, poses serious questions under the Federal Wiretap Act. It 

seems that the disclosure of a subscriber’s communications is prohibited without 

consent. In addition, especially where the copying is achieved by a device owned or 

controlled by the advertising network, the copying of the contents of subscriber communications seems to be, in the absence of consent, a prohibited interception. Affirmative express consent, and a cessation of copying upon withdrawal of consent, 

would probably save such practices under Federal law, but there may be state laws 

requiring all-party consent that would be more difficult to satisfy. 

Senator DORGAN. Ms. Harris, thank you very much. We appreciate your testimony. 

Mr. Chris Kelly is the Chief Privacy Officer for Facebook Incorporated. Mr. Kelly, you may proceed. 

STATEMENT OF CHRIS KELLY, CHIEF PRIVACY OFFICER, 

FACEBOOK, INC. 

Mr. KELLY. Thank you very much, Chairman Dorgan and Members of the Committee, for the opportunity to address the Committee about the important privacy matters facing the online advertising industry. 

41 

I am Chris Kelly, the Chief Privacy Officer of Facebook, a social 

service on the Internet that serves more than 80 million active 

users, about 30 million of whom are in the United States. 

Facebook aims to create social value by empowering people to 

share their lives and experiences with the people they care about. 

From the founding of the company in a dorm room in 2004 until 

today, Facebook’s privacy settings have given users control over 

who has access to their personal information by allowing them to 

choose the friends they accept and the networks they join. 

We are dedicated to developing advertising that is relevant and 

personal and to transparency with our users about how we use 

their information in the advertising context. We are pleased to discuss both Facebook’s general approach to privacy and how these 

principles have been implemented in advertising provided by 

Facebook. 

With many mainstream media reports focusing on privacy concerns about social networking sites, we first want to clarify how 

our site differs from most. Though we will not always address user 

concerns perfectly—no site can—Facebook is committed to empowering users to make their own choices about what information they 

share and with whom they share it. 

The statement that opens our privacy policy, a short, plain 

English introduction, is the best place to start this discussion. It 

reads: ‘‘We built Facebook to make it easy to share information 

with your friends and people around you. We understand you may 

not want everyone in the world to have the information you share 

on Facebook; that is why we give you control of your information. 

Our default privacy settings limit the information displayed in your 

profile to your networks and other reasonable community limitations we tell you about.’’ 

Facebook follows two core principles: 

First, you should have control over your personal information. 

Facebook helps you share information with your friends and people 

around you. You choose what information you put in your profile, 

including contact and personal information, pictures, interests and 

groups that you join. And you control the users with whom you 

share that information through the privacy settings on the Privacy 

page. 

Two, you should have access to the information that others want 

to share. There is an increasing amount of information available 

out there, and you may want to know what relates to you, your 

friends, and people around you. We want to help you easily get 

that information. 

Sharing information should be easy. And we want to provide you 

with the privacy tools necessary to control how and with whom you 

share that information. If you have any questions or ideas, please 

send them to privacy@facebook.com, the e-mail address that we 

regularly monitor. 

We implement these principles through our friend and network 

architectures and through controls that are built into every one of 

our innovative products. Contrary to common public reports, full 

profile data on Facebook is not even available to most users on 

Facebook, let alone all users of the Internet. Users have extensive 

and precise controls available to choose who sees what among their 

42 

networks and friends, as well as tools that give them the choice to 

make a limited set of information available to search engines and 

other outside entities. 

The privacy link that appears in the upper right-hand corner of 

every Facebook page allows users to make these choices whenever 

they are using the site, and everyday use of the site educates users 

as to the meaning of privacy controls. For instance, a user will see 

regularly that they have access to the profiles of their friends and 

those who share a network with them, but not to profiles of those 

who are neither friends nor network members. 

In February 2008, Facebook simplified and streamlined its presentation of privacy settings to users, adopting a common lock icon 

throughout the site to denote the presence of a user-configurable 

privacy setting. We also introduced the concept of ‘‘Friends Lists’’ 

which, when paired with privacy settings, allow users to easily configure subsets of their confirmed friends who may see certain content. We are constantly looking for means to give users more effective control over their information and to improve communications 

with users and the general public about our privacy architecture so 

that they can make their own choices about what they want to reveal. 

I want to say a few words about privacy and advertising on 

Facebook. It is important to stress in the first instance that targeting of advertising generally benefits users. But we have revealed 

in our privacy policy for nearly 3 years the following. We have had 

the following statement present. ‘‘Facebook may use information in 

your profile without identifying you as an individual to third parties. We do this for purposes such as aggregating how many people 

in a network like a band or a movie and personalizing advertisements and promotions so that we can provide you Facebook. We believe this benefits you. You can know more about the world around 

you and, where there are advertisements, they are more likely to 

be interesting to you. For example, if you put a favorite movie in 

your profile, we might serve you an advertisement highlighting a 

screening of a similar one in your town. But we don’t tell the movie 

company who you are.’’ 

This critical distinction that we embrace in our policies and practices and that we want users to understand is between the use of 

personal information for advertisements in personally identifiable 

form and the use, dissemination, or sharing of information with advertisers in non-personally identifiable form. Ad targeting that 

shares or sells personally identifiable information to advertisers 

without user control is fundamentally different from targeting that 

only gives advertisers the ability to present their ads based on aggregate data. 

And with that, I see that my time is up. So I look forward to answering your questions. Thank you. 

[The prepared statement of Mr. Kelly follows:] 

PREPARED STATEMENT OF CHRIS KELLY, CHIEF PRIVACY OFFICER, FACEBOOK, INC. 

Thank you, Mr. Chairman, for the opportunity to address the Committee about 

the important privacy matters facing the online advertising industry. 

I am Chris Kelly, the Chief Privacy Officer of Facebook, a social service on the 

Internet that serves more than 80 million active users, roughly 30 million of whom 

are in the United States. 

43 

Facebook aims to create social value by empowering people to share their lives 

and experiences with the people they care about. From the founding of the company 

in a dorm room in 2004 to today, Facebook’s privacy settings have given users control over who has access to their personal information by allowing them to choose 

the friends they accept and networks they join. 

We are dedicated to developing advertising that is relevant and personal, and to 

transparency with our users about how we use their information in the advertising 

context. We are pleased to discuss both Facebook’s general approach to privacy and 

how these principles have been implemented in advertising provided by Facebook. 

With many mainstream media reports focusing on privacy concerns about ‘‘social 

networking sites,’’ we first want to clarify how our site differs from most. Though 

we will not always address user concerns perfectly—no site can—Facebook is committed to empowering users to make their own choices about what information they 

share, and with whom they share it. 

I. Facebook and Privacy 

The statement that opens our privacy policy, a short plain-English introduction, 

is the best place to start this discussion. It reads: 

We built Facebook to make it easy to share information with your friends and 

people around you. We understand you may not want everyone in the world to 

have the information you share on Facebook; that is why we give you control 

of your information. Our default privacy settings limit the information displayed 

in your profile to your networks and other reasonable community limitations 

that we tell you about. 

Facebook follows two core principles: 

1. You should have control over your personal information. 

Facebook helps you share information with your friends and people around you. 

You choose what information you put in your profile, including contact and personal information, pictures, interests and groups you join. And you control the 

users with whom you share that information through the privacy settings on 

the Privacy page. 

2. You should have access to the information others want to share. 

There is an increasing amount of information available out there, and you may 

want to know what relates to you, your friends, and people around you. We 

want to help you easily get that information. 

Sharing information should be easy. And we want to provide you with the privacy tools necessary to control how and with whom you share that information. 

If you have questions or ideas, please send them to privacy@facebook.com. 

We implement these principles through our friend and network architectures, and 

through controls that are built into every one of our innovative products. Contrary 

to common public reports, full profile data on Facebook isn’t even available to most 

users on Facebook, let alone all users of the Internet. Users have extensive and precise controls available to choose who sees what among their networks and friends, 

as well as tools that give them the choice to make a limited set of information available to search engines and other outside entities. 

The ‘‘privacy’’ link that appears in the upper-right hand corner of every Facebook 

page allows users to make these choices whenever they are using the site, and everyday use of the site educates users as to the meanings of privacy controls. For 

instance, a user will see regularly that they have access to the profiles of their 

friends and those who share a network, but not to the profiles of those who are neither friends nor network members. 

In February 2008, Facebook simplified and streamlined its presentation of privacy 

settings to users, adopting a common lock icon throughout the site to denote the 

presence of a user-configurable privacy setting. We also introduced the concept of 

‘‘Friends Lists,’’ which, when paired with privacy settings, allow users to easily configure a subset of their confirmed friends who may see certain content. We are constantly looking for means to give users more effective control over their information 

and to improve communications with users and the general public about our privacy 

architecture so they can make their own choices about what they want to reveal. 

For instance, we participated in the Federal Trade Commission’s workshop on 

new advertising technologies, and have been working with government officials and 

nongovernmental organizations throughout the globe. Facebook has also worked 

productively with state and Federal officials, as well as law enforcement, to explain 

our longstanding strategy to make the Internet safer by promoting responsibility 

and identity online, and is currently participating in the state Attorneys General 

Internet Safety Technical Task Force. 

44 

1 Currently, only four pieces of data are required to establish and maintain a Facebook account—e-mail address to provide a unique login identifier, birthdate to calculate age, name to 

provide a standard identifier (our Terms of Use require real name), and gender to promote the 

accuracy of grammar through the site infrastructure. 

II. Privacy and Advertising on Facebook 

A. Personally Identifiable and Non-Personally Identifiable Information 

It is important to stress here in the first instance that targeting of advertising 

generally benefits users. Receiving information that is likely to be relevant, whether 

paid for by an advertiser or not, leads to a better online experience. Facebook aims 

to be transparent with our users about the fact that advertising is an important 

source of our revenue and to explain to them fully the uses of their personal data 

they are authorizing by using Facebook. For instance, the following explanation of 

how we use information for advertising has been a prominent part of our privacy 

policy for nearly 3 years: 

Facebook may use information in your profile without identifying you as an individual to third parties. We do this for purposes such as aggregating how many 

people in a network like a band or movie and personalizing advertisements and 

promotions so that we can provide you Facebook. We believe this benefits you. 

You can know more about the world around you and, where there are advertisements, they’re more likely to be interesting to you. For example, if you put a 

favorite movie in your profile, we might serve you an advertisement highlighting a screening of a similar one in your town. But we don’t tell the movie 

company who you are. 

The critical distinction that we embrace in our policies and practices, and that we 

want users to understand, is between the use of personal information for advertisements in personally-identifiable form, and the use, dissemination, or sharing of information with advertisers in non-personally-identifiable form. Ad targeting that 

shares or sells personal information to advertisers (name, e-mail, other contact oriented information) without user control is fundamentally different from targeting 

that only gives advertisers the ability to present their ads based on aggregate data. 

Most Facebook data is collected transparently in personally identifiable form—users 

know they are providing the data about themselves and are not forced to provide 

particular information.1 Sharing information on the site is limited by user-established friend relationships and user-selected networks that determine who has access to that personal information. Users can see how their data is used given the 

reactions of their friends when they update their profiles, upload new photos or videos, or update their current status. 

On Facebook, then, a feedback loop is established where people know what they 

are uploading and receive timely reactions from their friends, reinforcing the fact 

they have uploaded identifiable information. The privacy policy and the users’ experiences inform them of how advertising on the service works—advertising that enables us to provide the service for free to users is targeted to the expressed attributes of a profile and presented in the space on the page allocated for advertising, 

without granting an advertiser access to any individual user’s profile. 

Furthermore, advertising on Facebook is subject to guidelines designed to avoid 

deceptive practices, and with special restrictions and review with respect to any advertising targeted at minors. 

I cannot stress strongly enough that Facebook does not authorize access by the 

Internet population at large, including advertisers, to the personally identifiable information that a user willingly uploads to Facebook. Facebook profiles have extensive user-configurable rules limiting access to information contained in them. Unless 

a user decides otherwise by willingly sharing information with an advertiser—for 

instance, through a contest—advertisers may only target advertisements against 

non-personally identifiable attributes about a user of Facebook derived from profile 

data. 

We recognize that other Internet services may take a different approach to advertisers and the information available to them. Advertising products that sell personally identifiable information to advertisers without user permission, that rely on 

transforming non-personally identifiable information into personally identifiable information without robust notice and choice to users, or that rely on data collection 

that a user has scant notice of and no control over, raise fundamentally different 

privacy concerns. Facebook does not offer such products today and has no intention 

of doing so. Advertising products founded on the principles of transparency and user 

control, where data is collected directly from users in personally identifiable space 

45 

and targeting is done based on aggregate or characteristic data in non-personally 

identifiable space, respect the principle that sits at the heart of privacy concerns. 

B. History of Facebook Ads and Beacon 

Perhaps because our site has developed so quickly, we have sometimes been 

inartful in communicating with our users and the general public about our advertising products. It therefore may be fruitful to provide a brief history of the current 

Facebook advertising offerings, including Facebook Ads and Social Ads, as well as 

the Beacon product that garnered significant public attention late last year. 

In November 2007, Facebook introduced Facebook Ads, which consisted of both a 

basic self-service targeting infrastructure based on the non-personally identifiable 

use of keywords derived from profile data, and Social Ads, which allow for the paid 

promotion of certain interactions users take online to those users’ friends in conjunction with an advertiser message. The basic targeting infrastructure of Facebook Ads 

is quite similar to many other Internet advertising systems, where media buyers 

and agencies can purchase guarantees that their advertisements will run to people 

who have certain characteristics, often expressed (as they are in Facebook Ads) in 

‘‘keywords,’’ or in demographic categories such as men between 29 and 34. 

Social Ads are an innovation in that they allow advertisers to pay for promotion 

of certain interactions users take online to those users’ friends. For example, if I 

become a supporter of a particular political figure on Facebook, their campaign 

could pay to promote that fact to more of my friends than would have been informed 

of it otherwise through the Facebook News Feed, and potentially pair a message 

from the campaign with it. It is notable first that only my action can trigger a Social 

Ad and that Social Ads are only presented to confirmed friends as opposed to the 

world at large; there will be no Social Ad generated noting my action to anyone but 

a confirmed friend. It is also notable that in this paid promotion context through 

Social Ads, an advertiser is not purchasing and does not have access to users’ personal data—they are only told that a certain number of users have taken relevant 

actions and the number of ads generated by those actions. 

We introduced at the same time as Facebook Ads a product called Beacon to allow 

users to bring actions they take on third-party sites into Facebook. Our introduction 

of this product with advertising technology led many to believe that Beacon was an 

ad product when it really was not. Participating third party sites do not pay 

Facebook to offer Beacon, nor must a third party site that wants to use Beacon purchase Facebook Ads. No Facebook user data is sold to or shared with these third 

party sites. In most cases, Beacon pertains to non-commercial actions like the playing of a game or the adding of a recipe to an online recipe box. In other cases, we 

and the participating third party sites experimented with capturing purchases for 

sharing within a user’s Facebook friend network, obviously a more commercial enterprise. In both the non-commercial and commercial contexts, we discovered in the 

weeks after launch that users felt they did not have adequate control over the information and how it was being shared with their friends. 

We quickly reached the conclusion that Beacon had inadequate built-in controls 

driving user complaints, helped along by an organized campaign by MoveOn.org to 

get us to alter the product. We made significant changes within weeks after its 

launch to make it a fully opt-in system. We remain convinced that the goal of helping users share information about their activities on the web with their friends is 

desirable and appreciated. Indeed, a number of services now exist which attempt to 

help users in this way. While Beacon was cast in the mainstream press as an advertising product, it operates fundamentally as a means to connect, with a user’s permission and control, actions elsewhere on the web with a user’s Facebook friend network. 

We are currently working on the next generation of Facebook’s interactions with 

third party websites, called Facebook Connect, to empower users further to share 

content and actions with their friends using the Facebook infrastructure, and are 

focused on assuring that proper controls are built into this system. 

III. FTC Principles on Behavioral Targeting 

Finally, we would like to reinforce our earlier positive public comments about the 

Federal Trade Commission’s leadership in addressing privacy concerns about how 

data is collected and shared online. 

As explained above, Facebook Ads are materially different from behavioral targeting as it is usually discussed, but given our goals of transparency and user control, the important corollary of ensuring appropriate security and the goal of providing users notice and choice with respect to service changes, we applaud the FTC’s 

desire to establish principles in the online advertising area. We believe the FTC 

should expand and enhance the discussion in the principles about the distinction beVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00049 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
46 

tween personally and non-personally identifiable information to clarify the need for 

different treatment of advertising based on those different types of information. We 

will continue our participation in discussion of the principles as they evolve. 

Thank you again, Mr. Chairman, for the opportunity to share our views, and I 

am happy to answer any questions you may have. 

ATTACHMENT

Microsoft’s Leadership on Consumer Privacy—July 2008 

Microsoft has a long-standing commitment to consumer privacy and we have put 

that commitment into action. Here are some examples: 

Broad Self-regulatory Approach for Online Advertising. Microsoft recently filed 

comments with the Federal Trade Commission explaining the need for a broad selfregulatory privacy approach to online advertising, noting that all online advertising 

activities involve data collection from users and therefore have privacy implications. 

Meaningful Online Advertising Principles. In July 2007, Microsoft announced five 

fundamental privacy principles for online search and ad targeting. These principles 

include commitments to user notice, user control, search data anonymization, security, and best practices. 

Clear and Upfront User Notice. Microsoft was one of the first companies to develop so-called ‘‘layered’’ privacy notices that give clear and concise bullet-point summaries of our practices and direct users to a place where they can find more information. We post a link to this user-friendly privacy notice on every one of our web 

pages. 

Robust User Control. Microsoft has recently deployed a robust method to enable 

users to opt out of behavioral advertising. Specifically, users can now tie their optout choice to their Windows Live ID so their choice can work across multiple computers and be more persistent (for example, deleting cookies will not erase their optout selection). We also highlight the availability of this opt-out choice on the first 

layer of our privacy notice. 

Unique Steps To De-Identify Data. Microsoft is unique in our use of a technical 

method (known as a one-way cryptographic hash) to separate search terms from account holders’ personal information, such as name, e-mail address, and phone number, and to keep them separated in a way that prevents them from being easily recombined. We have also relied on this method to ensure that we use only data that 

does not personally identify individual consumers to serve ads online. 

Strict Search Data Anonymization. Microsoft will anonymize all search data after 

18 months, which we believe is an appropriate time-frame in our circumstances to 

enable us to maintain and improve the security, integrity and quality of our services. In addition, unlike other companies, we will irreversibly remove the entire IP 

address and other cross-session identifiers, such as cookies and other machine identifiers, from search terms after 18 months. 

Support for Federal and State Privacy Legislation. Microsoft has actively supported state legislation that would impose baseline notice, choice, and security requirements on entities that collect data to serve online ads. We also were one of the 

first companies to advocate for comprehensive Federal privacy legislation in the 

United States. 

Dedicated Privacy Personnel and Processes. Microsoft was one of the first companies to appoint a chief privacy officer, an action we took nearly a decade ago, and 

we currently employ over 40 employees who focus on privacy full-time, and another 

400 who focus on it as part of their jobs. We have made significant investments in 

privacy in terms of dedicated personnel and training and by building robust privacy 

standards into our product development and other business processes. 

Guidelines for Third Parties. Microsoft is committed to helping others in industry 

protect consumers’ privacy interests. For example, we have released a set of privacy 

guidelines designed to help developers build meaningful privacy protections into 

their software programs and online services. 

Consumer Education and Private-Public Sector Partnerships. Microsoft has taken 

steps to educate consumers about ways to protect themselves while online, and we 

have worked closely with industry members and law enforcement around the world 

to identify security threats, share best practices, and improve our coordinated response to privacy, security and other Internet safety issues. 

Senator DORGAN. Mr. Kelly, thank you very much. We appreciate 

your testimony. 

47 

We will now hear from Mr. Clyde Wayne Crews, Jr., Vice President for Policy, Director of Technology Studies at the Competitive 

Enterprise Institute. Mr. Crews, welcome. 

STATEMENT OF CLYDE WAYNE CREWS, JR., VICE PRESIDENT 

FOR POLICY/DIRECTOR OF TECHNOLOGY STUDIES, 

COMPETITIVE ENTERPRISE INSTITUTE 

Mr. CREWS. Thank you very much. Good morning, Mr. Chairman. 

I appreciate the opportunity to appear. 

Online behavioral marketing is not the devil, but with emergent 

technologies like biometrics on the horizon, data privacy debates 

like the ones we are facing today are only going to intensify. Targeted advertising helps fuel today’s flood of information, frictionless 

e-commerce, and the global blogger soapbox. It has become cliche ́

to note that the Internet is one of the most important wealth-creating and democratizing technologies ever known. 

But behavioral marketing stokes privacy fears. Is my data personally identifiable? Can it become so? Will my identity be stolen, 

and if a breach occurs, who is punished? 

Note that we were all angry when ads were untargeted spam. 

Now that ads are relevant, well, we are still not satisfied. 

Behavioral advertising employs heretofore unexploited capabilities of the Internet, reinforcing the reality that there is much more 

to the Internet than the web at any one juncture. It is only 2008. 

User preferences preclude one-size-fits-all privacy policy. Online 

some hide behind digital gated communities. Others parade in 

front of personal webcams. Privacy is not a thing to legislate. It is 

a relationship expressed in countless ways. Legislation would be 

complex. If online privacy is regulated, what about offline? Should 

the standard be opt-in or opt-out? Who defines behavioral or sensitive? Should state laws be preempted? What about noncommercial information collection? 

Industry already follows principles like the FTC’s proposed optout for sensitive information even when the information is not personally identifiable, but the rise of the information society amid a 

homeland security culture is an unfortunate coincidence. Blurring 

of public and private databases complicates things. Programs like 

Total Information Awareness, CAPPSII, and a national ID undermine privacy when data cannot be confined to an agreed-upon business purpose. 

Government often does not need to protect privacy but to allow 

it in the first place. One is reminded of the old Peanuts cartoon of 

Snoopy sitting on top of the doghouse typing ‘‘Dear IRS, please remove my name from your mailing list.’’ 

Another old joke goes that if McDonald’s were giving away free 

Big Macs in exchange for a DNA sample, there would be lines 

around the block. 

But consumers do care. The Net itself enables collective consumer discontent, such as blog backlashes we have seen against 

companies. The result: firms alter their information handling procedures without law. Consumers can also avoid certain sites or use 

Anonymizer or Scroogle or TrackMeNot or a virtual private network. Choice mandates are not persuasive when choice is increasingly the default. 

48 

This debate’s fury implies that real market opportunities exist in 

providing online anonymity. A marketer does not necessarily want 

to know who you are but how somebody like you acts. No one in 

a free market is really lucky enough to self-regulate as FTC puts 

it. Firms are regulated by consumer fury, rivals, by Wall Street, by 

intolerant investors. There is no such thing as no regulation. The 

choice we face is between political discipline or competitive discipline in an impatient market. Even companies on the frontier of 

behavioral advertising like Phorm and NebuAd face discipline. 

One’s sympathies there are going to depend upon the ownership 

status one accords to a web page. But today’s web page is not what 

tomorrow’s web page is going to be with information and ads coming into the page from numerous sources. 

Privacy standards best thrive as a war between computer scientists. Marketing to an unidentified customer is today’s happy 

goal, but at the very same time, there is great value in technologies 

that prevent others from posing as us. That is one reason the use 

of personally identifiable data should not be ruled out altogether. 

Meanwhile, we need improved cyberinsurance products and enhanced liability products to evolve online. Regulating can short-circuit such market innovations. The private sector needs practice for 

the really difficult cases like the emergence of biometrics. 

Privacy policies are already legally binding. Thus, a more fitting 

Federal agenda would target identity theft and computer crime and 

enforce privacy policies and stay neutral on computer science, keep 

compulsory databases separate from private ones, stabilize Government’s own insecure networks, and avoid interventions like data 

retention that undermine security guarantees. 

To protect consumers online, we must consciously avoid entrenching regulations such that effective private alternatives and 

institutions, however warranted, simply cannot emerge. Online 

marketers are today’s battered business bureau, but they need battering by competitive discipline, not just legislation. 

Thank you very much. 

[The prepared statement of Mr. Crews follows:] 

PREPARED STATEMENT OF CLYDE WAYNE CREWS, JR., VICE PRESIDENT FOR POLICY/ 

DIRECTOR OF TECHNOLOGY STUDIES, COMPETITIVE ENTERPRISE INSTITUTE

The Competitive Enterprise Institute (CEI) is a non-profit public policy research 

foundation dedicated to individual liberty, limited government, and markets. We appreciate the opportunity to discuss policy issues surrounding online advertising. 

Privacy dilemmas are inevitable on the frontiers of an evolving information era, 

but CEI maintains that competitive approaches to online privacy and security will 

be more nimble and effective than rigid political mandates at safeguarding and enhancing consumer well-being, facilitating commerce and wealth creation, and even 

contributing to the rise of the anonymous approaches to commerce we’d like to see. 

The Rise of Privacy and Cybersecurity as Public Policy Issues 

The marvelous thing about the Internet is that one can contact and learn about 

anyone and anything. The downside is that the reverse is often true. The digital information age—against a backdrop of rising globalization—offers consumers unprecedented access to news, information, democratized credit and much more. Anyone 

may collect and share information on any subject, corporation, government—or in 

many cases, other individuals. 

Companies from retailers to search engines to software makers all collect consumer data—enough to fill vast server warehouses. Of course, websites have long 

collected and marketed information about visitors. The latest twist is that behavioral marketing firms ‘‘watch’’ our clickstreams to develop profiles or inform catVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00052 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
49 

egories to better target future advertisements. Unarguably beneficial, the process 

stokes privacy concerns. Fears abound over the data’s security; is any of it personally identifiable? If not, can it conceivably become so? Will personal information fall 

into the wrong hands? Will it become public? And if a breach occurs, who’s punished? While Capitol Hill, beltway regulators or state governments are seen often 

as the first line of defense, regulatory and legislative proposals, much like the antispam law, can fall short of success. Aspirations can exceed actual legislative capability. 

Clearly, as a technological phenomenon, mass transactional data tracking and collection are here to stay; and with nascent technologies like biometrics that could 

fully authenticate users on the horizon, the debates will only intensify. 

Along with behavioral advertising, new data-mining and biometrics technologies 

promise higher levels of convenience and, ultimately, more secure commerce online. 

Beyond the ‘‘merely’’ commercial, the technologies also hint at greater physical security in the ‘‘homeland’’ and in our workplaces via authentication. 

On the upside, online advertising enables today’s familiar subscription-fee-free 

cornucopia of news and information, and the free soapbox enjoyed by bloggers worldwide. It’s become cliche ́ to note the commercialized Internet is one of the most important wealth-creating sectors and democratizing technologies ever known. Benefits 

to society range from frictionless e-commerce, to the democratization of privileges 

once available only to the rich, to a megaphone for all. 

This online bounty has also brought real and imagined privacy vulnerabilities to 

the forefront, ranging from personal identity theft to exposure of private thoughts 

and behavior online. Once, we could contend merely with nuisances like spam, cookie-collection practices and the occasional spyware eruption. Since policies today are 

being formulated in the context of a post-Sept. 11 world, cybersecurity and computerized infrastructure access and security join routine privacy as prime policy issues. 

Adding complexity is the noted emergence of biometric technologies and highly engineered data mining that could alter the future of behavioral marketing. Thus we 

must contend not just with run of the mill commercial aspects of privacy policies, 

but with national security themes and what some consider a dangerous new surveillance state. 

The question is, do newfangled data collection techniques threaten fundamental 

expectations of privacy, and in the case of government data collection, even liberty 

itself? 

What principles distinguish between proper and improper uses of personal information, and what policies maximize beneficial e-commerce and consumer welfare? 

Business use of behavioral advertising can be irritating, but many have made peace 

with advertisers’ using personal information. One-size-fits-all privacy mandates will 

undermine e-commerce and the consumer benefits we take for granted. Sweeping 

regulations can especially harm start-ups that lack the vast data repositories already amassed by their larger competitors. Our policies should be consistent with 

tomorrow’s entrepreneurs (and consumers) starting businesses of their own to compete with the giants of today. 

Thus, privacy policies need to be filtered through the lens of the entire society’s 

needs. We must consider the impact on: (1) consumers, (2) e-commerce and commerce generally, (3) broader security, cybersecurity, homeland security and critical 

infrastructure issues, and finally (4) citizen’s 4th amendment protections. 

Happily the prospect of billions in economic losses from mistakes incentivize the 

market’s efforts to please consumers and safeguard information and networks. 

Web Functionality Continues to Unfold 

The recent emergence of behavioral advertising reinforces the easily forgotten reality that there’s more to the Internet than the ‘‘Web’’ at any given juncture; it’s 

only 2008, and there are doubtless more commercially valuable avenues for marketing yet to be discovered in the decades ahead. Targeted, behavioral and contextual advertising make use of heretofore unexploited underlying capabilities of the 

Internet, possibilities that hadn’t yet occurred to anyone else, just as the original 

banner ad trailblazers first did years ago—and, yes, just as the spammers did. 

At the Outset: Policy Must Distinguish Between Public and Private Data 

Parameters are needed to talk coherently about the treatment of individual’s data. 

Information acquired through the commercial process must be kept separate from 

that extracted through government mandates. Similarly, private companies generally should not have access to information that government has forced individuals 

to relinquish (what one might call the ‘‘Social Security’’ problem). Private industry 

should generate its own marketing-related information (whether ‘‘personally identifiable’’ or not), for purposes limited by consumer acceptance or rejection, rather than 

50 

1 Associated Press, ‘‘FCC to look into embedded advertising on TV,’’ MSNBC.com. June 26, 

2008. http://www.msnbc.msn.com/id/25401193/. 2http://www.networkadvertising.org/networks/principleslcomments.asp. 3Federal Trade Commission, ‘‘Behavioral Advertising, Moving the Discussion Forward to Possible Self-Regulatory Principles,’’ December 20, 2007. http://www.ftc.gov/os/2007/12/ 

P859900stmt.pdf. 

piggyback on government IDs. Confidentiality is a value, and should be a competitive feature. 

Conversely, for any debate over behavioral advertising to make sense, corporate 

America needs to be able to make credible privacy assurances to the public. People 

need to know that the data they relinquish is confined to an agreed-upon business, 

transactional or record-keeping purpose, not incorporated in a government database. 

If regulators end up routinely requiring banks, airlines, hotels, search engines, software companies, Internet service providers and other businesses to hand over private information (in potentially vulnerable formats), they will not only undermine 

evolving commercial privacy standards, including behavioral, but make them impossible. Government’s own information security practices is the elephant in the room 

when it comes to contemplating e-commerce sector’s stance with respect to privacy. 

It’s all too easy to give the online marketing industries a black eye and risk turning 

society against the technologies, and ensure regulation and politicization. Private 

data and public data policies are potentially on a collision course, but need not be. 

The benefits that personalization brings, like easier, faster shopping experiences, 

are in their infancy. Sensible data collection improves search, communication, ability to innovate, U.S. competitiveness—all the things we associate with a well-functioning economy and evolution in healthy consumer convenience and power. 

Privacy Legislation: Premature and Overly Complex 

In contemplating government’s role with respect to privacy and information security, we must recognize the realities of differing user preferences that preclude onesize-fits-all privacy and security policy. Online, there are exhibitionists and hermits. 

Some hide behind the equivalent of gated communities; others parade less-thanfully clothed before personal webcams. 

Note how we work ourselves up into a lather: policymakers were concerned about 

privacy when ads were untargeted and irrelevant (spam); now a solution—behavioral 

and contextual marketing—makes ads relevant, and we’re hand-wringing about privacy there too. Incidentally, spam was framed as a privacy problem, but in reality 

the spammer didn’t typically know who you were. Likewise, a positive early development in behavioral advertising is that personally identifiable information is not always crucial to the marketer (although sensible uses of personally identifiable information should not be thwarted). Too often, the complaint seems to be commerce as such. For example, the Federal Communications Commission recently decided to investigate the ‘‘problem’’ with embedded ads in TV programming.1

Policy should recognize privacy is not a single ‘‘thing’’ for government to protect; 

it is a relationship expressed in countless ways. That relationship is best facilitated 

by emergent standards and contracts—like the Network Advertising Initiative’s behavioral advertising principles 2 that predate the Federal Trade Commission’s late 

2007 principles 3—and in emergent market institutions like identity theft insurance. 

Apart from varied privacy preferences, any legislative effort to regulate behavioral 

advertising gets exceedingly complex: 

• If online privacy is regulated, what about offline? 

• Should behavioral advertising be opt-in or opt-out? (Why and when?) 

• Who defines which advertising is ‘‘behavioral’’? 

• What is the legislative line between sensitive, and non-sensitive, personally 

identifiable information? 

• Should the Federal Government pre-empt state privacy laws? 

• Will the privacy rules apply to government? 

• Will government abstain from accessing or seizing private databases? 

• What about non-commercial information collection? (Will the rules apply to 

bloggers? Or to Facebook activism?) 

• What about consumer harm caused by privacy legislation (Given that in the 

business world, most transactions occur between strangers.) 

• What of practical problems of written privacy notices? (Especially given the declining importance of the desktop, the emergent web-like multi-sourced nature 

of web-pages themselves, smaller wireless-device screens, and the ‘‘thing-tothing’’ Net that bypasses humans altogether.) 

51 

4http://www.freerepublic.com/focus/f-news/1384722/posts. 

• Could disclosure and reporting mandates create a burdensome paperwork requirements detrimental to small businesses? (A privacy ‘‘Sarbanes-Oxley’’) 

• What about the right to remain anonymous; Behavioral marketing appears to 

be on course to facilitate anonymous transactions; will government permit it? 

How should tolerance of anonymity differ in commercial and political contexts? 

The Internet was designed as an open, non-secure network of semi-trusted users. 

Thus one interpretation of the nature of the cyberspace is that advertisers may legitimately assemble information on what is clearly a very public network that never 

offered any real pretense of security. But even assuming one’s online pursuits can 

be tracked, privacy tools nonetheless are emerging, and vendors must be held to 

commitments. Given legislation’s complications and the Internet’s inherent security 

limitations, a rational policy prescription should be more limited: Hold the private 

sector accountable to the contracts and guarantees it makes, and target identity theft 

and the criminals who perpetrate it. If legislation merely does such things as send 

bad actors overseas, we merely create regulatory hassles for mainstream companies 

that already follow ‘‘best practices,’’ and for small businesses trying to make a go 

of legitimate e-commerce. 

As in spam debate, we face less a legislative problem than a technological one. 

It’s true that social norms and expectations have yet to gel—but those are as varied 

as individuals are. 

Marketing Is Not Today’s Dominant Information Collection Threat 

The emphasis on online privacy legislation could represent a case of misdirected 

energy. The most important information collection issues of the day are not related 

to mere marketing; rather, criminals who ignore already existing laws and will ignore any new law, are the ones creating mischief online, abusing the trust we have 

or would like to have in vendors. Meanwhile, government surveillance and information collection threaten liberties and genuine privacy—and one cannot ‘‘opt out.’’ 

(One is reminded of the Peanuts cartoon of Snoopy sitting on his doghouse typing, 

‘‘Dear IRS . . . Please remove my name from your mailing list.’’) 4

The stringent opt-in standard some seek in the behavioral marketing debate is 

not one government tolerates for itself. The post-Sept. 11 push for compulsory national ID cards, warrant-less wiretapping and escalating data retention mandates 

signify a government more inclined toward infringing privacy than acting as guarantor. 

The rise of the information society amid a ‘‘homeland security culture’’ is an unfortunate coincidence, an accident, but one that colors debates over marketing that 

would otherwise be more pedestrian. The tendency of government to interfere with 

privacy practices is undeniable: Total Information Awareness, CAPPSII, and a national ID are examples of expansive government efforts that would undermine the 

private sector’s freedom and ability to make privacy assurances in the first place. 

Worse, when technology companies contract with government for information 

services, they would very likely request immunity for data breaches by extension 

of the Homeland Security Act that grants similar immunities for failed security 

technologies; so if markets are tempted to repudiate self-regulation and liability for 

privacy standards, government oversight becomes the default. The ‘‘homeland security culture’’ can undermine the market’s entrepreneurial tendency to resolve the dilemmas created by information sharing. 

Deliberations over privacy and online security should start with the recognition 

that government often doesn’t need to protect our privacy, it needs to allow it in 

the first place. Business, whatever missteps happen in behavioral marketing, can deliver. As it stands, nobody’s in any position to make ironclad security guarantees 

given the open nature of the Internet, but the Web is a giant research experiment, 

and techniques will improve. In fact, as behavioral tracking does begin to employ 

personally identifiable information, security benefits in ways that people will approve. The Net’s governmental origins have left privacy expectations and rights 

somewhat ill-defined in many online contexts. But we all at times need to identify 

ourselves and validate the identity of others. 

Consumers are Not Powerless: The Redundancy of FTC Standards 

In spite the Net’s vulnerabilities, consider how legislation pales compared to unforgiving competitive discipline. An old joke holds that if McDonald’s was giving 

away free Big Macs in exchange for a DNA sample, there would be lines around 

the block. But consumers do care; and thanks to the Internet itself, they are hardly 

a voiceless mass. 

52 

5 Associated Press, ‘‘U.S. Contradicts Itself Over Its Own ID Protection Advice,’’ 

SiliconValley.com, July 2, 2008. http://www.siliconvalley.com/news/cil9762027?nclick 

lcheck=1. 

6 Caroline McCarthy, ‘‘MoveOn.org takes on Facebook’s ‘Beacon’ ads,’’ CNet News.com. November 20, 2007. http://news.cnet.com/8301-13577l3-9821170-36.html. 7Federal Trade Commission, 2007. 

Every few weeks brings new headlines about government data-handling debacles, 

such as governmental bodies forcing employees to carry Social Security cards on 

their person, or the IRS requirement that payment checks feature the SSN.5 Confidence isn’t inspired when the government’s information practices lag the private 

sector’s. 

Contrast that with what happens to a careless private firm. Google and its recent 

mergers and alliances put it under scrutiny, but why? (Recall it was Google that 

in 2006 refused to hand over user search data to the Justice Department; and 

Google’s YouTube division is now being forced by a New York district court to hand 

over user viewing records in a video piracy case. Google not unsurprisingly objects.) 

But imagine if Google suffered a serious data breach. Consumers would lose trust, 

and Google could lose millions. Examples abound of consumer sovereignty, such as 

the backlash against Facebook’s Beacon that cross-posted users shopping activities 

on friends’ sites,6 and Comcast’s de-prioritizing of certain file sharing transfers. Today’s Internet users are empowered to educate the world about business practices 

of which they disapprove. The blogosphere transforms Web users into citizen-journalists, harnessing the power of collective discontent. The result: Companies routinely change and improve their information handling procedures without law. 

Policies proposed in the name of what consumers want or should want are all too 

common, as if the ideas hadn’t occurred to anyone in the competitive marketplace 

already, or as if the markets hadn’t been forced to adapt already, or as if issues 

weren’t more complicated than the regulators suppose. 

For example, the November 2007 FTC proposal on behavioral advertising offers 

pedestrian principles that have long been in play: 7 Paraphrasing, sites should declare that info is being collected and used and users can opt out; data should be 

‘‘reasonably secured,’’ and retained only as long as necessary; affirmative consent be 

given for privacy policy changes; and sensitive information should not be collected 

at all, or only with affirmative opt-in. 

Where do the real incentives lie? Industry looks at what consumers actually want; 

industry often already embraces opt-in for sensitive information categories, even 

when the information is not personally identifiable. And if not so empowered by a 

benevolent vendor, users can already exercise the choice allegedly sought in privacy 

legislation; they can simply choose not to disclose sensitive information on certain 

sites, or employ privacy software that can thwart unwanted data collection and 

allow anonymous Web browsing. ‘‘Anonymizer’’ is still out there for encrypted, anonymous surfing. People can switch to ‘‘Scroogle’’ to disguise their Google searches; A 

consumer can use a dedicated tool to nullify his identity prior to a sensitive search 

like ‘‘HIV’’; TrackMeNot can send out ‘‘white noise’’ search queries to disguise the 

real one. No mandates for choice are needed; choice is the default, whether vendors 

prefer it or not. 

In terms of competitive enterprise, the divisiveness of a debate like behavioral 

marketing implies that real market opportunities exist in providing online anonymity. After all, despite all the hand-wringing over personally identifiable information, 

any given marketer doesn’t necessarily need to know who you are, but how somebody like you acts. (Much like a politician seeking a vote, incidentally.) Again, the 

worry is less that the market is invading our privacy and more whether that anonymity will be permitted politically when it finally is available to us commercially. 

‘‘Self-Regulation’’ Is a Misnomer 

Privacy and security need to be competitive features. We need to foster competition in reputations. And we need flexibility when the inevitable mistakes are made. 

Businesses compete; and one area in which they can compete is in the development of technologies that enhance security. Washington’s inclination toward regulating online consumer relationships threatens to undermine the market’s catering 

to diverse individual privacy preferences, and hinder the evolution of competitive research and innovation in secure applications. Privacy encompasses innumerable relationships between consumers and businesses, and no single set of privacy safeguards is appropriate. While government demands information disclosure, profitdriven firms compete to offer robust privacy assurances. As businesses respond to 

evolving consumer preferences, stronger privacy policies will emerge. 

53 

8 Brian Krebs, ‘‘Data Breaches Are Up 69% This Year, Nonprofit Says,’’ Washington Post. July 

1, 2008. p. D3. http://www.washingtonpost.com/wp-dyn/content/article/2008/06/30/ 

AR2008063002123.html. 9Peter Whoriskey, ‘‘Google Ad Deal Is Under Scrutiny,’’ Washington Post, July 2, 2008. 

Page D1. http://www.washingtonpost.com/wp-dyn/content/article/2008/07/01/AR200807010 

2622.html. 

Businesses are disciplined by responses of their competitors. Political regulation 

is pre-mature; but ‘‘self-regulation’’ like that described in the FTC principles is a 

misnomer; it is competitive discipline that market processes impose on vendors. Nobody in a free market is so fortunate as to be able to ‘‘self regulate.’’ Apart from 

the consumer rejection just noted, firms are regulated by the competitive threats 

posed by rivals, by Wall Street and intolerant investors, indeed by computer science 

itself. 

Neither the government nor private sector has a spotless ‘‘self-regulatory’’ record, 

but FTC seems unconcerned about the former. Data breaches at businesses, governments and universities rose 69 percent in 2008.8 Government can contribute to data 

security by ensuring that its own policies—like data sharing or data retention mandates, or sweeping subpoenas—do not interfere with competitive discipline. 

Even governmental calls for self-regulation seem lukewarm. Along with the Federal Trade Commission’s Principles on what personally identifiable information 

firms may collect, a bill in the New York state legislature would impose drastic optin standards, preventing companies from gathering personalized information without explicit user permission. When Microsoft bid for Yahoo! this year, the Justice 

Department almost immediately wondered whether the combined firm would possess ‘‘too much’’ consumer data. Canada recently announced an investigation into 

Facebook’s privacy protections. Now the Department of Justice is investigating the 

Google-Yahoo deal.9

Everybody’s heard of Google and Microsoft, but fewer have heard of companies 

like Phorm and NebuAd, which present the more pertinent behavioral marketing 

issues; their new techniques give ISPs a dog in the fight, since online advertising 

is a commercial opportunity impossible for ISPs to ignore. ISPs see Google and 

Microsoft and they want a piece of the online advertising action too. These companies’ techniques have been called spyware, but again, they incorporate the Net’s underlying capabilities in novel ways, and they too are subject to competitive discipline. One’s sympathies will depend upon the ‘‘ownership’’ status one accords to 

Web pages, and what one regards as online ‘‘trespass.’’ The only certainty is a Web 

page today is not what a Web page tomorrow will be. Was there ever a real reason 

for publishers and advertisers to think they could control everything a user saw, 

given the open-ended potential of software’s obvious ability to route content to 

browsers in novel ways? At many sites, like Facebook, each page is a ‘‘Web’’ in its 

own right, containing widgets drawing information and ads from numerous sources. 

The debate has really only just begun, and online marketing trade groups are truly 

the ‘‘Battered Business Bureau.’’ But they’re battered by competitive discipline, not 

merely regulators. 

Lessons from Personally Identifiable Data Use Can Inform Future Online Security 

Practices 

A frontier industry requires the flexibility to learn from mistakes. We must distinguish between proper and improper uses of surveillance by both the private and 

public sectors. Not many want to be tracked by the authorities, or treated like 

human bar code. Myriad benefits will accrue from the further deployment of identification techniques—even personally identifiable—into various facets of daily life. 

But where is the line crossed, and who is capable of crossing it? 

In private hands, techniques like behavioral marketing, biometric and data-mining technologies enlarge our horizons. They expand the possibilities of a market 

economy by bolstering security in private transactions ranging from face-to-face authentication to long-distance commerce. The best, most secure technologies are those 

that prevent others from posing as us—that’s why the value of personally identifiable data cannot be ruled out. The Web is desperately short of that kind of clarity 

and authentication, in a world of cyber-risks, identity theft, and the need to conduct 

ever more sensitive transactions. But nothing is automatic. The marketplace imperative requires private sector experimentation in privacy: It’s messy, but necessary. 

On the one hand, policy should not create situations where companies are required to ask for personal info that otherwise wouldn’t be needed. (Google declares 

in its comments on the FTC advertising principles that obeying certain rules would 

require it to collect information it otherwise would not need.) On the other hand, 

54 

certain forms of identifiable behavioral tracking may prove important in specific 

contexts and shouldn’t be prohibited. 

Disallowing personally identifiable information is the wrong thing to do. We often 

need to identify those we’re dealing with on line, and for them to be able to identify 

us; such instruments will be governed by heretofore unknown contracts and privacy 

polices. It’s not ‘‘self-regulation,’’ but the needs of the world at large driving this evolution. Rather than legislating, it’s likely better to keep this a war between computer scientists; between those working on behavioral advertising with personal information and/or authentication, and those working on behavioral without authentication. Being able to sell to a customer but not have that customer identified is 

a key research area in computer science. The consumer-control ethos—the notion 

that we don’t have to be tracked—puts consumers, not advertisers, in the drivers’ 

seat Let the computer scientists duke it out. 

In many transactions and contexts, the Web needs better authentication, not the 

abandonment of personally identifiable information. The private sector should experiment with generating such data in ways that consumers can accept. Some say 

we must regulate because online risks exist; this report argues for not regulating 

because there are online risks. The firms that reduce risks in ways palatable to consumers offer a great service. New products and institutions still need to emerge 

around online commerce. 

Expanding the Marketplace for Liability and Private Security Insurance 

Privacy is one subset of the much broader issues of online security and 

cybersecurity. It’s been noted that a basic problem today is that no one stands in 

any position to make guarantees to anybody about anything. That doesn’t mean improved insurance products and enhanced liability contracts won’t develop online, 

however. Lessons learned from spam, privacy, and preventing piracy of intellectual 

property will carry over to the security issues of tomorrow. 

Government shouldn’t grant immunity to software companies for breaches, but at 

the same time it should not impose liability on them either. It’s not so clear whom 

to sue on an Internet not amenable to authentication, but standards will emerge. 

Government interference can impede private cyber-insurance innovations. 

Certain innovations can be sacrificed by regulating. The private sector needs to 

‘‘practice’’ now for the really difficult cases like the integration of biometrics into the 

online world; meanwhile the Federal Government needs to focus on cyber-crime. 

A Positive Agenda for the Federal Government 

Policymakers should appreciate the government’s inherent limitations as well as 

the vulnerabilities that can be created by Federal policies and procedures. 

From lost laptops to hacks into the Pentagon e-mail system, to ‘‘D’’ grades for the 

Department of Homeland Security’s own information security practices, regulators’ 

ability to rationally guide others on privacy is questionable. In many areas it makes 

sense to circumscribe regulators’ sphere of influence, while increasing that of the 

market. 

Recognizing that governments can fail just as markets can, there are numerous 

ways government within its limitations can properly foster private sector innovation 

in security: 

• Foster competitive discipline. 

• Emphasize protecting government’s own insecure networks, not regulating markets. This means many things, including: removing sensitive information from 

government websites; limit the size and scope of government databases to ensure government doesn’t create artificial cybersecurity risks; avoiding data retention mandates and other interventions that undermine private-sector security guarantees. 

• Focus on computer criminals, not cyber-regulations. 

• Assess areas where it’s best to liberalize private sector data-sharing rules. For 

example, facilitating private sector medical data sharing could deliver benefits 

to suffering patients. More broadly, some firms cannot share data among their 

own divisions because of antitrust and privacy strictures. Enhancing cross-firm 

coordination can improve reliability and security. 

• Recognize that commercial anonymity and political anonymity differ; we may 

need ‘‘less’’ of the former, even as we expand the latter. Research should continue on the seemingly opposed agendas of authentication of users on the one 

hand, and anonymizing technologies on the other. 

55 

Conclusion: Affirming Private Sector Primacy Over Information Practices 

Our greatest privacy concern should be government collection of our information, 

not the emergence of targeted marketing. 

In the changing world of e-commerce, the role of government is not to predetermine commercial privacy arrangements, but to enforce information-sharing contracts that companies make between themselves or with individuals. Privacy policies 

are legally binding. Government’s role is not to dictate the structure of privacy contracts through such means as opt-in or opt-out policies; it is to halt deceptive practices and hold private firms accountable to the guarantees they make. Government’s 

other role is to protect citizens from identity theft, which is not a commercial enterprise, but a criminal one. 

If anonymity and the inability to exclude bad actors are at the root of genuine 

online security problems, legislation doesn’t make them go away. When contemplating centralized government vs. decentralized market approaches to protection 

consumers online, we must strive, before regulating, to follow the ‘‘cybersecurity 

commandment’’: Don’t entrench regulation to such a degree that effective private alternatives and institutions, however warranted as conditions change, simply cannot 

emerge. 

Related Reading 

Wayne Crews and Ryan Radia, ‘‘Rigid Federal Mandates Hinder Privacy Technologies,’’ San 

Jose Mercury News, June 15, 2008, http://www.mercurynews.com/opinion/cil9593341. 

Wayne Crews, ‘‘Cybersecurity Finger-pointing: Regulation vs. Markets for Software Liability, 

Information Security, and Insurance,’’ CEI Issue Analysis 2005 No. 7, May 31, 2005, 

http://cei.org/pdf/4569.pdf. 

Wayne Crews, ‘‘Cybersecurity and Authentication: The Marketplace Role in Rethinking Anonymity—Before Regulators Intervene,’’ CEI Issue Analysis 2004 No. 2, November 8, 2004, 

http://cei.org/pdf/4281.pdf. 

Wayne Crews, Comments to the FTC on e-mail authentication themes, September 30, 2004, 

http://www.cei.org/pdf/4229.pdf. 

Alberto Mingardi and Wayne Crews, EU takes a Swipe at Google, International Herald Trib- une, March 9, 2007, http://www.iht.com/articles/2007/03/09/opinion/edmingardi.php. Wayne Crews and Brooke Oberwetter, ‘‘Preventing Identity Theft and Data Security Breaches: 

The Problem With Regulation,’’ CEI Issue Analysis 2006 No. 2, May 9, 2006, http://cei.org/pdf/ 

5316.pdf. Wayne Crews ‘‘Giving Chase in Cyberspace: Does Vigilantism Against Hackers and File-sharers Make Sense?’’ CEI OnPoint No. 109, October 2, 2006. http://cei.org/pdf/5569.pdf. 

Wayne Crews, ‘‘Trespass in Cyberspace: Whose Ether Is It Anyway?’’ TechKnowledge #19, 

Cato Institute, September 10, 2001, http://www.cato.org/tech/tk/010910-tk.html. 

Wayne Crews, ‘‘Human Bar Code: Monitoring Biometrics Technologies In a Free Society,’’ 

Cato Institute Policy Analysis No. 452, September 17, 2002, http://www.cato.org/pubs/pas/ 

pa452.pdf. 

Senator DORGAN. Mr. Crews, thank you very much. 

Finally, we will hear from Mr. Mike Hintze. 

Mr. HINTZE. Hintze. 

Senator DORGAN. Mr. Mike Hintze. I am sorry. Mike Hintze is 

the Associate General Counsel at Microsoft Corporation. Mr. 

Hintze, you may proceed. 

STATEMENT OF MICHAEL D. HINTZE, ASSOCIATE GENERAL 

COUNSEL, MICROSOFT CORPORATION 

Mr. HINTZE. Thank you, Mr. Chairman, for inviting me to testify 

today about the privacy implications of online advertising. This is 

a critically important topic that Microsoft takes very seriously, and 

we applaud the Committee for its leadership in this area. 

Online advertising, as you acknowledged, has become the engine 

that drives the Internet economy. Millions of websites are able to 

offer content and services for free to consumers because of the revenue they derive from advertising online. In the United States, the 

amount spent on online advertising already exceeds spending for 

advertising through radio, magazines, and cable television. It accounted for $21 billion in 2007 and is expected to grow to $50 billion in the next 3 years. 

56 

Online advertising has been so successful because it is interactive and can be targeted to users’ online activities and other 

characteristics. This targeting benefits users not only because it enables free services and content they enjoy, but also because they 

are likely to see more relevant ads. And it benefits advertisers because they can reach users who are more likely to respond to their 

ads. 

Each search, click, and other user action online reveals valuable 

information about the user’s likely interests, and online ads can be 

automatically tailored to those interests. In general, most data collection online happens in conjunction with a display of ads. This 

means the entity with the greatest market share and therefore who 

serves the most ads online will collect the most data about users. 

As this Committee recognizes, the collection of user data to serve 

ads on the Internet has important privacy implications. Microsoft 

is here today because we have a deep commitment to consumer privacy. We were one of the first companies to appoint a chief privacy 

officer, an action we took nearly a decade ago, and we currently 

have over 40 employees who focus on privacy full-time and another 

400 throughout the business who focus on privacy as part of their 

jobs. We have a robust set of internal privacy policies and standards that guide how we do business and how we design our products and services in a way that protects consumer privacy. 

With respect to online advertising, we have taken more concrete 

steps to protect privacy than any of our competitors. Last July, we 

released Microsoft’s Privacy Principles for Live Search and Online 

Ad Targeting. We are committed to these principles which focus on 

three core themes: transparency, control, and security. Let me explain how we have put each of these principles into action in ways 

that go beyond others in the industry. 

The first principle is transparency. We post a clear link to our 

privacy notice on every page of our websites, including the home 

page, and we have for several years. We also were one of the first 

companies to develop so-called layered privacy notice, which gives 

concise and easy-to-understand bullet-point summaries of our practices with links to more detailed information. And our privacy 

statement is clear about the data we collect and use for online advertising. 

The second principle is control. Microsoft enables users to opt out 

of behavioral ad targeting, but we also give consumers the option 

to tie their opt-out choice to their Windows online account. Unlike 

methods used by other companies, this means that even if they delete cookies on their machine, when they sign back in, their optout selection will persist. It also means that a single choice can 

apply across multiple computers they use. 

The third principle is security. For Microsoft, this means not only 

protecting data from unauthorized access, but also designing our 

systems and processes in ways that minimize their privacy impact 

from the outset. We create an anonymized identifier for each of our 

registered users. Search query data and web surfing behavior used 

for ad targeting is associated with this anonymized identifier. We 

also irreversibly and completely remove the IP addresses and other 

identifiers from search queries after 18 months. 

57 

1 U.S. Census Bureau, Quarterly Retail E-Commerce Sales: 4th Quarter 2007, Feb. 15, 2008, 

available at http://www.census.gov/mrts/www/data/html/07Q4.html. 

We believe that our commitment to these three principles, transparency, control, and security, and more importantly, the steps we 

have taken to implement them make us the industry leader in online privacy. 

These principles also form the basis for our support for comprehensive baseline privacy legislation, supplemented by robust 

self-regulation. For example, we have advocated a broader self-regulatory framework than that proposed by the FTC, one that is tailored to account for the type of information collected and how it is 

used. We have also long supported meaningful privacy legislation 

which, as CDT appropriately notes, can protect consumers without 

hampering business. 

We view these efforts as part of our multi-faceted approach to 

protecting consumer privacy, which also includes developing technical solutions and educating consumers about how to protect 

themselves online. In short, at Microsoft, we are prepared to work 

collaboratively on all these fronts to protect consumer privacy. 

Thank you for giving us the opportunity to testify today, and I 

look forward to answering any questions you may have. 

[The prepared statement of Mr. Hintze follows:] 

PREPARED STATEMENT OF MICHAEL D. HINTZE, ASSOCIATE GENERAL COUNSEL, 

MICROSOFT CORPORATION

Chairman Inouye, Vice Chairman Stevens, and honorable Members of the Committee, my name is Michael Hintze, and I am an Associate General Counsel of 

Microsoft Corporation. Thank you for the opportunity to share Microsoft’s views on 

the important privacy issues presented by advertising on the Internet. We appreciate the initiative that this Committee has taken in holding this hearing, and we 

are committed to working collaboratively with you, the Federal Trade Commission, 

consumer groups, and other stakeholders to protect consumers’ privacy interests online. 

Much is at stake with respect to the issues we will be considering today. Online 

advertising has become the very fuel that powers the Internet and drives the digital 

economy. It supports the ability of websites to offer their content and services online; it has created new opportunities for businesses to inform consumers about 

their products and services; and it allows consumers to receive ads they are more 

likely to find relevant. Simply stated, the Internet would not be the diverse and useful medium it has become without online advertising. 

At the same time, online advertising is unique because it can be tailored automatically to a computer user’s online activities and interests. An online ad can be 

served based on the website a user is visiting, the searches a user is conducting, 

or a user’s past Internet browsing behavior, among other things. In each instance, 

serving the online advertisement involves the collection of information about consumers’ Internet interactions. And this data collection has implications for consumer 

privacy. 

The objective we face is to maintain the growth of online advertising while protecting consumer privacy. This is a commitment Microsoft embraces. We recognize 

that consumers have high expectations about how we and other Internet companies 

collect, use, and store their information. Consumers must trust that their privacy 

will be protected. If the Internet industry fails to meet that standard, consumers 

will make less use of online technologies, which will hurt them and industry alike. 

It also could hurt the U.S. economy. E-commerce sales reached $136.4 billion in 

2007, an increase of 19 percent from 2006, according to the U.S. Census Bureau.1

In comparison, total retail sales in 2007 increased only 4 percent from 2006. If consumers feel that Internet companies are not protecting their privacy, the Internet’s 

ability to serve as an engine of economic growth will be threatened. This means that 

Microsoft, and all companies operating online, must adopt robust privacy practices 

that build trust with consumers. 

58 

2Some of these standards are set forth in Microsoft’s Privacy Principles for Live Search and 

Online Ad Targeting, attached as Appendix 1.* This document is also available at http:// 

www.microsoft.com/privacy. Additionally, Microsoft’s Privacy Guidelines for Developing Software Products and Services, which are based on our internal privacy standards, are available 

at http://www.microsoft.com/privacy. 3 It has become a standard approach to the online economy that there is a value exchange 

in which companies provide online content and services to consumers without charging a fee 

and, in return, consumers see advertisements that may be targeted. 4See Interactive Advertising Bureau, IAB Internet Advertising Revenue Report, 7, May 2008, 

available at http://www.iab.net/media/file/IABlPwCl2007lfulllyear.pdf; Yankee Group, 

Yankee Group Forecasts U.S. Online Advertising Market to Reach $50 Billion By 2011, Jan. 18, 

2008, available at http://www.yankeegroup.com/pressReleaseDetail.do?actionType=getDetail 

PressRelease&ID=1805. 5See Brian Morrissey, IAB: Web Ad Spend Tops Cable, Radio, ADWEEK, May 15, 2008, available at http://www.adweek.com/aw/contentldisplay/news/digital/e3ibcf6d45fc7a036dff28457 

a85c838ff1. 

Microsoft has a deep and long-standing commitment to consumer privacy. Microsoft was one of the first companies to appoint a chief privacy officer, an action we 

took nearly a decade ago, and we currently employ over 40 employees who focus on 

privacy full-time, and another 400 who focus on it as part of their jobs. We have 

a robust set of internal policies and standards that guide how we do business and 

how we design our products and services in a way that respects and protects user 

privacy.2 And we have made significant investments in privacy in terms of training 

and by building our privacy standards into our product development and other business processes. 

In general, three key principles have guided our approach to privacy issues: 

• Transparency. We believe consumers should be able to easily understand what 

information will be collected about them and when. They also should know how 

such information will be used and whether it will be combined with other information collected from or about them. 

• Control. We believe consumers should be able to control whether their personal 

information is made available to others and should have a choice about whether 

information about their online activities is used to create profiles for targeted 

advertising. 

• Security. Consumers and their information should be protected against outside 

threats and from unwanted disclosure. Data that directly identifies individual 

consumers, such as name and e-mail address, should not be stored in direct association with search terms or data about Web surfing behavior used to deliver 

ads online. And strict data retention policies should apply to search data. 

Today, I will discuss why we believe these principles are important, how we have 

put each of these principles into action, and how they underlie Microsoft’s approach 

to privacy in online advertising. But first I would like to provide an overview of how 

online advertising works, the role that consumer data plays in serving online ads, 

and the online advertising market. 

I. Online Advertising and the Role of User Data 

Consumers today are able to access a wealth of information and a growing array 

of services online for free. Websites can offer this content and these services for free 

because of the income they receive from advertising.3 Just as newspapers and TV 

news programs rely on traditional advertising, online news sites and other commercial websites rely on online advertising for their economic survival. Online advertising is particularly critical for the thousands of smaller websites that do not publish through offline channels and thus depend entirely on the revenue they receive 

from selling space on their websites to serve ads online. It is also critical for smaller 

businesses that serve niche markets (e.g., out-of-print books on European history) 

who rely on online advertising to reach those niche audiences cost-effectively; indeed, many of these businesses could not survive without it. 

The importance of online advertising is evident from its growing share of the overall advertising market. It accounted for $21 billion of the market in 2007 and is expected to grow to $50 billion in the next 3 years.4 In the United States, online advertising spending already exceeds spending for advertising through radio, magazines, and cable television.5

One reason for this rapid growth is the ability to target online ads to Internet 

users. Newspaper, magazine, and television advertisements can, of course, be targeted based on the broad demographics of readers or viewers. But the Internet is 

interactive, and this interaction yields a wealth of data about users’ activities and 

preferences. Each search, click, and other user action reveals valuable information 

59 

6 It is for this reason advertisers are willing to pay more for targeted ads. For example, although Merrill Lynch has reported that the average cost per 1,000 impressions (‘‘CPM’’) is $2.50, 

entities engaged in behavioral targeting have reported average CPMs as high as $10. See Brian 

Morrissey, Aim High: Ad Targeting Moves to the Next Level, ADWEEK, Jan. 21, 2008, available 

at http://www.adweek.com/aw/magazine/articleldisplay.jsp?vnulcontentlid=1003695822. 

Data also shows that 57 percent of 867 search engine advertisers and search engine marketing 

agencies polled ‘‘were willing to spend more on demographic targeting, such as age and gender.’’ 

Search Engine Marketing Professional Organization, Online Advertisers Are Bullish on Behavioral Targeting, May 15, 2008, available at http://www.sempo.org/news/releases/05-15-08. 7Search ads are selected based on the search term entered by a user and sometimes on data 

that has been collected about the user, such as the user’s history of prior searches. Search ads 

generally appear either at the top of the search results or along the right-hand side of the page. 

They often are displayed as text, but they may include graphics as well. Advertisers bid against 

each other for the right to have their ads appear when a specific search term is entered (known 

as a ‘‘keyword’’). 8These non-search ads are what users see when they visit virtually any site on the Internet 

other than a search engine site. They can be based on the content of the page the user is viewing (typically referred to as ‘‘contextual’’ ads) or on a profile of a user’s activities that has been 

collected over time (referred to as ‘‘behavioral’’ ads). But in either case, the company serving 

the ad would log the pages users view—typically in association with a cookie ID from the user’s 

computer and/or an IP address. 9Three examples of this are Microsoft’s acquisition of aQuantive, Yahoo!’s acquisition of 

RightMedia and Google’s acquisition of DoubleClick. For more information about the key players 

in the advertising market and the impact of consolidation in the market, see the testimony of 

Microsoft General Counsel Brad Smith before the Senate Judiciary Committee, available at 

http://www.microsoft.com/presspass/exec/bradsmith/09-27googledoubleclick.mspx. 10See section III.C below. 

about that user’s likely interests. The more information an entity collects, the greater that entity’s ability to serve an advertisement that is targeted to the user’s interests. This targeting benefits users, not only because it enables the free services and 

content they enjoy, but also because the ads they see are more likely to be relevant. 

And it benefits advertisers because users are more likely to respond to their ads.6

There are a variety of ways in which data can be collected about users to serve 

targeted ads on the Internet. Users reveal information about what they are looking 

for when they search online, and ads can be targeted to their search queries.7 Advertising networks enter into agreements with websites that allow them to display 

ads; to deliver and target those ads, data is gathered about the pages users view 

and the links users click on within those sites.8 And new business models are 

emerging where data about users’ online activities can be collected through a user’s 

Internet service provider, and ads can be served based on that information. In general, most data collection happens in connection with the display of ads. This means 

the entity that serves the most ads (search and/or non-search ads) will also collect 

the most data about users. 

II. The Online Advertising Environment 

The online advertising ecosystem has undergone significant changes in the past 

few years. There continue to be millions of websites that display online ads and 

thousands of advertisers who use online advertising. However, there is a relatively 

small number of so-called advertising networks, or ‘‘middlemen,’’ to bring advertisers and websites together to buy and sell online ad space. And the number of 

companies playing this intermediary role has decreased significantly in recent 

months as a result of consolidation in the industry.9

This market consolidation impacts the privacy issues we are discussing today in 

several ways. First, it is important to recognize that in the past, advertising networks typically did not have direct relationships with consumers. Today, however, 

the major ad networks are owned by entities—such as Microsoft, Google, and 

Yahoo!—that provide a wide array of Web-based services and, therefore, often have 

direct relationships with consumers. This increases the potential that data collected 

through online advertising will be combined with personally identifiable information. While Microsoft has designed its online advertising system to address this concern,10 no ad network is required to do so. 

Further, as noted above, there is a direct connection between the market share 

of an advertising network or an online search provider and the amount of data collected about a user’s online activity. For example, the larger the share of search ads 

a company delivers, the larger number of users’ online search queries it collects and 

stores. Similarly, the larger the share of non-search ads an advertising network delivers across the Web, the larger number of users’ page views it collects and stores, 

and the more complete picture of individuals’ online surfing behavior it is able to 

60 

11Based on comScore’s Core Search Report, in May of this year, 62 percent of searches were 

performed in the U.S. on Google, amounting to roughly 6.7 billion searches. comScore, comScore 

Releases May 2008 U.S. Search Engine Rankings, June 19, 2008, available at http:// 

www.comscore.com/press/release.asp?press=2275. Google also has strategic agreements with 

AOL and Ask that allow Google to serve ads to those companies’ search engine sites. Adding 

AOL’s (4.5 percent) and Ask.com’s (4.5 percent) share of the search queries, Google’s share rises 

to 71 percent. See id. 12Following its acquisition of DoubleClick, Google now serves in the range of 70 percent of 

all non-search advertisements. See, e.g., Lots of Reach in Ad . . ., April 1, 2008, available at 

http://battellemedia.com/archives/004356.php. 13Microsoft’s Live Search has approximately 8.5 percent of Core Search queries in the United 

States. comScore, comScore Releases May 2008 U.S. Search Engine Rankings, June 19, 2008, 

available at http://www.comscore.com/press/release.asp?press=2275. 14 Concerns have been raised about this dominance as well as the privacy protections surrounding the enormous amount of information about users’ online behavior that this dominance 

enables. See, e.g., Electronic Privacy Information Center, Supplemental Materials in Support of 

Pending Complaint and Request for Injunction, Request for Investigation and for Other Relief, 

June 6, 2007, available at http://epic.org/privacy/ftc/google/suppl060607.pdf (‘‘The combination of Google (the world’s largest Internet search engine) with DoubleClick (the world’s largest 

Internet advertising technology firm) would allow the combined company to become the gatekeeper for Internet content. . . . The detailed profiling of Internet users raises profound issues 

that concern the right of privacy. . . .’’); see also, Jaikumar Vijayan, Google Asked to Add Home 

Page Link to Privacy Policies, COMPUTERWORLD, June 3, 2008, available at http:// 

www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9092838; Privacy International, A Race to the Bottom: Privacy Ranking of Internet Service Companies, Sept. 

6, 2007, available at http://www.privacyinternational.org/article.shtml?cmd%5B347%5D=x-347- 

553961 (We ‘‘witnessed an attitude to privacy within Google that at its most blatant is hostile, 

and at its most benign is ambivalent.’’). 15See http://www.google.com/intl/en/press/pressrel/20080612lyahoo.html. 16With Google’s 71 percent search query share in the U.S. based on its relationship with AOL 

and Ask.com (see supra fn. 11), in combination with Yahoo’s 20.6 percent share of the core 

search query market, Google will be able to gather information on up to 92 percent of online 

searches. See comScore, comScore Releases May 2008 U.S. Search Engine Rankings, June 19, 

2008, available at http://www.comscore.com/press/release.asp?press=2275. 17See Jeff Chester, A Yahoo! & Google Deal Is Anti-Competitive, Raises Privacy Concerns, May 

22, 2008, available at http://www.democraticmedia.org/jcblog/?p=596. 18See Appendix 1. Microsoft’s Privacy Principles for Live Search and Online Ad Targeting are 

also available at http://www.microsoft.com/privacy. 

amass. Today, Google AdWords is the leading seller of search advertising.11 Google 

also has the leading non-search ad network, AdSense. Google recently expanded its 

reach into non-search by acquiring DoubleClick.12 By comparison, Microsoft is a relatively small player in search ads, and its reach in non-search advertising is also 

smaller than Google’s.13 Google’s growing dominance in serving online ads means 

it has access to and collects an unparalleled amount of data about people’s online 

behavior.14

There also is a critical relationship between competition and privacy that must 

not be overlooked in this discussion. Competition ensures companies have an incentive to compete on the basis of the privacy protections they offer. On the other hand, 

a dominant player who is insulated from competitive pressure has little reason to 

heed consumer demand for stronger privacy protections and faces no significant 

competitive pressure from other firms offering superior privacy practices. Indeed, if 

a dominant player could generate additional profits by diluting its privacy practices, 

there is a significant risk it may do so. This could bring about a ‘‘race to the bottom’’ 

on privacy as other companies weaken their privacy practices in an effort to catch 

up to the market leader. 

Yahoo! and Google’s recently announced agreement raises important questions in 

this regard. Under the agreement, Yahoo! will outsource to Google the delivery of 

ads appearing alongside Yahoo!’s search engine results.15 This has the potential to 

give Google, the market leader, further control over the sites and services where ads 

are served, enabling Google to collect even more data about computer users and potentially to combine that data with the personal information it has on those users.16

It also will reduce competition in the search advertising market, and thereby weaken Google’s incentives to compete on the quality of its privacy practices. Both of 

these outcomes have implications for consumer privacy.17

III. Microsoft’s Commitment to Privacy in Online Advertising 

Microsoft recognizes the role that data plays in online advertising and the corresponding importance of protecting consumer privacy. To guide our approach to 

data collection for online advertising, we released Microsoft’s Privacy Principles for 

Live Search and Online Ad Targeting last July.18 We are deeply committed to these 

61 

19See section III.C below. 

principles, which focus on bringing the benefits of transparency, control and security 

to the protection of consumers’ data and privacy online. 

A. Transparency 

I want to first touch upon the importance of transparency. Transparency is significant because it provides consumers with an informed understanding of a company’s 

data collection practices, of how their data might be used, and the privacy controls 

available to users. Without transparency, consumers are unable to evaluate a company’s services, to compare the privacy practices of different entities to determine 

which online products and services they should use, or to exercise the privacy controls that may be available to them. Transparency also helps ensure that when consumers are dealing with a company that has adopted responsible privacy practices, 

they do not needlessly worry about unfounded privacy concerns, which could prevent 

them from taking advantage of new technologies. 

Transparency is also essential to ensure accountability. Regulators, advocates, 

journalists and others have an important role in helping to ensure that appropriate 

privacy practices are being followed. But they can only examine, evaluate and compare practices across the industry if companies are transparent about the data they 

collect and how they use and protect it. 

Transparency is especially important with respect to online advertising. This is 

because consumers may not understand the types of information that entities collect 

or log in providing advertisements online. For example, many consumers may not 

realize that information about the pages they are viewing, the searches they are 

conducting, or the services they are using may be collected and used to deliver online ads. 

For this reason, Microsoft believes that any entity that collects or logs any information about an individual or computer for the purpose of delivering advertisements 

online should provide clear notice about its advertising practices. This means posting a conspicuous link on the home page of its website to a privacy statement that 

sets forth its data collection and use practices related to online advertising. Consumers should not be required to search for a privacy notice; it should be readily 

available when they visit a website. This obligation should apply to entities that act 

as ad networks, as well as to websites on which ads appear—whether they display 

ads on their own or rely on third parties to deliver online advertising. 

In addition to being easy to find, the privacy notice must be easy to understand. 

While many websites have publicly posted a privacy notice, this alone is not enough. 

Too often, the posted privacy notice is complex, ambiguous and/or full of legalese. 

These notices make privacy practices more opaque, not more transparent. Instead, 

short and simple highlights are essential if consumers are to easily understand a 

company’s information practices. It helps avoid the problem of information overload, 

while enabling consumer awareness. 

Finally, to ensure that the consumer can be fully informed, the privacy notice 

should also describe the website’s data collection and use activities in detail. This 

includes, at a minimum, descriptions of the types of information collected for online 

advertising; whether this information will be combined with other information collected from or about consumers; and the ways in which such information may be 

used, including whether any non-aggregate information may be shared with a third 

party. 

Microsoft has embraced these obligations. We post a link to our privacy notice on 

every page of our websites, including the home page. We also were one of the first 

companies to develop so-called ‘‘layered’’ privacy notices that give clear and concise 

bullet-point summaries of our practices in a short notice, with links to the full privacy statement for consumers and others who are interested in more detailed information. And our privacy statement is clear about the data we collect and use for 

online advertising. Further, we have released more detailed information about our 

practices, such as a white paper that describes the methods we use to ‘‘de-identify’’ 

data used for ad targeting.19 To illustrate our efforts to be transparent about our 

practices, we have included in Appendix 2* screen shots of the privacy link available 

on the home page of our Windows Live search service and of our layered privacy 

notice, including both the short notice and our full online privacy statement. 

B. Control 

The second core principle Microsoft looks to in protecting our customers’ privacy 

is user control. Consumers should have a choice about how information about their 

online activities is used, especially when that information can be aggregated across 

62 

20Microsoft’s personalized advertising opt-out page is available at https://choice.live.com/ 

advertisementchoice/Default.aspx. 21See, for example, Microsoft’s comments to the Federal Trade Commission’s proposed selfregulatory framework for online advertising, included as Appendix 4* and available at http:// 

www.ftc.gov/os/comments/behavioraladprinciples/080411microsoft.pdf. 22 A white paper describing Microsoft’s ‘‘de-identification’’ process is attached to these comments as Appendix 3.* It is also available at http://www.microsoft.com/privacy. 

multiple websites or combined with personal information. Microsoft has made consumer control a key component of our practices online. 

As an example, Microsoft has recently deployed a robust method to enable users 

to opt out of behavioral ad targeting. As background, most industry players that 

offer consumers a choice about having information about their online activities used 

to serve behaviorally targeted ads do so by offering consumers the ability to place 

an ‘‘opt-out’’ cookie on their machines. In general, this process works well, but it 

does have some inherent limitations. For example, opt-out cookies are computer-specific—if a consumer switches computers, he or she will need to specify any opt-out 

preferences again. Further, if cookies are deleted from the user’s PC, that user’s optout choice is no longer in effect. To address these limitations, Microsoft now gives 

consumers the option to tie their opt-out choice to their Windows Live ID. This 

means that even if they delete cookies on their machine, when they sign back in 

their opt-out selection will persist. It also means that a single choice can apply 

across multiple computers that they use. This will help ensure that consumers’ 

choices are respected.20

Microsoft also has committed to respecting consumers’ opt-out choice on all sites 

where it engages in behavioral advertising. This means that consumers are offered 

a choice about receiving behaviorally targeted ads across both third-party websites 

on which Microsoft delivers behaviorally targeted ads, as well as Microsoft’s own 

websites. This is important because consumers reasonably expect that the opt-out 

choice offered by a company would apply on all websites where that company engages in behavioral advertising practices. This is another example of where we have 

committed to going beyond standard industry practice to better protect the interests 

of consumers. 

We also recognize it is appropriate that the level of consumer control may vary 

depending on the data that will be used to serve an online ad. For example, many 

consumers have serious reservations about the receipt of targeted advertising based 

on the use of certain categories of personally identifiable information, particularly 

those that may be considered especially sensitive. Thus, we have proposed that companies should obtain additional levels of consent for the use of such information for 

behavioral advertising—including affirmative opt-in consent for the use of sensitive 

personally identifiable information.21

C. Security 

The third principle we look to in protecting consumers’ privacy is that strong, simple, and effective security is needed to strengthen consumers’ trust in our products, 

the Internet, and all information technologies. Security has been fundamental at 

Microsoft for many years as part of our Trustworthy Computing initiative. And it 

plays a key role with respect to our online advertising practices. 

We have taken a broad approach to protecting the security of computer users with 

respect to serving ads online. This approach includes implementing technological 

and procedural protections to help guard the information we maintain. We also have 

taken steps to educate consumers about ways to protect themselves while online, 

and we have worked closely with industry members and law enforcement around 

the world to identify security threats, share best practices, and improve our coordinated response to security issues. 

In addition, we have designed our systems and processes in ways that minimize 

their privacy impact from the outset while simultaneously promoting security. For 

example, we use a technical method (known as a one-way cryptographic hash) to 

separate search terms from account holders’ personal information, such as name, email address, and phone number, and to keep them separated in a way that prevents them from being easily recombined. We have also relied on this method to ensure that we use only data that does not personally identify individual consumers 

to serve ads online. As a result of this ‘‘de-identification’’ process, search query data 

and data about Web surfing behavior used for ad targeting is associated with an 

anonymized identifier rather than an account identifier that could be used to personally and directly identify a consumer.22

Finally, we have implemented strict retention policies with respect to search 

query data. Our policy is to anonymize all such data after 18 months, which we believe is an appropriate time-frame in our circumstances to enable us to maintain 

63 

23 Atlas, which was part of Microsoft’s recent acquisition of aQuantive, was a founding member of NAI. 24See Appendix 4. Our comments are also available at http://www.ftc.gov/os/comments/ 

behavioraladprinciples/080411 microsoft.pdf. 25See http://www.microsoft.com/presspass/download/features/2005/PrivacyLegislationCall 

WP.doc. 26 A. 9275–C, 2007–2008 Reg. Sess. (N.Y. 2008), available at http://assembly.state.ny.us/leg/ 

?bn=A09275&sh=t (imposing minimum notice and choice obligations on certain website publishers and advertising networks); S. 6441–B, 2007–2008 Reg. Sess. (N.Y. 2008), available at 

http://assembly.state.ny.us/leg/?bn=S06441&sh=t (imposing baseline notice, choice, security, 

and consumer access obligations on certain third-party advertising networks); H.B. 5765, 2008 

Gen. Assem., Feb. Sess. (Conn. 2008), available at http://www.cga.ct.gov/2008/FC/2008HB05765-R000148-FC.htm (imposing minimum notice, choice, security, and use limitations on 

third-party advertising networks). 

and improve the security, integrity and quality of our services. We intend to continue to look for ways to reduce this time-frame while addressing security, integrity 

and quality concerns. In addition, unlike other companies, our anonymization method involves irreversibly removing the entire IP address and other cross-session identifiers, such as cookies and other machine identifiers, from search terms. Some companies remove only the last few digits of a consumer’s IP address, which means that 

an individual search query may still be narrowed down to a small number of computers on a network. We think that such partial methods do not fully protect consumer privacy, so we have chosen an approach that renders search terms truly and 

irreversibly anonymous. 

IV. Microsoft’s Support for Self-regulation and Privacy Legislation 

Microsoft believes that these core principles of transparency, control, and security 

are critical to protecting consumers’ privacy interests online. These principles form 

the basis for our support of robust self-regulation in the online advertising market 

and for baseline privacy legislation. 

We have been an active participant in self-regulatory efforts. Microsoft has been 

engaging with the Network Advertising Initiative (‘‘NAI’’), a cooperative of online 

marketing and advertising companies that addresses important privacy and consumer protection issues in emerging media.23 The NAI is currently in the process 

of revising its guidelines to address changes in the online advertising industry. The 

NAI’s efforts have been critical to understanding the privacy issues associated with 

online advertising, and we will continue to work with them as they finalize their 

draft proposal. 

We also filed comments responding to the Federal Trade Commission’s request for 

input on a proposed self-regulatory framework for online advertising. In our comments, we explained the need for a broad self-regulatory approach since all online 

advertising activities have potential privacy implications and some may be contrary 

to consumers’ expectations. To this end, we proposed a tiered approach to self regulation that is appropriately tailored to account for the types of information being collected and how that information will be used. It would set a baseline set of privacy 

protections applicable to all online advertising activity and would establish additional obligations for those companies that engage in practices that raise additional 

privacy concerns. We are attaching a copy of our comments to the FTC for your convenience.24

In addition to supporting self-regulatory efforts, we have long advocated for legislation as a component of effective privacy protections. We were one of the first companies to actively call for comprehensive Federal privacy legislation.25 More recently, we have supported balanced and well-crafted state legislation on privacy in 

online advertising that would follow the general structure proposed in our FTC comments.26 And we would be glad to work with the Committee on similar national privacy standards that would protect both privacy and opportunities for innovation in 

the online advertising industry. 

Our support of self regulation in the online advertising market and prudent privacy legislation is only a part of our comprehensive approach to protecting consumer 

privacy. We will continue to support consumer education efforts to inform users of 

how to best protect themselves and their information online. And we will persist in 

our efforts to develop technology tools that promote the principles of transparency, 

control, and security. In short, we are prepared to work collaboratively on all fronts 

to maintain the growth of online advertising while fostering consumer trust online. 

V. Conclusion 

Microsoft recognizes that the protection of consumer privacy is a continuous journey, not a single destination. We can and will continue to develop and implement 

new privacy practices and protections to bring the benefits of transparency, choice, 

64 

and security to consumers. Thank you for giving us the opportunity to testify today. 

We look forward to working with you to ensure consumers’ privacy interests are protected as they continue to enjoy the proliferation of free services and information 

that online advertising supports. *The information referred to has been retained in Committee files. 

Senator DORGAN. Mr. Hintze, thank you very much. I appreciate 

your testimony. 

To my colleagues, I would say time is not our friend this morning. The vote is supposed to start at 11:15, although I am told it 

may slip. We will probably know shortly. If it starts at 11:30, that 

means that we would have perhaps until 11:45 before we would 

have to depart this room. 

I will do 5-minute rounds here, and if we finish at 11:45, we will 

not have to come back. We have five votes in succession, which 

means we probably would not be able to come back until 1 o’clock. 

So my hope would be that for the next 45 minutes to an hour, we 

will all be able to have an opportunity to ask relevant questions. 

And I thank very much the witnesses for being here. 

I have 100 questions, regrettably. Let me take just 4 and a half 

or 5 minutes and then call on my colleagues. 

First of all, online advertising is helpful and useful in my judgment. I understand that. It helps support the Internet itself, which 

has some wonderful companies and sites providing useful information services, entertainment. I understand all of that. 

The question today is not, as Mr. Crews indicated, are certain 

kinds of advertising the devil. I think advertising is a necessary 

component of the Internet and is helpful to consumers. The question is about the collection of information about consumers as they 

travel the Internet. 

And Mr. Dykes, I will ask you the first question. The stories that 

I have seen about maybe an Internet service provider deciding we 

are going to allow NebuAd to come in, and whenever anybody does 

anything on our system, as someone who has signed up for our 

Internet service provider service, we are going to essentially shovel 

all that information over to you as it is being done. I mean, what 

is the difference between that and tapping into somebody’s wire, 

using the pejorative term ‘‘wiretapping’’? Is that not just wiretapping? 

Mr. DYKES. No, sir. We believe that we are not violating the 

wiretap law. I am not a lawyer, but my lawyers have told me we 

are in compliance with the law, and they have prepared a memo 

on the subject and I would be prepared to submit that for the 

record. [The information requested is published on pp. 101–107 of 

this transcript.] 

But it is important to note that the information that we are looking at as people surf the web does not involve any personally identifiable information. All we are doing is taking an anonymous identifier. We are taking their IP address, for example, and transforming that into an anonymous number with a one-way hash. And 

against that anonymous identifier all we are examining is qualification for market segments. So we are not keeping the raw data. 

It is just qualification for market segments against an anonymous 

identifier. 

65 

Senator DORGAN. But your approach and the approach of the 

Internet service provider would not be an opt-in approach. It would 

be an opt-out approach. I would think if my Internet service provider said to me, you know what, Mr. Dorgan? We have a proposition. Is it OK if we give everything you do to another company? 

I would say, of course, it is not OK. You kidding me? The answer 

is no, capital N-O. So from an opt-in standpoint, I am guessing that 

this would not be a workable model. It only works if you require 

people to opt-out. I mean, I think that is the difficulty. 

Ms. Harris, do you want to comment on that? 

Ms. HARRIS. Yes, I do. I think, first of all, it is important to understand that our wiretap laws do not care if the information is 

personally identifiable or not personally identifiable. The laws are 

agnostic on that point. It is important to understand that. 

Second, they may not be using all the information, but they are 

mirroring. They are capturing the data stream and then somehow 

mirroring or copying it. So the ISPs are providing that information 

to an unknown third party, a man in the middle. I take Mr. Dykes’ 

word that they are then not using all of that information, but you 

have to have a way to separate out the information you are using 

from the information you are not using. I do not think you can pretend—— 

Senator DORGAN. Mr. Dykes, do you wish to respond to that? 

Mr. DYKES. Yes, I would, Mr. Chairman. So although the information flows through our system, information that does not conform to one of the market segments we are looking at is simply ignored and flushed permanently. And so we are only looking at 

these select innocuous market segments. 

I would also point out that we do provide very robust notice to 

the user and an opportunity to opt out. These notices are sufficiently robust that people do opt out. So it is not like people are 

ignoring them. They are informed, and as I said, we are confident 

that we do not break the law and we have a memo on the subject 

that we would submit. 

Senator DORGAN. Mr. Kelly, on Facebook, I do not know whether 

this has changed, but my understanding is that when someone 

would order an application, which they could on Facebook, called 

Dogbook or Scrabble, that that application then would allow the 

person selling the application access to all that which exists in 

Facebook. Was that the case? 

Mr. KELLY. So, first of all, a user has to affirmatively add an application to a profile and—— 

Senator DORGAN. I understand, but when they do that—— 

Mr. KELLY.—box that informs them that they are adding this application and sharing information with the third party in that case. 

At that point, the application has the ability to request certain 

data. We do not hand over all the data at that point. They have 

the ability to request it in a session basis and limit it to the data 

that the user who has installed the application can see on 

Facebook. So the privacy settings persist. 

That application is allowed to, for caching purposes, retain the 

information they have requested for only 24 hours, and if they exceed that amount, we have a policy enforcement team which will 

take action, including potentially shutting down the application. 

66 

And in the last few weeks, we have shut down a number of applications over violations until they come into compliance. 

Senator DORGAN. I have just received some good news. The U.S. 

Senate was not constructed to ever be accused of speeding, and all 

of us who serve here know that. It actually has exhibited that this 

morning. We have actually an 11:45 start time, which means we 

have a full hour for questions. The 11:45 start time will be the first 

vote. So that is good news. 

Let me call on Senator Vitter. 

STATEMENT OF HON. DAVID VITTER, 

U.S. SENATOR FROM LOUISIANA 

Senator VITTER. Thank you, Mr. Chairman. I have some general 

questions and I would invite very concise responses from anyone 

who has a response. 

What is the best estimate available regarding the use of this type 

of information not for behavioral advertising—put that on the 

side—but for other purposes that all of us would consider an abuse, 

identity theft or other abusive uses, not behavioral advertising? 

Does anyone have a sense of the size of that problem? 

Ms. HARRIS. Mr. Vitter, I think that the answer is nobody knows 

and there are no rules in place that would prevent any of that. And 

so the question is, and I will say that for members of the Network 

Advertising Initiative that they have made a commitment not to do 

that, but it is a big Internet. And we do not know what everybody 

is doing. But basic fair information practices say that if you collect 

information for a purpose, you should use it for that purpose, and 

not use it for another purpose. We have no legal way of enforcing 

that. 

Senator VITTER. Does anyone else have a sense of the size of that 

problem? 

Mr. DYKES. Well, I would point out that when NebuAd was being 

founded back in 2006, it was when AOL search data became public 

and people determined that a large amount of raw search data 

could represent personally identifiable information. We also had 

the Government asking Verizon and AT&T to provide click stream 

data. 

And it was for those reasons that when NebuAd was founded, we 

resolved never to be in a position to have such data that, which if 

found by others, could ever have a problem. That is why we do not 

keep the raw data mapped against a user ID. We only keep this 

qualification for market segments and all our user ID’s are 

anonymized. So we keep very limited data to avoid any of those 

risks. 

Senator VITTER. I understand. 

Does anyone else have a sense of the global size of that problem? 

OK. 

Now, with regard to that problem—again, put behavioral advertising on the side. With regard to that problem, would ensuring 

that all of this collection of data is made anonymous in the ways 

that several of you do presumably already solve that problem or 

not? 

Ms. HARRIS. I do not think you can do that. The industry wants 

us to believe that this information is anonymous. I think at best 

67 

it is pseudo-anonymous. They are building profiles. And I think a 

couple of years ago when AOL released search data for a good purpose, for research purposes, it took very little time for people to 

take a single set of search data and identify somebody. So that we 

are moving to a point where there is enough information—— 

Senator VITTER. Can I interrupt for a second? 

Ms. HARRIS. Yes. 

Senator VITTER. Explain that to me as a layperson because my 

reaction to that is there are a gazillion people on the Internet. How 

do you possibly take that anonymous information and come up 

with an individual? 

Ms. HARRIS. Well, it cannot be entirely anonymous because you 

are trying to put—I mean, even for NebuAd—and we can talk 

about this—they keep refreshing the information about an individual. You have to. Right? 

Mr. DYKES. We only keep information in market segments. The 

way AOL’s data became identifiable is that people did numerous 

searches on houses in their neighborhood, and soon it was fairly 

clear who the person was who was doing the search because there 

was just so much data centered on a particular name and address 

and things like that. 

Ms. HARRIS. But profiles can include that. Profiles can include 

that you have been on a particular website looking at a particular 

thing, that you have searched for your own name, that you—it depends what is in the profile. 

Mr. DYKES. Exactly. If the profiles had that information, that is 

when it becomes pseudo-anonymous, and therefore, you can derive 

PII. 

Senator VITTER. Let me reask the question. Could there be a regime ensuring true anonymity in terms of the collection, number 

one? Is that possible? 

Mr. DYKES. I believe so. 

Senator VITTER. And number two, is any legitimate purpose that 

is of any arguable benefit to consumers sacrificed through that regime? 

Mr. DYKES. Well, the effectiveness does decline as you move toward eliminating pseudo-anonymous data. But we have chosen to 

make that choice. We do not have very sensitive ads. We have chosen not to take very sensitive ads from big pharmaceutical companies, for example. There are a lot of choices we have made to protect consumer choices that do reduce the economic value, but these 

I think are important choices. 

Senator VITTER. Does anyone else have a reaction to that idea of 

what most folks would regard as true anonymity? Number one, 

how possible it is; number two, what if anything would be sacrificed. 

Mr. CREWS. I think you are always taking a risk when you think 

that the Internet, with the kind of network that it is—if pure privacy is what you want, the Internet is probably the wrong network 

for you because everybody here has a business card, and the people 

that we talk about with most of these new technologies—and I 

talked about warring computer scientists. Some are trying to offer 

anonymity. 

68 

But on the other hand, there are going to be cases where you do 

not want somebody to pose as you and you are going to want to 

use personally identifiable information. The technologies are going 

to change as biometrics get integrated into commerce and things 

like that. So we are not going to want anonymity ultimately in 

some respects, if we are dealing with our insurance company, dealing with a finance company. 

Senator VITTER. Let me back up. I am not talking about anonymity dealing with your insurance company. I am talking about anonymity in terms of the collection of data for the purposes that we 

are talking about. 

Mr. CREWS. I do not think so because of the openness of the 

Internet and the criminal element that is always going to be there. 

You know, anybody can go into Starbucks and the library and get 

on the Net. It is always going to be an open network that nobody 

has a proprietary stake and can offer that kind of a guarantee. We 

are going to have to have activities on the consumer side and institutions like identity theft insurance and all those sorts of things 

too. We can try our best, and I think that is what scientists are 

trying to do. But the Internet is not the network for privacy in a 

sense. 

Senator VITTER. Thank you. 

Senator DORGAN. Senator Stevens was here and he had to go to 

an Appropriations Committee markup, and he asked that we put 

his statement in the record. We will do that by unanimous consent. 

[The prepared statement of Senator Stevens follows:] 

PREPARED STATEMENT OF HON. TED STEVENS, U.S. SENATOR FROM ALASKA

Mr. Chairman, thank you for scheduling this hearing. 

As we recently learned in last month’s hearing on spyware, we must be increasingly vigilant in ensuring that Americans’ personally identifiable information is protected. On one hand, legitimate online advertising provides many benefits to our 

economy—for example in Alaska it helps our newspapers, radio stations and television stations to provide free online news. But, on the other hand there are concerns about protecting individuals’ privacy and preventing against identity theft. 

For the Internet economy to continue to grow, Americans need to have confidence 

that their personal identifiable information is safe when they enter their data online. Moreover, consumers should be fully informed about what information is being 

collected online, who is collecting the data, and what options consumers have to protect themselves. 

At this hearing, it will be important that the Committee gets a sense of how online behavioral advertising works, and how consumers can guard their personally 

identifiable information. I also anticipate that today’s hearing will help us better understand what roles the Federal Trade Commission and the industry should play 

in educating consumers on how information is collected online and how to protect 

themselves. 

I thank the witnesses for participating today and look forward to hearing their 

testimony. 

Senator DORGAN. Senator Klobuchar? 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Senator Dorgan, for 

holding this hearing, and thank you to our witnesses. I was thinking, as I listened, how everyone sort of has a love-hate relationship 

with advertising on the Internet. I love it when it is something for 

a discount on clothes, and I hate it when my daughter sees the 

69 

American Girl things put on the screen. But I think everyone feels 

like that. 

And I think we also know that advertising plays an important 

role in enhancing a consumer’s online experience. It is revenue, 

and it also promotes the development of online news. So like Senator Dorgan, I would agree that we are not against advertising on 

the Internet, but the issue is, as it becomes more sophisticated, do 

we have a role here to play in making sure that consumers’ privacy 

is protected as companies develop more technology and are able to 

dig deeper into that information, that we keep it anonymous. 

I guess my first questions are of you, Ms. Parnes. I know Mr. 

Kelly and Mr. Hintze were talking about how the FTC could go farther in terms of differentiating between the kind of information, 

whether it is anonymous information, whether it is—I think they 

were differentiating between the way you get the information 

based on personally identifiable information or advertising based 

on non-personally identifiable information. Could you do that as 

part of your rules? 

Ms. PARNES. Well, Senator, I think we could make those distinctions. In the first instance, let me just clarify that what the Commission put out was a set of proposed principles that would 

guide—— 

Senator KLOBUCHAR. Self-regulation. 

Ms. PARNES.—a self-regulatory scheme. 

Senator KLOBUCHAR. Right. They were not rules. 

Ms. PARNES. Not Commission rules. 

But within the the principles, I think our proposal reflects some 

differences. For example, the proposal calls for express affirmative 

consent before an entity can collect sensitive personal information 

from a consumer for use in behavioral advertising. So we acknowledge that there are some areas that are more sensitive and that 

require a certain level of heightened transparency and control and 

choice for consumers. I think that as we are looking at all the comments that we received, that is certainly something that we will 

consider, whether we should provide a sliding scale type of scheme. 

Senator KLOBUCHAR. The other thing is I know you have had 60 

comments, and I am sure a lot of them have been industry groups 

and privacy groups. But again, as Senator Dorgan was mentioning, 

I am not sure individuals out there even understand what is going 

on. 

I was reading about the European Union has some guidelines 

where you have to be able to access what people have on you and 

then correct it if it is false. Have you looked at that at all? 

Ms. PARNES. In these sets of principles, we have not looked at 

access to the information. I think what we have been more concerned about is the issue of transparency, consumers really understanding what is going on in behavioral advertising. 

I frankly was surprised that among the over 60 comments we received, we did get some comments from individual consumers, but 

I think that you are absolutely right. For the most part, consumers 

do not understand what is happening behind the screen, as it were. 

Senator KLOBUCHAR. Mr. Hintze, you talked about the need for 

a Federal law, and I think Ms. Harris talked about updating FedVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00073 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76329.TXT JACKIE
70 

eral laws. What ideas do you have for changing Federal law that 

we could look at? 

Mr. HINTZE. Well, going back a couple of years to 2005, we came 

out in support of a comprehensive Federal privacy legislation. We 

think that establishing a baseline at the Federal level across industries makes a lot of sense. It would require certain basic requirements that are consistent with good industry practices and self-regulation that exists today around user notice and security and user 

consent and even access, as you have mentioned. There are some 

very difficult issues there. We have some ideas of what a good Federal law might look like. 

We have also been supportive of State legislation in some cases 

where it was balanced and provided appropriate guidelines for the 

online advertising space. We have also been very supportive of the 

security breach notification laws and others. 

But I think that overall, legislation does play an appropriate part 

of the mix of protecting consumer privacy along with self-regulation 

and consumer education and technology tools. 

Senator KLOBUCHAR. So the idea would be to take some of the 

things that Ms. Horvath has been talking about, some of these 

other things and actually put them into law. How would it work 

with the self-regulation? 

Mr. HINTZE. Well, the Federal law would presumably provide a 

baseline common set of requirements, and then for particular industries, for example, there may be additional very specific self-regulatory additions that could go on top of that. I think online advertising is a perfect example of that where there are some specific aspects of online advertising around behavioral targeting and what 

consent looks like in those cases. That may be more appropriate for 

self-regulation, but could certainly build on top of the baseline requirement that is based in law. 

Senator KLOBUCHAR. Mr. Kelly, did you want to add, since you 

raised that issue of different ways that we could differentiate between information? Are you in favor of some kind of Federal law? 

Mr. KELLY. We have not taken a position on a formal Federal 

law around that. We have been focused on creating innovative privacy technology to allow users to control the collection and use of 

data. An instructive example here would be that, for instance, in 

a classic behavioral targeting situation, an ad network would see 

that you visited five auto sites and determine from that that you 

might be interested in buying a car. Whereas, the Facebook approach has been, let us say, if we were, for instance, partnered 

with an auto site, the auto site would allow you to say—you know, 

give you a little pop-up that said, do you want to share the fact 

that you purchased a Chevy with your Facebook friends, and give 

you a real-time choice around that. So we are focusing on technology as a solution. 

Senator KLOBUCHAR. Thank you very much. 

Senator DORGAN. Senator Klobuchar, thank you very much. 

Senator DeMint? 

71 

STATEMENT OF HON. JIM DEMINT, 

U.S. SENATOR FROM SOUTH CAROLINA 

Senator DEMINT. Thank you, Mr. Chairman. Thank you for holding the hearing. I appreciate your comments on the importance of 

advertising. I think we all agree that the ability to get all the free 

things we get on the Internet are important, and they do relate directly to advertising. And I think probably most of us would agree 

that the ability of advertisers to target their markets are important 

to continue to attract advertising revenue to the Internet, and I 

think we have heard a lot about how the industry has progressed. 

Just a couple of questions here. Mr. Dykes, just as a for instance 

so I can kind of get it, this anonymous versus not anonymous question, if the Department of Justice were to issue you a subpoena 

asking you for names of people who have searched for information 

about explosives, would you be able to provide the names or locations of individuals who had done that? 

Mr. DYKES. No, sir, we would not be able to provide names, nor 

even their IP addresses. We have no personally identifiable information in our system, and it would just simply not be possible to 

get back to an individual from any information we have in our system. 

Furthermore, we do not have advertisements and categories on 

bomb-making, for example, and therefore, that information is not 

even in our system either. 

Senator DEMINT. So it appears that the technology has been developed and is being developed and improved that would allow increasing privacy and anonymity on the Internet, which is I think 

impressive, given the fact that this is all being done voluntarily. 

It would be my assumption that the incentives for—the businesses represented at the table have a lot of incentives to compete 

for the best privacy policies, that they would disclose their privacy 

policies to encourage users to use their particular service because 

of their ability to protect. I think the private market has a lot of 

incentives. 

Let me just direct a few questions at Ms. Parnes. How long do 

you think the rulemaking or even the development of these principles might take? 

Ms. PARNES. Well, I am reluctant to give a specific time-frame, 

but we are moving quickly on this. As we noted, we received a lot 

of comments, and this is a challenging issue. We want to drill 

down, figure out what information we have, if we need additional 

information, and then move forward, as I said, very quickly. 

Senator DEMINT. Do you think at least a year or 2? 

Ms. PARNES. I would doubt that. 

Senator DEMINT. Do you think it is the responsibility of the FTC 

to regulate advertising on the Internet? 

Ms. PARNES. Well, in some ways we do regulate advertising on 

the Internet. The question about behavioral advertising—I think 

some of our principles are grounded in section 5, and we do have 

principles that govern behavioral advertising, as well as all other 

advertising. 

Senator DEMINT. It would be my hope that you continue to see 

your responsibility as protecting consumers and not necessarily attempting to manage or regulate different aspects of our economy. 

72 

I think in some ways we have got a solution in search of a problem, as the industry moves very quickly to try to cut these problems off before they occur. It is very likely that if rulemaking or 

even principle-making is going to take a year or 2—and obviously, 

the FTC needs to look at it—that the technology that is being 

talked about today will advance—will make great strides over the 

next months and years. And it is very likely that by the time the 

FTC acts, that the industry will be far ahead of where you are. 

My concern is this. The Government’s attempt at privacy certainly is well motivated, but rules, for instance, in the health care 

industry where, when I was with a family member having surgery, 

the physician was not able to give me information about actually 

what took place or I could not call a doctor’s office and get information about my own daughter’s bill. And you hear doctors talk about 

the inefficiencies that are created because of this well intended policy. I just have great concerns that if the Federal Government attempts to jump in in the middle of a situation where a problem has 

not yet exhibited itself, that we are likely to inhibit one of the 

showcases of free enterprise in America today. 

Ms. PARNES. Senator, I would just say that that is precisely why 

the Commission is encouraging self-regulation in this area. The 

principles that we have proposed are principles that would govern 

a self-regulatory scheme that industry itself adopts, and we think 

that self-regulation, at least at this point, is more appropriate in 

this kind of environment where, as you note, technology is changing so quickly. 

Senator DEMINT. Well, that is a good philosophy, and I appreciate hearing it this morning. And I thank all the panelists. 

Mr. Chairman, I yield back. 

Senator DORGAN. Senator DeMint, thank you very much. 

Senator Thune? 

STATEMENT OF HON. JOHN THUNE, 

U.S. SENATOR FROM SOUTH DAKOTA 

Senator THUNE. Thank you, Mr. Chairman. I too want to thank 

you for holding the hearing. I think this is an issue that is very 

important. It is being talked about, getting a lot of attention. It is 

going to get more attention, I think, in the future. I do believe that 

it is critical that consumers have knowledge of whom or what is 

tracking their online activity and additionally that they have every 

opportunity to learn more about the uses of their personal information. 

In that light, I have a question for Ms. Parnes, and that has to 

do with sensitive information which certainly, I believe, would deserve a greater degree of protection than just regular online uses. 

What do you consider to be sensitive personal information? Is that 

a health record, a credit card history, those sorts of things? 

Ms. PARNES. In our proposal, we identified several examples: 

medical information, financial information, and any information 

about children. It is not intended to be an exclusive list, though. 

Senator THUNE. What is the relationship between market share 

in the search advertising business and the ability to attract advertisers and web publishers? And is there a tipping point where a 

company, for example, say a Google, could become so dominant in 

73 

the market that advertisers and web publishers have no choice but 

to contract with the company? 

Ms. PARNES. I am afraid that—— 

Senator THUNE. Of venturing into that? 

Ms. PARNES.—I do not think I really have the information. Yes. 

It would be difficult to venture a guess on that. Perhaps one of the 

people here might want to. 

Senator THUNE. All right. We will let you off the hook, but if anybody else would care to take a stab at that. 

Mr. CREWS. Well, I do not think you have to worry so much 

about tipping points in the online world for a lot of reasons, but 

in particular, as long as people have the ability to click that button 

and there is no censorship online—you know, Government does not 

dictate where we go or anything like that—no one can attain that 

kind of monopoly power because nobody operates in a vacuum. 

The joke way I put it when debating media ownership is that 

even if the biggest companies merge with others across other avenues, what happens? They could get together and try to abuse the 

trust or what have you. But what happens? Advertisers flee. Wall 

Street flees. Customers flee. The employees flee. The people who 

work in that business who know the technology and the science 

move and start another company. 

So all of the impulses in a market economy, especially in one 

where barriers to entry are so low, like in Internet businesses, 

there is not that kind of threat of monopoly power. It was not that 

long ago that all of us were using Yahoo! to search or Alta Vista 

to search, and then Google came along with another technology. It 

is one algorithm, but you can go on the search engine Colossus I 

believe. There are hundreds of search engines out there. Just a 

thought. 

Senator THUNE. If Congress were to establish regulatory guidelines or core principles for online advertising privacy, what would 

those principles entail, and how would those align with some of the 

principles that the FTC is adopting? Does anybody want to venture—— 

Ms. HARRIS. Yes. Mr. Thune, I think it is important to note 

CDT’s position in support of a baseline privacy law is not about advertising. It is a step down. It is for all data collection and use 

practices. So those of us who are advocating adoption, I think you 

are looking at fair information practices. You collect for a particular use. You hold it only for the time that use exists. You do 

not hold data forever. People have a right to know what people are 

holding about them. They have a right to opt out or opt in, depending on the sensitivity of the data. The the devil here is in the details, but I do not think that the framework—you know, fair information practices is sort of infused throughout our legal system and 

certainly in terms of Government information, although somewhat 

outdated. 

Let me just add one thing. We do understand and have no interest in slowing down the technological innovation in terms of privacy-enhancing technologies. We do think that that is an important 

part of this, and we would not want to see any law that froze the 

Internet in a way that would make that impossible. So everything 

is a balance here. 

74 

Mr. HINTZE. I think that is right. We generally agree, and one 

of the reasons that we came out in favor of comprehensive Federal 

privacy legislation in 2005, which was before we were significantly 

involved in the online advertising space at all, is that there is just 

this emerging patchwork of Federal and State privacy laws with 

different standards depending on the industry, depending on the 

particular issue. And it just made a lot of sense to harmonize that, 

both from a compliance standpoint from a company’s point of view 

and from a consumer standpoint so they can know that they have 

a common baseline protection across the board, regardless of the 

kind of industry that they are dealing with. 

As we get into online advertising, that kind of baseline Federal 

privacy standard could certainly help here. It does not answer all 

the questions, and that is why we need to supplement it with selfregulation and other practices. But I think the need for a Federal 

law is not specific to online advertising but is more general. 

And I would just like to make one other point about your other 

question earlier about the competition and dominance in this space. 

I think for the purposes of this hearing, we definitely see a nexus 

between competition and privacy in that if there does become a 

dominant player in the online advertising space, that means that 

there is a single company that is collecting more data. The more 

ads you serve, the more data you are collecting. And it could become the case where a single company has a nearly complete picture of people’s online behavior. 

Beyond that, we also think that the need for competition in the 

space fosters competition in privacy. If there is a dominant player, 

there is little or no incentive to adopt better privacy practices because they are not facing competitive pressure from other companies that may be adopting superior privacy practices. 

Mr. DYKES. Senator, I would like to agree with both of the prior 

speakers. I think the law should be focused on privacy and what 

types of information are being collected. And they should be technology-neutral and business process-neutral and not necessarily advertising-focused either. It should really be focused on privacy. 

But I also think that the Government needs to be very careful 

in making policy to ensure that it does not stifle competition for the 

very reasons we just noted because there are new competitors 

springing up all the time. When we think we have one dominant 

competitor, past history has shown that there are other ones in the 

wings springing to life, and we would not want the Government to 

stifle that. So there is a role here for self-regulation as well to 

allow for flexibility as technology develops. 

Ms. HARRIS. Can I just make one brief point on this notion of 

technology neutrality in the law? We do have neutrality under 

ECPA. If you are acting as a conduit, you are treated one way. If 

you are not you are treated the other. And I think we have to be 

careful. We have wiretap laws. We have other communications 

laws that apply to the institutions that stand between the user and 

the ends of the network. I think we can sort of use this neutrality—everybody should be treated the same at all times—as a 

mantra and lose, I think, track of the fact that companies stand in 

different positions to a consumer, and we have to take that into account. 

75 

Senator THUNE. Thank you all for your testimony. 

Thank you, Mr. Chairman. 

Senator DORGAN. Senator Thune, thank you. 

Senator Nelson? 

STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Mr. Chairman, I think the timing of this hearing is uncanny because we have on the floor right now the FISA 

bill which the whole question in FISA is about the protection of the 

rights of privacy and the civil liberty of Americans. I can tell you 

all that as a member of the Intelligence Committee, we have been 

struggling with this FISA issue for the last year and a half. We 

have come up with a compromise and a resolution of how you can 

allow our intelligence agencies to seek the information of a terrorist 

but at the same time protect the civil liberties of American persons, 

which is defined as an American citizen and a person not an American citizen who is legally within the United States. 

What I am struck with is that we have a similar issue here. 

Take, for example, I use the Internet to go online to read the newspapers back home in Florida. Now, if suddenly the kinds of articles 

that I am reading are going to be determined, the content of what 

I am reading is going to be identified with me so someone can target advertising, I want to question the underlying basis of this. 

In our discussion of snooping of terrorists before, we have carved 

out an exception that we do not want the Government—now, here 

we are talking about the private sector, but we do not want the 

Government sector to go and examine what books that we are reading at the local libraries. Well, right here we have the question of 

whether or not we are going to let other private people within the 

private sector examine the same thing and then use it for a commercial advantage. 

Now, I am not naı ̈ve enough not to understand that this is already happening. So the question is, how do we rein this in so that 

as this Internet continues to explode into something years down 

the road that we cannot even conceive now that will be totally 

ubiquitous, how do we support our Constitution and protect our 

civil rights? 

So let me just ask, is there a way that we can approach this 

where we would govern the type of Internet connection used instead of the content or the information collected? What do you 

think about that, Ms. Harris? 

Ms. HARRIS. Well, I think I am not entirely sure of what you are 

suggesting, Senator. 

Senator NELSON. Nor am I. 

[Laughter.] 

Ms. HARRIS. Well, I am not sure that that is really the answer. 

I will say this, that you are, I think, very prescient to connect 

what appears to be a totally unrelated matter of FISA with what 

is going on here. And the reason is that when we operate in an 

Internet regime where we have no limits on how long a company 

can collect data, where we have these other sets of laws, you know, 

the Electronic Communications Privacy Act, et cetera, that are 20 

years old and did not anticipate the Internet. Whatever we are 

76 

building here and whatever is being collected, to the extent that it 

can be pseudo-anonymously connected through user logs, et cetera, 

it is also available to the Government. So I do not think we can 

view these things as there is a consumer stream that is being collected out here and there is a Government stream. 

If you look at e-mail, for example, we have very little protection 

in this country for stored e-mail because we did not anticipate 20 

years ago that it was going to be stored online. That information 

has very little legal protection. So we are in a perfect storm—— 

Senator NELSON. Yes, we are. 

Ms. HARRIS.—between the commercial activity and national security—— 

Senator NELSON. Yes, just like—you know, we hold it very dear 

in this country that we do not like other private citizens reading 

our personal mail, but in effect, what we have is the ability to read 

our personal communications here by other private individuals separating the issue from Big Brother and the Government. 

Ms. HARRIS. I do not think you can. 

Senator NELSON. Well, let me ask you this, Ms. Harris. 

Ms. HARRIS. That is not to suggest that they are acting as agents 

for the Government. I want to be really clear here. It is just that 

the laws we have, once we collect this data—— 

Senator NELSON. But they could act—that information could, but 

I do not want to get off on that tangent. 

Let me ask you this, Ms. Harris. Do you believe consumers are 

entitled to an opt-in arrangement rather than the opt-out? 

Ms. HARRIS. I think it depends on the data and I think it depends on the context. 

Senator NELSON. Give me an example. 

Ms. HARRIS. Well, I think that we think that when you are operating in an environment where you are the ISP and you are standing between the ends of the network, that we already have law, the 

Electronic Communications Privacy law, Cable Act, and a myriad 

of State laws, that require an opt-in. The ISP stands as sort of the 

center of Internet chain of trust between the two ends. 

And so online in the advertising context, if we could figure out 

a robust way to do opt-in, but then where we have difficulty is separating PII and non-PII, personal information is starting to merge. 

It is much harder to separate them. We have profiles of what seemingly each piece looks like, you know, an innocuous piece of information, and they are tied to some kind of ID so they can be refreshed, and that ID can be tied to your Internet address. It is a 

very complicated area. 

That is why I am really pleased to hear Senator Dorgan talk 

about more hearings. I think we have to get a baseline privacy bill, 

but we are going to have to do a lot of work to go through—— 

Senator NELSON. I want to commend Senator Dorgan for doing 

this, and this is the beginning of a long road as we try to grapple 

with this issue. 

May I ask one more question? 

Senator DORGAN. Yes. Your time is expired but we will recognize 

you for one more question. We are going to have a second round 

because we have until 11:45. So you may proceed. 

77 

Senator NELSON. Right now we have got the Commission doing 

this self-regulatory principle and it deals with the internal information security, but it may not address the security of these third 

parties. I wanted to ask you, Ms. Parnes, has the Commission studied the types of data security or encryption associated with these 

activities? 

Ms. PARNES. The Commission has not specifically studied whether all of this information that is being collected is encrypted, but 

one of the principles that we have announced calls for data security 

so that the information that is collected is held in a secure way. 

And we have also called for information to be held only as long as 

it is needed for some legitimate business or law enforcement purpose. We do not focus particularly on encryption or any other type 

of technology in looking at data security. It is reasonable security 

measures in light of the nature of the information that is held. 

Senator NELSON. Thank you. 

Senator DORGAN. Senator Nelson, thank you very much. 

Let me make a couple of comments then ask some additional 

questions. To give you an example of, as a consumer, things that 

I think are beneficial in terms of online collection of information, 

I go to—maybe I should not use the site name—Amazon as an example and am searching for a book or a couple books. And Amazon 

comes back to me and says here is what you searched for previously. So all of a sudden, I know they have kept information 

about me. Correct? And then they also come back and they say, 

and by the way, here are other books that people are looking at 

when they look at the book you are—so they are obviously collecting information about what other people have done. Very beneficial and very interesting to me to take a look at that. I do not 

walk away from that computer thinking, you know, that is a real 

serious problem. I think that is an advantage. 

But then there are other questions. For example, Ms. Horvath, 

Google. I use Google as a verb because I just google it. I am always 

googling something. Right? And so is Senator DeMint I will bet. 

And I also use MSN. So the two of you, Google and MSN, likely 

have information about where I have been traveling. Right? 

I did not do this. So I go to—well, I may not google this, but I 

may. I decide I am going to get to WebMD somehow or another and 

I am going to take a look at gout, dementia, and postnasal drip. 

Right? Now, I do not want the whole room to know that, not that 

I would do that. 

[Laughter.] 

Senator DORGAN. But that may apply to some others, but I disavow it. 

But my point is I do that and then I say, I want to find a flight 

to San Francisco. I want to go to the St. Francis Hotel, and then 

I want to go to a Flying Other Brothers concert. So I am doing all 

that. 

So now both of you perhaps know all of that about me or maybe 

that was all Senator DeMint that did that. So let me ask you a 

question. Do you know that about me? 

Ms. HORVATH. Actually we do not. It would really depend on how 

you are using our service. 

Senator DORGAN. Well, let us say I use it so that you know it. 

78 

Ms. HORVATH. If you are signed-on account holder, if you are 

signed in, then we would know what you are searching for, but we 

know what you are doing only on the Google.com site. Once you 

leave the Google.com site, the connection is gone. We are not collecting—— 

Senator DORGAN. If I am on MSN and pull up Goggle on MSN 

and use Google to go find something, you are saying that you do 

not keep a record of that? 

Ms. HORVATH. We would know what your search query was. 

Senator DORGAN. Right. 

Ms. HORVATH. If you came onto our service to Goggle.com and 

you were not logged in, what we would collect would be your IP address, the operating system that you are using, the browser type 

that you are using, the query that you have requested, and we 

would, if you do not have a correct cookie already—— 

Senator DORGAN. That was my point. 

Ms. HORVATH.—we would have a cookie. 

Senator DORGAN. That was my point. 

Ms. HORVATH. And that is all we would collect. 

Senator DORGAN. Well, that is a lot. 

Ms. HORVATH. If you went out to the airline site—— 

Senator DORGAN. You know about postnasal drip then. Right? 

Ms. HORVATH. No. 

Senator DORGAN. You do not know that is where I went? 

Ms. HORVATH. But if you were searching on Google for postnasal 

drip, we would know that you were searching for that, but once you 

went off—— 

Senator DORGAN. Right. That is my point. 

Ms. HORVATH.—to WebMD, we would not know that you were 

searching for gout or—— 

Senator DORGAN. So how long do you keep the postnasal drip inquiry? 

Ms. HORVATH. Well, it is only connected to your IP address. 

There is an argument as to whether IP addresses are personally 

identifiable information because of the nonstatic nature. When you 

are assigned an IP address, it does not mean that you are going 

to have it 3 days from now, the same IP address. So it would be 

stored in our logs iteratively. So it would not be saying Senator 

Dorgan was looking for postnasal drip in our logs. No, we would 

not know that. 

Senator DORGAN. I am using a silly example, obviously. 

Ms. HORVATH. No, I understand. 

Senator DORGAN. But if I am on MSN, as an example, and I am 

moving around, and then I go to Google and type in dementia, 

MSN has a record of what I am doing, I assume, and you have a 

record of what I am doing at Google. My question is, how long do 

you keep those records? 

Ms. HORVATH. We store our search logs for 18 months, and after 

18 months, we anonymize them by deleting what would be your 

cookie ID and also by redacting the IP address so it could no longer 

be connected to a computer that you used. 

Senator DORGAN. And how long do you store this information? 

79 

Mr. HINTZE. Ours is 18 months as well and our anonymization 

process goes a little bit further. We delete the entirety of the IP 

address and all cookie ID’s. 

Senator DORGAN. And if you are a Gmail user and log in, then 

what? 

Ms. HORVATH. Then the logs are exactly the same. It is 18 

months and then it is deleted after that. 

Senator DORGAN. And if Mr. Dykes comes to you at Google or 

MSN some day and says, I want to contract with you all, or goes 

to Verizon or whomever, a service provider or an online company, 

and says, I would like to contract, I would like to get everything 

that you have got, just stream it over to me, because he is an advertising agency and he is going to frame up advertising in the future that will have beneficial content for somebody, your reaction 

to that? He says, I can actually pay you some pretty big money if 

you just stream all your stuff to me at the same time you are collecting it. 

Mr. HINTZE. It is a hypothetical. We would, obviously, look at all 

the privacy implications of any deal we would do. Currently we are 

not sharing that data with anybody. It is all used for our own internal operations. As far as I am aware, that is our plan going forward. 

Senator DORGAN. Yes, Mr. Dykes? 

Mr. DYKES. I would point out that if we were involved in that 

type of transaction, we would not be storing the sensitive medical 

information that you just cited, and we would not have the IP address because we do a one-way hash on that. So we would just keep 

it against an anonymous identifier the innocuous commercial categories that occurred there. 

Senator DORGAN. I understand. 

Ms. Harris, Senator DeMint, my colleague, indicated—and I 

think Mr. Crews also—that this is probably a solution in search of 

a problem, this discussion. And Mr. Crews’ point, I think is that 

if somebody is doing something you do not like, you are going to 

go someplace else. If you back all the way up from that, that is like 

you do not need FDA inspecting food plants because if somebody 

is producing food that makes you sick, they will be out of business 

soon. But I mean, some make that point that are really against all 

regulation. But is this a solution in search of a problem? 

Ms. HARRIS. No, I do not think it is. You would have to have a 

level of transparency. And believe me, we encourage every day our 

colleagues at this table and some who are not and industry to compete with each other on privacy. But I do not think consumers understand at a level of granularity about the differences in policies. 

And I can say you are still keeping information far too long. We 

still have information tied to IP logs. I mean, this question about 

everything being anonymous, everything is not anonymous. At a 

minimum, we have got pseudo-anonymous logs. We have got oneway hashes. Those identifiers can be linked back by somebody to 

the IP address because we are updating the profiles. So it is just 

not that simple. 

Senator DORGAN. One further point and then I will call on my 

colleague. 

80 

Mr. DYKES. Could I interject to say that clearly represents a misunderstanding of how we operate? And I will take time to talk to 

Ms. Harris some more. 

Senator DORGAN. If we have time, we will come to that at the 

end. 

One final point. This Committee did, on behalf of consumers, a 

Do-Not-Call List, obviously having to do with telephone solicitation. 

I am assuming that there are technical difficulties with a Do Not 

Track List. I have just described, when I started my questioning, 

why tracking with respect to my search for a book on a site really 

is probably beneficial to me, but I do not know what is being 

tracked of Senator DeMint’s or my or Senator Carper’s activities on 

the web. I do not have the foggiest idea who is tracking it, how 

they are tracking it, how they might use it, whether that company 

has some scruples and might be very careful about how it handles 

it or whether it is somebody else that grabs a hold of it and says, 

you know what, Katie, bar the door, I will sell it to anybody. 

So that is the only question in my mind, that there are so many 

unanswered questions about information, how people navigate this 

web. The purpose of hearings, of course, is to try to inform and to 

understand, and that is the purpose of this hearing. 

Let me call on Senator Carper who has not yet had an opportunity, and then I will call on Senator DeMint. 

STATEMENT OF HON. THOMAS R. CARPER, 

U.S. SENATOR FROM DELAWARE 

Senator CARPER. I apologize for missing your presentations. As 

you know, we have a number of Subcommittees we serve on, and 

I have been detained at another hearing trying to figure out how 

to save the Medicare Trust Fund a couple hundred millions of dollars before it goes defunct. 

And we are going to start voting I think in about 10 minutes. 

Let me just use this as an opportunity to ask each of our witnesses to give me—maybe a minute apiece—a take-away. If we 

cannot remember everything you say—I would not pretend to. But 

each of you, give us a take-away. When we leave here, what would 

you have us keep in mind? Ms. Harris, why do we not start with 

you? Then we will just go to Mr. Kelly and Mr. Crews. 

Ms. HARRIS. I mean, I think the key take-away is that we are 

in a very robust online environment where we get great benefit 

from the advertising, but we are collecting more and more information about consumers at the time that the information that consumers are putting online is increasingly personal and sensitive, 

health data, location data. Self-regulation is a piece, but self-regulation alone is not enough to protect privacy. And we need to have 

some baseline rules in place. 

We have hearings and we bring in the companies who are good 

actors, who are at least willing to talk to privacy groups. It is a 

very big Internet, and we have to have some baseline for everybody. 

Senator CARPER. And who should provide the baseline guidance? 

Should the industry police itself? 

Ms. HARRIS. Well, I am saying self-regulation plays a key. It 

forces the boats up, but it is not in and of itself a solution and we 

81 

think that Congress has to pass a baseline privacy law. We have 

been advocating for years for that. 

Senator CARPER. All right. Thank you. 

Mr. Kelly? 

Mr. KELLY. Facebook has been focused on transparency in the 

collection of information about what people do online. Senator Nelson offered an excellent example earlier. If he was reading an article—let us say it was in the Miami Herald online, the only way 

that Facebook would know that he is reading that article is if he 

hits the share button on his browser and it says, you know, share 

it with my Facebook friends. And at that point, the information 

would be collected. There is real-time notice. It would show up in 

his mini-feed of activity on the site and be presented to him. 

And we are also committed to—if somebody wanted to target any 

advertising against that, if he wanted to become a fan of the Miami 

Herald on Facebook, that would be done in an anonymous space. 

The advertiser would not find out that Senator Nelson was a fan 

of the Miami Herald. They would just be able to target advertising 

toward fans of the Miami Herald on Facebook. 

Senator CARPER. All right. Thank you. 

Mr. Crews? 

Mr. DYKES. So—— 

Senator CARPER. Go ahead, Mr. Dykes. You had a point on this? 

Mr. DYKES. Yes. I was going to say NebuAd would welcome regulation in this area that was technology- and business process-neutral and focused on the privacy elements. Obviously, there should 

be strong controls, for more sensitive information and more personal information, including pseudo-anonymous information as Ms. 

Harris mentioned. I think that would be the criteria on which rules 

should be established. But room should be left for innovation because we just do not know how the Internet is going to evolve in 

the future, and so there is definitely a role for self-regulation by 

industry groups in this sphere as well. 

Senator CARPER. Does anybody on our panel agree with anything 

that Mr. Dykes just said? I saw some nodding. 

Ms. HARRIS. I came close. 

[Laughter.] 

Senator CARPER. I think, Mr. Crews, it is your turn. 

Mr. CREWS. I was just going to mention that if the kind of 

profiling that we are all worried about here today is an inherent 

feature of the Internet, one of the things we have to worry about 

is what criminal elements are doing. In this debate, it is not just 

self-regulation or no regulation. There is a lot of competitive discipline that has to take place and will take place here. 

But because of new technologies—as I said, it is only 2008. There 

are a lot more technologies that are going to come to fruition, including biometrics, including the face scanners and that data getting incorporated. There are a lot of institutions that have to 

evolve. I mean, markets do not pop into being, but the institutions 

that surround them to legitimize what industries do and to legitimize and establish a set of business practices that make sense that 

consumers live with have to evolve along with those new technologies. You do not want regulations that impede that. 

82 

I mean, take a look at the things that do work. Look at where 

opt-out is working. Look at where companies are already adopting 

opt-in procedures for certain kinds of information, and pay close attention to how important that is that those kinds of evolutions happen. Do not do something that thwarts them because there could 

be political failures just as there are market failures. 

One of the inherent problems here too is that compulsory databases that Government mandates of all sorts can get blurred with 

private databases, and then that creates a problem. I call it the Social Security problem sometimes. You know, one of the trickiest 

personally identifiable indicators is the Social Security number. 

Well, here we are with an Internet that has come out. We cannot 

pull the rug out from under commerce and ban the use of the Social Security number, but we can move toward a future where business generates its own identifiers apart from that. 

So those kinds of evolutions have to occur and we do not want 

to do specific regulations that might impede that because it is not 

a matter of self-regulation or no regulation. It is competitive discipline or—— 

Senator CARPER. Thank you. 

Is it Mr. Hintze or Mr. Hintze? 

Mr. HINTZE. Hintze. 

Senator CARPER. Hintze. OK. I was wrong on both counts. Mr. 

Hintze. 

Mr. HINTZE. I think there are a couple of take-aways from today. 

One, we believe that protecting consumer privacy is not only 

compatible with the business of online advertising, it is essential 

to the success of the online advertising business. If consumers lose 

trust in this, if lawmakers are uncomfortable with how it is operating, the reaction could ultimately undermine this very important 

business model. 

Microsoft itself has taken a number of concrete steps to protect 

consumer privacy that we think show our leadership in this space, 

but we are a relatively small player in the online advertising space. 

So we believe that also baseline privacy legislation is appropriate, 

supplemented by robust self-regulation, supplemented by technology tools, and supplemented by consumer education. They all 

need to work together to protect consumer privacy in the space. 

Senator CARPER. Thank you. 

And Ms. Horvath? 

Ms. HORVATH. I would agree with what the other panelists have 

said. I guess our key take-away would be the need for a baseline 

Federal privacy statute which would be based upon the fair information practices that have been around for 20 years and would 

give consumers some feeling of accountability, that the companies 

have accountability to them for what they say they are doing with 

their information. 

We would also support self-regulatory standards for the advertising sector. We also are already supportive of the NAI which has 

the first set of self-regulatory standards that are actually in effect 

right now. 

Senator CARPER. Thank you. 

Ms. Parnes, you are here, but I believe—— 

Senator DORGAN. Your time has expired. 

83 

Senator CARPER. OK, thank you very much. 

Senator DORGAN. Senator DeMint? 

Senator DEMINT. Thank you, Mr. Chairman. I know we are out 

of time. 

A last comment. I spent all my career in advertising. So I know 

for many, many years we have been able to buy mailing lists that 

reflect behaviors. If someone subscribes to an outdoor magazine, 

you know they are likely to buy other things. 

One of the exciting things about the Internet is, recognizing that 

most of the jobs in our country are created and maintained by 

small businesses, the Internet gives small companies the opportunity to invest advertising in a very targeted way. And the ability 

to use behavioral data to create market baskets that would allow 

smaller companies to focus their ad dollars on people who are most 

likely to buy their products is very, very important. And it is important that we maintain this. And I think it is very important 

that our Government look at creating laws and not try to manage 

the business, which is a very difficult line for us to draw. 

My hope would be that the industry would recognize that consumers need to know what data about them is being collected and 

held, and that needs to be disclosed and very transparent so that 

the consumers become the regulators of the Internet. If they know, 

they will be able to switch to different content providers, different 

servers that are doing it better and better. 

So my encouragement to the panel, those of you who are involved 

in the industry, is not to ask the Federal Government to come in 

at this point and to attempt to regulate because that is much different than a law that says how you can use data. I think as you 

continue to develop your technology, the disclosure and transparency to consumers is the best way to make sure that we end 

up with a vehicle that not only benefits consumers but is great for 

our economy. 

So, again, Mr. Chairman, I thank you and I think this has been 

very eye-opening and enlightening. And I yield back. 

Senator DORGAN. Senator DeMint, thank you very much. 

Senator Carper, did you wish to ask additional questions? 

Senator CARPER. On a lighter note, I have just come from a hearing where everyone spoke and testified to us using acronyms. And 

one guy used five acronyms in one sentence, and I had no idea 

what he said. I have no idea what he said. 

[Laughter.] 

Senator CARPER. I walk in here and people are talking about 

one-way hashes and cookies. I think the Chairman threw in something I think called the Flying Other Brothers. I am pretty good 

on music, but that is a new one to me. I was not here long, but 

it certainly has been illuminating. I obviously have to update my 

dictionary. 

Thank you. 

Senator DORGAN. Did you understand dementia and postnasal 

drip? 

[Laughter.] 

Senator CARPER. All too well. 

[Laughter.] 

84 

Senator DORGAN. The Flying Other Brothers is actually a band 

that includes one of the Grateful Dead members, and they just 

have very bright tie-dyed T-shirts. 

[Laughter.] 

Senator DORGAN. Let me thank all of the witnesses for being 

here. I intend to have a hearing asking a number of the Internet 

service providers to come and visit with us. I think one of the most 

important elements coming from this hearing is how little we do 

understand. I think knowledge is important here. So I think most 

of us would like to understand what we can about what is happening, what kind of information is collected about our habits, 

about our movements, about our travels on the Internet. The Internet is really a wonderful thing. It brings the world to your fingertips. 

Because I come from a town of 250 or 280 people, in my high 

school we had a coat closet-sized library. I mean, literally a coat 

closet that they turned into a library, just a few books. I do not 

need someone suggesting that is obvious. 

[Laughter.] 

Senator DORGAN. But I do think now in those little schools, the 

libraries are accessible by the Internet, the best libraries in the 

world. It really brings the world to our fingertips. 

But there are legitimate questions raised about our traveling 

over the Internet and who watches us and how that information is 

used. I think we need to understand much more about it. There are 

those who raise questions about the use of information. I think 

those are very important questions. The reason that the Federal 

Trade Commission has developed a set of guidelines, self-regulatory 

guidelines, is because I think you understand the potential exists 

for abuse. 

And I think the last thing that Senator DeMint described is 

something I certainly agree with. I would hope that every consumer has an opportunity, when traveling on the Internet, to understand what kind of information trail they leave and who might 

want to use that, or who is using it, or how is information about 

what is happening or what they are doing on the Internet going to 

be used. Information will give people an opportunity to decide, do 

they like the policies of this particular site or that particular provider, or do they wish to move elsewhere where policies are, they 

feel, more beneficial to their privacy. 

So I think that this hearing has been instructive for us, and we 

will be announcing another hearing in which we will discuss this 

with the Internet service providers. 

Senator CARPER. Mr. Chairman, would you yield for just a moment? 

Senator DORGAN. Senator Carper? 

Senator CARPER. In terms of the consumers being empowered to 

shop and to use the knowledge and understanding of these policies, 

probably every week we receive in our mail policy disclosures from 

a financial services company that we deal with. And my guess is 

that most of us do not take the time to look at it, and if we did, 

a lot of us would not understand it. So it is important if we are 

going to really enable the marketplace to work and to harness marVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00088 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76329.TXT JACKIE
85 

ket forces effectively, the information has to come in ways that consumers can actually internalize it, understand it, and find useful. 

So thank you. 

Senator DORGAN. I was just thinking that I frequently—and you 

perhaps do—get a letter in the mail from the North Dakota Drivers 

License Bureau saying someone made an inquiry about my driver’s 

license and any potential infractions. I guess that is part of being 

in politics. Fortunately, it is clean and has nothing attached to the 

license. But that happens frequently. I assume there are a lot of 

people out there wondering about my driver’s license. But at least 

we are notified. You are notified. I am notified when someone 

makes an inquiry and wishes to get that information. 

And so that represents kind of the overhanging question here 

about who wants information, how do they use that information 

that represents personal information or other information about 

your travels on the Internet. 

Let me thank the witnesses again. I appreciate your patience. 

And it works out that the vote, I believe, has just started. 

This hearing is adjourned. 

[Whereupon, at 11:48 a.m., the hearing was adjourned.] 

(87) 

A P P E N D I X 

STATE OF CONNECTICUT

Hartford, CT, July 9, 2008 

Hon. DANIEL K. INOUYE, Chairman, 

Hon. TED STEVENS, Vice-Chairman, 

Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Senators Inouye and Stevens: 

I appreciate the Senate Committee on Commerce, Science, and Transportation 

holding a hearing on the critically important issue of tracking consumer Internet 

use for marketing purposes. I urge expeditious Federal action to stop Internet service provider and third party marketer tracking of consumer Internet use for marketing purposes without prior and explicit consumer approval. 

Monitoring consumer Internet browsing is a gross invasion of privacy for the sake 

of profit. It threatens to make every consumer’s life an open book. Widely strewn 

to unknown websites and marketers would be highly sensitive and personal information such as medical conditions or family problems and financial interests. 

In this brave new world, every movement or activity by consumers on the Internet 

will be recorded, collected and compiled into huge databases and then sold to marketers. Consumers will be bombarded with relentless and repeated advertising. 

Their personal activities and interests will be exposed to potential security breaches, 

just as countless breaches nationwide have opened private confidential financial information to potential misuse and identity theft. 

This problem is neither speculative nor specious, It is very real and it is imminent. We are on the cusp of a new deep, enduring paradigm, fraught with perils 

to privacy. 

Charter Communications, a cable and Internet service provider with customers in 

Connecticut and throughout the nation, recently announced a pilot program to give 

consumers ‘‘an enhanced Internet experience.’’ These so-called enhanced services 

amounted to nothing more than spying on consumer web browsing by NebuAd. After 

I called on Charter to stop this initiative, it announced that it was canceling the 

pilot testing program. Charter has failed to disavow or deny future plans to track 

consumer Internet activities. Two phone companies—Embarq Corp. and 

CenturyTel—have completed trial tracking programs. Besides NebuAd, other tracking marketers are seeking targets of opportunity. 

While Congress has sought to protect consumer privacy by enacting legislation 

such as the Cable Communications Policy Act, 47 U.S.C. 551 et seq., and the Electronic Communications Privacy Act, 18 U.S.C. 2510 et seq., both laws must be 

strengthened to emphatically and effectively ban tracking by Internet service providers and third party marketers. Congress should act promptly to address this new 

Internet menace. 

I urge your quick and decisive action. I hope to be of assistance to the Committee 

in its work on this important initiative. Thank you. 

Very truly yours, 

RICHARD BLUMENTHAL, 

Attorney General. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARIA CANTWELL TO

LYDIA B. PARNES

Question 1. Ms. Parnes, do you believe consumers read online privacy policies? 

Answer. Available research suggests that some consumers read online privacy 

policies, but many do not. Moreover, those that do read online privacy policies may 

88 

1See TRUSTe/TNS Survey (December 2006), available at https://www.truste.org/about/ 

presslrelease/12l06l06.php. 2See AOL/DMS, ‘‘2008 AOL Consumer Survey on Behavioral Advertising’’ (February 2008). 3 Irene Pollach, ‘‘What’s Wrong with Online Privacy Policies?,’’ Communications of the ACM, 

50(9), 103–108 (2007). 4See, e.g., 2007 Golden Bear Omnibus Survey (47.8 percent of consumers surveyed believe 

that, if a website has a privacy policy, it cannot share information with affiliate companies, and 

55.4 percent believe that it could not sell information to other companies); Joseph Turow, 

Lauren Feldman, and Kimberly Meltzer, ‘‘Open to Exploitation: American Shoppers Online and 

Offline,’’ Annenburg Public Policy Center, University of Pennsylvania (June 2000) (59 percent 

of consumers surveyed believe that a privacy policy on a website means that the site will not 

share consumer information with other websites or companies). 5See, e.g., Joseph Turow and Chris Jay Hoofnagle, ‘‘The FTC and Consumer Privacy In the 

Coming Decade,’’ at 17, presented at ‘‘Protecting Consumers in the Next Tech-Ade’’ (Nov. 8, 

2006), available at http://works.bepress.com/chrislhoofnagle/4/. 6See, e.g., Novak v. Overture Services, Inc., 309 F. Supp.2d 446, 450–51 (E.D.N.Y. 2004) (court 

holds that plaintiff, by clicking an ‘‘I accept’’ icon agreeing online to be bound by the ‘‘Terms 

of Service’’ governing use of an online discussion group set forth in a scrollable window, viewable 

ten lines at a time, was bound by the forum selection contained therein). 7See, e.g., Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 23–24, 35–38 (2d Cir. 2002) (refusing to enforce agreement against consumers); see also Douglas v. Talk America Inc., 495 F.3d 

1062, 1066 (9th Cir. 2007) (per curiam) (customer of long-distance service provider not bound 

by new contractual terms requiring arbitration of dispute when service provider merely posted 

them on its website and gave no notice to customer); Waters v. Earthlink, Inc., 91 F.App’x 697, 

698 (1st Cir. 2003) (refusing to enforce an arbitration clause posted on a website in the absence 

of proof the consumer had seen the clause). 

not do so consistently, and they typically do not review policies for changes after 

the initial read. For example, in a 2006 survey, only 20 percent of consumers said 

that they read the privacy policy when first providing information to a website 

‘‘most of the time,’’ although 43 percent said they had read an online privacy policy. 

Only 5 percent of consumers reported that they frequently check to see if privacy 

statements have been updated or revised.1

Although the reasons that consumers do not read online privacy policies may 

vary, we believe one key reason is that privacy policies are often too difficult to understand and/or too long. Research confirms this. For example, in a 2008 survey, 

the main reasons consumers reported for not reading privacy policies were because 

the polices contain too much legalese or jargon (57 percent) and that they take too 

long to read (58 percent).2 Another study found that typical privacy policies require 

college-level reading skills to understand.3 In addition, several studies show that 

significant numbers of consumers believe that the mere presence of a privacy policy 

on a website indicates some level of substantive privacy protection for their personal 

information.4 As a result, once these consumers see that a privacy policy exists, they 

may believe it unnecessary to read the policy.5

The FTC staff recognized the concerns about online privacy policies when it issued 

its Proposed Self-Regulatory Principles. Because online behavioral advertising is 

largely invisible and unknown to consumers, the principles recommend that companies provide greater transparency about the practice through a ‘‘clear, concise, consumer-friendly and prominent’’ disclosure—that is, not through a disclosure cloaked 

in legalese and buried in a privacy policy. We are encouraging companies to develop 

creative ways to provide this disclosure, including by placing it outside of the privacy policy. 

Question 2. Ms. Parnes, does the Commission view an End User Licensing Agreement as a contract between the online consumer and the website visited? 

Answer. An ‘‘End User License Agreement,’’ ‘‘Terms and Conditions’’ page, or 

similar document available on a website may be an enforceable contract between the 

online consumer and the website visited, depending on the particular circumstances 

and applicable state contract law. Courts have frequently held that when consumers 

click an ‘‘I Agree’’ icon in an online transaction (a.k.a., ‘‘clickwrap agreements’’), and 

the terms and conditions to which they agree are readily available for review in advance via a hyperlink or in a scrollable window, those consumers are bound by those 

terms and conditions.6 It is less clear whether courts would hold that an ordinary 

consumer would be bound by an agreement or other document where the consumer 

uses the website without actual knowledge of the terms and conditions posted 

there.7

However, in enforcing Section 5 of the FTC Act, it is generally unnecessary for 

the Commission to determine whether a EULA is, or is not, a contract. Under core 

FTC deception principles, disclosures buried in a EULA cannot be used to contradict 

a company’s other representations, nor are they adequate to correct misimpressions 

89 

8See, e.g., Zango, Inc., FTC Docket No. C–4186 (2007) (complaint alleged that adware distributor represented that consumers could download free software and games and failed to disclose adequately that adware was bundled in the download; adware was often disclosed only in 

lengthy terms and conditions or through inconspicuous hyperlinks); FTC v. Odysseus Marketing, 

Inc., No. 1:05–CV–00330–SM (D. N.H. 2006) (complaint alleged that defendants deceptively 

failed to disclose adequately that their software would collect consumers’ personal information 

and substantially alter behavior of computers where those functions were disclosed only in 

EULA accessible via inconspicuous hyperlink). 9See Sony BMG Music Entertainment, FTC Docket No. C–4195, Letter responding to comment 

from Jerry Berman, Center for Democracy and Technology (June 28, 2007); Zango, Inc., FTC 

Docket No. C–4186, Letter responding to comment from Mark Bohannon, Software & Information Industry Ass’n (Mar. 7, 2007). 10See Alan Westin, ‘‘How Online Users Feel About Behavioral Marketing and How Adoption 

of Privacy and Security Policies Could Affect Their Feelings,’’ at 3 (March 2008). 

that the company’s representations would otherwise leave.8 The Commission analyzes EULA-only disclosures on a case-by-case basis, weighing what information is 

material to consumers and the overall, net impression of the transaction.9

Question 3. Ms. Parnes, the FTC focuses on consumer harms. Can you give me 

a couple of examples of the types of potential consumer harms from online behavioral advertising? Does the Commission view a loss of any degree of personal privacy 

as being ‘‘a harm?’’ 

Answer. The greatest risk of harm arises when information collected about a consumer’s online activity is retained but not properly protected. Here, the Commission’s work on data security informs our concern that information is sometimes retained beyond the point when it is needed, or without being well-protected. One possible harm from the collection of information for behavioral advertising is that it 

could be hacked or otherwise obtained and used for unauthorized purposes. Second, 

online behavioral advertising can lead to advertising and other communication with 

a consumer that reveals highly personal information and that can be unwelcome if 

it relates to sensitive issues, such as health or children, or is delivered in a shared 

computer environment. For example, in a situation where multiple users share the 

same computer, the delivery of behaviorally-targeted advertising might reveal the 

fact that a user conducted searches relating to AIDS, domestic abuse, or sexual preference. 

As to whether a loss of personal privacy constitutes a ‘‘harm,’’ it depends on the 

consumer. Different consumers may have different expectations about how their information is collected and used in this context, as well as different views about the 

information that they are willing to provide to obtain certain benefits—for example, 

coupons or free services. Indeed, in a survey conducted by Alan Westin,10 59 percent 

of the respondents were not comfortable with online tracking, yet 41 percent were 

‘‘very’’ or ‘‘somewhat’’ comfortable.’’ This is the main reason that Commission staff 

has proposed that companies provide consumers with choice concerning the collection of their data for the purpose of delivering behavioral advertising. Consumers 

who are comfortable with the practice can allow it, and consumers who are not comfortable can decline. 

Question 4. Ms. Parnes, does the ability for advertisers to be able to link through 

a common field online, anonymous, behavioral marketing data and personally identifiable data typically used by marketers in the brick and mortar world provide any 

specific challenges to the Commission as it looks toward finalizing its principles on 

online behavioral advertising? 

Answer. The ability to link non-personally identifiable information with personally identifiable information, and the debate concerning what online information is 

personally identifiable and what is not, have been among the central issues discussed in this area and in the comments to our proposed principles. Especially as 

technology advances, the line between the two categories of information becomes 

less and less clear. To the extent that non-personally identifiable information can 

become personally identifiable through reasonable technological efforts or linkages 

with other data, we believe it raises a concern. We are considering this issue carefully as we analyze the comments to our proposed principles and consider next 

steps. 

Question 5. Ms. Parnes, I realize the Commission’s principles on online behavioral 

advertising are just in a draft stage. In general, does the Commission have the authority to enforce any principle for self-regulation it may develop? If it does have 

this authority, how does the Commission intend to enforce the self regulatory principles on online behavioral advertising once they are finalized? 

Answer. Several of the proposed self-regulatory principles reflect requirements of 

existing law and the Commission has made enforcing these principles a high priVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00093 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
90 

11Since 2001, the Commission has obtained twenty consent orders against companies that allegedly failed to provide reasonable protections for sensitive consumer information. See In the 

Matter of The TJX Companies, FTC File No. 072–3055 (Mar. 27, 2008, settlement accepted for 

public comment); In the Matter of Reed Elsevier Inc. and Seisint Inc., FTC File No. 052–3094 

(Mar. 27, 2008, settlement accepted for public comment); United States v. ValueClick Inc., No. 

CV08–01711 (C.D. Cal. Mar. 13, 2008); In the Matter of Goal Financial, LLC, FTC Docket No. 

C–4216 (April 15, 2008); In the Matter of Life is Good, Inc., FTC Docket No. C–4218 (Apr. 18, 

2008); United States v. American United Mortgage, No. CV07C 7064, (N.D. Ill. Dec. 18, 2007); 

In the Matter of Guidance Software, Inc., FTC Docket No. C–4187 (Apr. 3, 2007); In the Matter 

of CardSystems Solutions, Inc., FTC Docket No. C–4168 (Sept. 5, 2006); In the Matter of Nations 

Title Agency, Inc., FTC Docket No. C–4161 (June 19, 2006); In the Matter of DSW, Inc., FTC 

Docket No. C–4157 (Mar. 7, 2006); United States v. ChoicePoint, Inc., No: 106–CV–0198 (N.D. 

Ga. Feb. 15, 2006); In the Matter of Superior Mortgage Corp., FTC Docket No. C–4153 (Dec. 

14, 2005); In the Matter of BJ’s Wholesale Club, Inc., FTC Docket No. C–4148 (Sept. 20, 2005); 

In the Matter of Nationwide Mortgage Group, Inc., FTC Docket No. 9319 (Apr. 12, 2005); In the 

Matter of Petco Animal Supplies, Inc., FTC Docket No. C–4133 (Mar. 4, 2005); In the Matter 

of Sunbelt Lending Services, FTC Docket No. C–4129 (Jan. 3, 2005); In the Matter of MTS Inc., 

d/b/a Tower Records/Books/Video, FTC Docket No. C–4110 (May 28, 2004); In the Matter of 

Guess?, Inc., FTC Docket No. C–4091 (July 30, 2003); In the Matter of Microsoft Corp., FTC 

Docket No. C–4069 (Dec. 20, 2002); In the Matter of Eli Lilly & Co., FTC Docket No. C–4047 

(May 8, 2002). 12See, e.g., Gateway Learning Corp., Docket No. C–4120 (Sept. 10, 2004), http://www.ftc.gov/ 

opa/2004/07/gateway.shtm. 

ority. The agency will continue to enforce laws within our jurisdiction as necessary 

to protect consumers. For example, the principles maintain that companies should 

provide reasonable security for behavioral data so that it does not fall into the 

wrong hands. The Commission has brought numerous enforcement actions focusing 

on the obligation of companies that collect or store consumer data to provide reasonable security for that data.11 In addition, the principles provide that before a company uses behavioral data in a manner that is materially different from promises 

made when the data was collected, it should obtain affirmative express consent from 

the consumer. The Commission has brought high-profile law enforcement actions 

against companies that violated this principle by using data in a manner materially 

different from promises the company made at the time of collection.12 In addition, 

if a company made material misrepresentations about the collection or use of behavioral advertising data, such misrepresentations would constitute a deceptive practice, in violation of Section 5 of the FTC Act. 

The purpose of the FTC staff’s proposed principles is to encourage more meaningful and enforceable self-regulation. Because strong enforcement mechanisms are 

necessary to ensure effective self-regulation, it is our expectation that the organizations developing self-regulation will include in their regimes mechanisms for meaningful enforcement. 

Question 6. Ms. Parnes, as you know, in recent months, there have been deals announced between online search engines with strong online advertising market 

shares. Considering the implications these proposals have for market consolidation, 

is the Commission worried about the prospect of the vast majority of behavioral online information being in the hands of one company? 

Answer. Market consolidation that results in the creation of vaster, more detailed 

databases of online consumer data may raise concerns. Although companies with 

large stores of data can be just as privacy-protective as those with small ones, the 

risks associated with data collection and storage, such as the risk that data could 

fall into the wrong hands, may be heightened where one company maintains large 

quantities of rich data. Further, competition ensures that companies have incentives 

to protect customer privacy, and market consolidation could undermine competition 

in this area. 

However, whether there is cause for concern must be evaluated on a case-by-case 

basis. A given deal between online advertising companies may not involve the transfer or sharing of any data, or may not result in a more detailed database of consumer information than those already possessed by other companies in the online 

marketplace. The Commission can evaluate whether a proposed transaction would 

adversely affect non-price attributes of competition, such as consumer privacy, and 

will continue to do so as appropriate. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DAVID VITTER TO

LYDIA B. PARNES

Question 1. Do you believe legislation mandating the FTC’s pending self-regulatory principles is necessary at this time? 

91 

1See Privacy Implications of Online Advertising: Hearing Before the S. Comm. on Commerce, 

Science, and Transportation, 110th Cong. (2008) (statement of the Federal Trade Commission), 

at 14. 2 Although AOL took steps to anonymize the search records of its subscribers that were made 

public in 2006, several newspapers and consumer groups were able, to identify some individual 

AOL users and their queries by combining the data. 

Answer. I do not believe that legislation regarding online behavioral advertising 

is necessary at this time. As stated in the written testimony presented to the Committee on July 9, 2008,1 the Commission is cautiously optimistic that the privacy 

issues raised by online behavioral advertising can be addressed effectively through 

self-regulation. 

The online marketplace is undergoing rapid change. Many different types of businesses are entering the advertising market and the technologies utilized by these 

businesses are constantly evolving. At the same time, the costs and benefits of various types of behavioral advertising may be difficult to weigh. Although online behavioral advertising raises legitimate privacy concerns, it may provide benefits to 

consumers in the form of more personalized and relevant advertisements, as well 

as the free content that Internet users have come to expect. In this environment, 

industry self-regulation, which may afford the flexibility needed as online business 

models and technologies evolve, may be the preferred approach. Although there is 

much work to be done in this area, I believe that the self-regulatory processes that 

have been initiated by the Network Advertising Initiative (NAI) and other organizations should be given an opportunity to develop. 

Question 2. Do you believe the same principles about transparency and choice 

would be necessary for behavioral advertising based on ‘‘anonymous’’ or non-personally-identifiable information? 

Answer. The FTC received considerable comment on this issue in response to the 

staff’s proposed self-regulatory principles. Many commenters stated, for example, 

that the collection of data that is not personally identifiable is unlikely to cause consumer harm and therefore should not be subject to the notice and choice requirements in the staffs proposed principles. Other commenters stated that, even when 

information collected is not personally identifiable, its use can lead to advertising 

or other contacts with a consumer that can be unwelcome or embarrassing, especially if they relate to sensitive issues, such as health, children, or a consumer’s finances, or are delivered in a shared computer environment. 

The comments also highlight the considerable debate that remains concerning 

what online information is personally identifiable and what is not, and the effect 

that advances in technology may have on the distinction. Further, incidents such 

as the AOL breach demonstrate that items of information that are considered anonymous standing alone may become personally identifiable when combined, challenging traditional notions about what data is or is not personally identifiable.2

FTC staff continues to carefully review the comments received on this issue, and 

we intend to address it as we develop our next steps in this area. 

Question 3. Based on your experience, how is online behavioral advertising different from offline direct marketing? Also, what would be the justification for regulating online advertising differently than offline advertising? 

Answer. Targeted marketing also exists in the offline environment. However, rapidly evolving Internet technologies permit online marketing companies to collect, 

store, and analyze significantly greater amounts of data than offline companies, and 

to do so through practices that are often invisible to consumers. Offline marketing 

generally involves the collection of a smaller quantity of less detailed behavioral information than is gathered online, and that collection is likely to be more consistent 

with consumer expectations. 

For example, brick-and-mortar stores often record a consumer’s purchase history 

and use it to market to the consumer. They typically do not, however, follow individual consumers around their stores and collect detailed information about the 

other products the consumer might have looked at, nor do they share purchase or 

behavioral information with third parties. Similarly, consumers know that subscribing to a newspaper involves the sharing of personal information so that the 

newspaper can be delivered to their homes; however, they generally would not expect every article read in a newspaper to be tracked and recorded by multiple parties. Given the amount and type of data that is collected and stored in connection 

with online behavioral advertising, and the invisibility and typically unexpected nature of such practices, it may be appropriate to take different approaches to protecting consumer privacy between online behavioral advertising and offline marketing. 

92 

3See Alan Westin, ‘‘How Online Users Feel About Behavioral Marketing and How Adoption 

of Privacy and Security Policies Could Affect Their Feelings,’’ at 3 (March 2008). 

Question 4. Based on your experience, has the FTC identified any specific harm 

to consumers that has resulted from the information used for online behavioral targeting? 

Answer. At this time, the FTC is unaware of any specific incidents in which a 

company’s online behavioral advertising practices have led to such consumer harms 

as identity theft, financial fraud, or physical harm. Behavioral advertising, however, 

does raise unique concerns because of the amount, richness, and sensitivity of the 

consumer information that may be collected, used, and shared with third parties. 

For example, in a situation where multiple users share the same computer, the delivery of behaviorally-targeted advertising might reveal the fact that a user conducted searches relating to highly personal and sensitive topics, such as AIDS, domestic abuse, or sexual orientation. To the extent that the information collected is 

or could later become personally identifiable, the risk of harm may be greater. 

Many consumers express concern about the privacy and data security implications 

of behavioral tracking. For example, a 2008 survey showed that 59 percent of those 

surveyed are ‘‘not very comfortable’’ (34 percent) or ‘‘not comfortable at all’’ (25 percent) with websites using online activity data to tailor advertisements or content to 

their hobbies and interests, whereas 41 percent were ‘‘comfortable’’ or ‘‘somewhat 

comfortable.’’ 3 As this survey indicates, consumers differ in their level of concern 

about this practice and in how they weigh the benefits of more relevant ads against 

the privacy implications. For this reason, the Commission staff’s proposed principles 

would require that companies provide consumers with choice concerning the collection of their data for the purpose of delivering behavioral advertising. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARIA CANTWELL TO

CHRIS KELLY

Question 1. Mr. Kelly, as you mentioned in your written statement, Facebook’s 

privacy policy states clearly that you believe all of your users ‘‘should have control 

over [their] personal information.’’ However, as I understand it from my staff, many 

of whom have Facebook accounts, when members of Facebook wish to terminate the 

service, they are only allowed to ‘‘deactivate.’’ Do you currently offer your members 

an opportunity to control their personal information by completely terminating their 

account and allowing Facebook to then delete their personal information? If not, 

why hold onto their information? 

Answer. At Facebook, we reflect our desire to give users control over their information by providing them two options if they wish to suspend or terminate their 

relationship with us. 

Facebook users can make either a temporary or permanent decision to shut down 

their account—the former is called deactivation, and the latter deletion. Users 

choose to deactivate their accounts for a variety of reasons. Given Facebook’s roots 

as a college site, one original driver for introducing the deactivation feature was 

user desire to ‘‘disappear’’ during their exams and then resume the service with 

their friend connections and network membership intact. More than 50 percent of 

the users who deactivate their Facebook accounts return to reactivate them within 

weeks. 

Deletion is a fuller option that erases the personally identifiable information such 

as name, e-mail address, IM handle and other core information from a Facebook account. While we cannot certify that every single piece of data a user has ever given 

us is irretrievable after the deletion process is done—the distributed nature of databases and Internet site operations, especially for a longstanding user, makes that 

certification practically impossible—we have scrubbed our active databases of all 

contact information for a particular account. A deleted account cannot be reconstructed; a user who wants to come back to use the Facebook service after undergoing the deletion process must start over with regard to setting up their friends 

and networks. I am unaware of a similar deletion option offered by any other major 

Internet company. 

Question 2. Mr. Kelly, according to a Washington Post article from last month, 

Facebook requires 95 percent of its members that use one of the social network’s 

24,000 applications to give the applications’ developers access to their personal online profile, except contact information, and their friends’ profiles as well. While I 

understand these developers are not allowed to share with advertisers, this still 

leaves the 400,000 developers with access to personal information that is out of 

Facebook’s control. A recent study at the University of Virginia found that about 

93 

90 percent of the most popular Facebook applications have unnecessary access to 

private data. So my question is, why does a Sudoku puzzle have to know that someone has two kids? And why does a book-sharing program need to know my birthday? 

Answer. Facebook’s developer terms of use do not just forbid sharing with advertisers of the information that applications request. They only allow retention of most 

data called from the Facebook service for 24 hours in order to facilitate the more 

rapid operation of the application. Retention for a period beyond that is forbidden. 

Requests for data through the Facebook API are logged, and the platform policy enforcement team conducts investigations as necessary to discover potential violations. 

They then take action up to and including barring an application or a developer 

from further use of the service where violations are discovered. 

Users of course may choose to establish a deeper relationship with an application 

by providing more personal information directly, but Facebook’s terms and policies 

work together to encourage strongly clarity with users about access to their data. 

In addition to the technical and policy enforcement measures outlined here, 

Facebook is always looking for means to enhance transparency to users with regard 

to data collection and use. We are currently exploring efficient and effective means 

to give users greater knowledge of and control over data requests by applications 

so that a user will know if an application is seeking more data than the user believes is necessary. At that point, the user could then choose to remove the application from their profile, or to use the ‘‘block’’ feature that has been present since the 

introduction of the Facebook platform in 2007 that prevents any data from flowing 

to that application. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DAVID VITTER TO

CHRIS KELLY

Question 1. Does your company’s business model already accommodate the FTC’s 

proposed principles for industry self-regulation? If so, please explain how. 

Answer. In putting in place baseline privacy controls that users can adjust to 

their liking and allowing users to make their own choices about the sharing of personal information with advertisers, we generally reflect the FTC self-regulatory 

principles. Our commentary on the principles has suggested that the FTC offer 

greater clarity in distinguishing between how personally and non-personally identifiable information should be addressed by the principles, which we believe will lead 

to greater consumer understanding and confidence. 

Question 2. Does your system accommodate for a consumer’s choice not to receive 

behavioral advertising, and in your systems, is that request honored permanently? 

If so, please explain how. 

Answer. While Facebook does not currently engage in many of the behavioral targeting practices that have been the main focus of the Committee’s attention, it bears 

noting at the outset that Facebook is an opt-in system at its core. If a user does 

not sign up for and use Facebook, they will not receive advertising through our service. 

In addition to this fundamental user choice, we offer opt-outs for many of our advertising products within the Facebook ecosystem. For instance, those users who do 

not wish to participate in our Social Ads product have an easily available option to 

turn it off. 

User control is a critical part of Facebook’s philosophy and our offerings in the 

product and advertising area will continue to reflect that principle. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARIA CANTWELL TO

JANE HORVATH

Question 1. Ms. Horvath, just a few months ago, in Google’s comments to the FTC 

on self-regulatory principles for online advertising, the company said that ‘‘contextual advertising . . . is not the type of advertising that ought to be the focus of the 

FTC’s efforts to develop effective self regulatory principles.’’ I understand that contextual advertising is less invasive than behavioral advertising. However, I am interested to hear the rationale behind Google’s belief that it should be exempt from 

the FTC’s self-regulatory principle. 

Answer. Google has not suggested that it or any other online advertiser be exempted from self-regulation with respect to behavioral advertising. We have said 

and continue to believe that further thought must be given to the definition of behavioral advertising in the Federal Trade Commission staff’s draft self-regulatory 

principles. As currently written, the draft principles define ‘‘behavioral advertising’’ 

94 

so broadly as to encompass virtually any collection and use of information about a 

user’s online activities, including the collection and use of information to provide 

contextual advertising. 

AOL, Google, Microsoft, Yahoo!, and many other companies provide contextual advertising solutions, which, as you point out, are different from behaviorally targeted 

ads because they provide relevant advertising based on what an Internet user is 

searching for as well as relevant ads based on a page that a user is viewing. Though 

it is not the focus of our business today, Google believes that behavioral advertising 

can be done in ways that are responsible and protective of consumer privacy and 

the security of consumers’ information. 

To ensure the continuation and proliferation of responsible behavioral advertising 

practices, we are supportive of efforts to establish strong self-regulatory principles 

for online advertising that involves the collection of user data for the purpose of creating behavioral and demographic profiles. For example, we believe that the FTC’s 

efforts to address this type of advertising through self-regulatory principles are appropriate and helpful. Likewise, we support the Network Advertising Initiative’s recently-announced draft Self-Regulatory Code of Conduct for Online Behavioral Advertising, which includes limitation on the use of sensitive information to create profiles of individuals for purposes of third-party advertising. 

For both the FTC’s draft principles and the NAI’s draft code of conduct, we believe 

that the focus on data collected across multiple web domains owned or operated by 

different entities to categorize likely consumer interest segments for use in online 

advertising is appropriate. We also believe that a strong and easy-to-find mechanism to permit consumers to opt out of this type of data collection is a goal that 

all companies should aspire to achieve. Finally, we believe that special attention 

should be given to rules around the creation of profiles based on sensitive information such as health status. 

Question 2. Ms. Horvath, one of the central issues in the Internet privacy debate 

is the protection, or lack thereof, of personally identifiable information. I’m interested to know, what measures Google is taking to ensure that the data it uses for 

ad targeting is not connected to personally identifiable information? What opt-out 

mechanisms do you currently offer your customers? How robust are these opt-out 

mechanisms and how easy are these mechanisms for consumers to use? 

Answer. Google protects its users’ personally identifiable information—PII—in 

many ways. For example, we do not use PII to serve ads in connection with our 

AdWords and AdSense products. We also have strict policies and procedures in place 

to ensure that personal information is used only in accordance with our privacy policy, which is located at www.google.com/privacy.html, and that our users’ personal 

information is secure. 

We collect non-PII through the DoubleClick cookie in order to enable enhanced 

functionality to advertisers that use DoubleClick and advertisers that advertise on 

the Google content network through our AdSense for Publishers product. For example, this data collection will enable advertisers that advertise through AdSense for 

Publishers to limit the number of times a user sees an ad through frequency capping. Users will have a better experience on Google content network sites because 

they will no longer see the same ad over and over again. 

Users are able to opt out of data collection through our DoubleClick ad serving 

cookie in several ways. For example, users can opt out by visiting the DoubleClick 

opt out page located at www.doubleclick.com/privacy. In addition, our ads privacy 

microsite has an above-the-fold opt out button located at www.google.com/privacylads.html. Users are also able to opt out of the DoubleClick cookie’s data collection through the Network Advertising Initiative’s opt out page located at 

www.networkadvertising.org/managing/optlout.asp. This single opt-out is honored 

both in the DoubleClick network and in the Google content network. 

Question 3. Ms. Horvath, in your written testimony, you indicate Google is currently experimenting to deliver search results based on prior searches. Isn’t this behavioral advertising by any other name? Is this consistent with Google’s privacy policy regarding behavioral advertising? 

Answer. We are currently experimenting with providing ads on Google search 

based on both a user’s current query and his or her recent prior queries. For example, a user who types ‘‘Italy vacation’’ into the Google search box might see ads 

about Tuscany or affordable flights to Rome. If the user were to subsequently search 

for ‘‘weather,’’ we might assume that there is a link between ‘‘Italy vacation’’ and 

‘‘weather’’ and deliver ads regarding local weather conditions in Italy. In the above 

example, we are serving an ad based on a user’s activity on our site, and not the 

sites of other parties. This is an example of the kind of first-party advertising that 

users expect to see in response to the search terms they enter into the Google search 

95 

box. While we may use recent queries to better respond to the user’s specific interests, this is done on the fly, and we are not building profiles based on a users’ 

search activities. 

Google’s privacy policy, which is located at www.google.com/privacy.html, states 

clearly that we use this information to provide our services to users, including the 

display of customized content and advertising. We also provide plain English explanation of our advertising and privacy practices on our ads privacy microsite located 

at www.google.com/privacylads.html. 

Question 4. Ms. Horvath, with regard to Google’s recently announced marketing 

deal with Yahoo!, are you able to tell us what information Yahoo! will share with 

Google? Will it include IP addresses? If so, has Google done its due diligence to ensure that the transfer of data from Yahoo won’t violate Yahoo!’s privacy policy? As 

you know, Yahoo! has publicly announced it will retain information about consumer 

search queries for 13 months. I believe your company retains such information for 

18 months. Does Google intend to conform to Yahoo!’s retention policy or is Yahoo! 

expected to conform to Google’s? 

Answer. Under our advertising agreement with Yahoo!, there is no PII passed between Yahoo! and Google. In fact, for ads appearing (impressions) on Yahoo! Search, 

Yahoo! will remove the last octet of the IP address before sending us search queries, 

so Yahoo will never send the full IP address to Google. Moreover, in the search advertising context Google will set a cookie only if a user clicks on an ad delivered 

by Google. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DAVID VITTER TO

JANE HORVATH

Question 1. Does your company’s business model already accommodate the FTC’s 

proposed principles for industry self-regulation? If so, please explain how. 

Answer. We have participated actively in the Federal Trade Commission’s efforts 

to develop privacy principles relating to online privacy and behavioral advertising. 

Our hope is that the FTC’s privacy principles—once finalized and written to ensure 

that they can be realized by industry and will provide consumers with appropriate 

levels of transparency, choice, and security—will be adopted widely by the online advertising industry and will serve as a model for industry self-regulation in jurisdictions beyond the United States. 

Our comments on the FTC’s principles are available at googlepublicpolicy. 

blogspot.com/2008/04/our-comments-on-ftcs-behavioral.html. In addition, through 

DoubleClick we are members of and serve on the Board of Directors of the Network 

Advertising Initiative and abide by the NAI Self-Regulatory Principles. 

Question 2. Does your system accommodate for a consumer’s choice not to receive 

behavioral advertising, and in your systems, is that request honored permanently? 

If so, please explain how. 

Answer. Though our business is focused on contextual advertising, we collect nonpersonally identifiable information through our DoubleClick ad serving cookie in 

order to enable enhanced functionality to advertisers that use DoubleClick and advertisers that advertise on the Google content network through our AdSense for 

Publishers product. For example, this data collection will enable advertisers that advertise through AdSense for Publishers to limit the number of times a user sees an 

ad through frequency capping. Users will have a better experience on Google content network sites because they will no longer see the same ad over and over again. 

Users are able to opt out of data collection through our DoubleClick ad serving 

cookie in several ways. For example, users can opt out by visiting the DoubleClick 

opt out page located at www.doubleclick.com/privacy. In addition, our ads privacy 

microsite has an above-the-fold opt out button located at www.google.com/privacylads.html. Users are also able to opt out of the DoubleClick cookie’s data collection through the Network Advertising Initiative’s opt out page located at 

www.networkadvertising.org/managing/optlout.asp. This single opt-out is honored 

both in the DoubleClick network and in the Google content network. 

We believe that a strong and easy-to-find mechanism to permit consumers to opt 

out of this type of data collection is a goal that all companies should aspire to 

achieve. 

96 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARIA CANTWELL TO

LESLIE HARRIS

Question 1. Ms. Harris, do you believe consumers read online privacy policies? 

Answer. There is ample evidence that consumers do not read privacy policies and 

to the extent that they do, they do not understand them. Indeed, a recent study 

found that over half of respondents believed that the presence of a privacy policy 

on a website meant that the site did not share or sell personal information. Moreover, privacy policies often are in practice disclosure policies, making no promises 

to protect customer information and instead stating all the ways the site intends 

to use and disclose data. Consumers need clear, conspicuous and understandable notice of collection and disclosure practices. 

Question 2. Ms. Harris, do you view an End User Licensing Agreement as a contract between the online consumer and the website visited? 

Answer. End User Licensing Agreements are typically included when consumers 

purchase or download software. Courts generally have held that these EULAs do 

constitute contracts between consumers and the companies distributing the software, though it may depend on factors such as the prominence of the EULA and 

whether consumers affirmatively express agreement (by clicking an ‘‘I Agree’’ button, for example). As a practical matter, as we have seen in the case of malicious 

‘‘spyware’’ and as the FTC has recognized in its settlement agreements with 

spyware purveyors, long, complicated EULAs are wholly inadequate to inform consumers about the material effects that a particular piece of software will have on 

their computers. The FTC has set the right precedent in requiring simple explanations of such key information outside of any software EULA. Outside the software 

context, it is less clear that merely visiting a website would be sufficient to contractually bind a consumer to a Terms of Service agreement, particularly in the absence 

of some express indication of consumer acceptance. The FTC has made, clear, however, that websites must adhere to their publicly stated policies on matters such as 

privacy, or risk possible charges of deception. 

Question 3. Ms. Harris, as you know the FTC focuses on consumer harms. Do you 

believe that some of the issues surrounding online behavioral advertising go beyond 

what the Commission has traditional viewed as consumer harm? 

Answer. The FTC has traditionally focused on tangible harms such as practices 

which result in a financial loss or which induce a consumer to engage in a transaction through deceptive practices. We do not believe that the privacy concerns 

raised by behavioral advertising are limited to those which result in an adverse action against a consumer. The right of privacy is harmed when consumers have no 

reasonable expectation that information about them is being collected, they are not 

provided meaningful notice that would allow them to gauge the privacy risks, and 

they have no way to make meaningful decisions about whether and how their information may be used. 

Question 4. Ms. Harris, should online contextual advertising be exempt from any 

self regulatory framework or does the Commission only need to look at behavioral 

advertising? 

Answer. Contextual advertising, which is often used to generate ads alongside 

search results, matches advertisements to the content of the page that a consumer 

is currently viewing. The privacy risks associated with contextual advertising vary. 

If the practice is transparent to the user and data collection and retention is minimal, the practice poses little risk to the consumer. For example, if a site only looks 

at the consumer’s activity and only serves ads based on that activity contemporaneously , i.e., at the moment the consumer is engaging in the activity and does not 

collect and save the consumer data, the privacy concern is low. But the privacy concerns are heightened if the user data is retained in an identifiable or pseudonymous 

form (i.e., linked to a user identifier) for long periods of time even if it is not immediately used to create advertising profiles. 

CDT has long advocated for a baseline privacy bill that would cover all collection 

and use of consumer data and require the full range of fair information practices, 

which include but are not limited to robust notice and consumer choice but also provide penalties for noncompliance and remedies for consumers. Self regulation is not 

enough. To the extent that self-regulation remains as one component of privacy protection in this area, consumers will certainly benefit from a self-regulatory scheme 

that covers both contextual and behavioral advertising, with escalating protections 

for models with increased data collection, retention, use, and identifiability. 

Question 5. Ms. Harris, are you concerned with the recently announced marketing 

deal between Google and Yahoo! that one company will have under its control the 

vast majority of consumers’ online behavioral information? 

97 

Answer. The Google/Yahoo! marketing deal does have the potential to consolidate 

more data about search and search advertising under one roof. While this data is 

certainly one component of behavioral information, Google does not currently use 

search data to create behavioral profiles. Thus, the more relevant question is whether the consolidation of search information—not necessarily behavioral information— 

is of concern. 

This deal follows in the footsteps of a series of major mergers and acquisitions 

in the online advertising space over the past 18 months. All of this market consolidation means that more and more data about what consumers do online is housed 

by fewer companies, exacerbating existing privacy concerns about how such data is 

collected, used, safeguarded, and shared. We believe that recent market dynamics 

are even further evidence of the need for a general privacy law to protect consumer 

data at large. 

QUESTION FOR THE RECORD FROM HON. DAVID VITTER TO

LESLIE HARRIS

Question. As our committee continues to examine the issue of online privacy, 

should we focus on the variations in different technologies used to provide what appears to be essentially similar marketing services? Or, should we instead focus on 

the use of the information collected—by whatever method it is collected—to ensure 

that data is used for legitimate marketing purposes, that privacy is protected, and 

that we can go after those who misuse any data they collect? 

[The witness did not respond.] 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARIA CANTWELL TO

ROBERT R. DYKES

Question 1. Mr. Dykes, over the last few weeks numerous Internet service providers, including CenturyTel, Charter and Wide Open West have either ceased using 

your service or shelved any plans they had to do so. What does this tell you about 

your proposed business model and consumer reaction to it? 

Answer. NebuAd and its Internet service provider (‘‘ISP’’) partners have always 

been and continue to be committed to the core privacy principles of transparency 

and consumer control regarding NebuAd’s services. We support our ISP partners’ 

decisions to delay their implementation plans so they can ensure that in deploying 

NebuAd’s services, customers receive clear, direct, and prior notice that NebuAd’s 

services will take effect, thereby allowing subscribers to make an informed choice 

regarding whether to participate. 

NebuAd plans to continue to explain our existing business model and better educate the public about the state-of-the-art privacy protections that have been builtin to NebuAd’s services, and, equally as important, the process that we have established to continuously improve on them. In support of this process to continuously 

advance privacy protections beyond industry standards, NebuAd looks forward to a 

continued open dialogue with legislators, regulators, and the advocacy community. 

NebuAd remains committed to delivering strong value to advertisers, publishers, 

and ISPs while setting the gold standard for privacy in online advertising and delivering the best Internet experience possible to consumers. 

Question la. Do you believe that consumers have the perception that your technology will allow ISPs to watch over every move they make on the Internet? 

Answer. A close examination of NebuAd’s technology, operations, and privacy protections demonstrates that it is a responsible, privacy conscious business. Unfortunately, some recent public statements from various sources have presented inaccuracies, distortions, and misrepresentations of our technology and business model. 

While some consumers may have formed mistaken perceptions based on these erroneous statements about the NebuAd technology, the privacy controls in place, and 

the business model in conjunction with our ISP partners, we believe that consumer 

education is a key component of our continued effort to set the gold standard for 

privacy in online advertising. 

Finally, as a point of clarification, NebuAd does not watch every move consumers 

make on the Internet. The NebuAd system only uses a select set of a consumer’s 

Internet activities (that is, only a subset of HTTP traffic) to construct anonymous 

inferences about the consumer’s level of qualification for a predefined set of market 

segment categories, which are then used to select and serve the most relevant advertisements to that consumer. The NebuAd system does not collect or use any information from password-protected sites (e.g., HTTPS traffic), web mail, e-mail, inVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00101 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
98 

stant messages, or VoIP traffic, and the system does not make use of any market 

segments that are deemed to be sensitive. 

Question 2. Mr. Dykes, in your written testimony you praise online advertising, 

especially NebuAd’s approach, for enhancing consumers’ Internet experience. As you 

know, the most important quality to Internet users is the speed of their Internet 

connection. How does the NebuAd’s approach to behavioral monitoring—deep packet 

inspection—affect the speed of a consumer’s connection, including uploads and 

downloads? 

Answer. NebuAd’s service does not adversely affect either upload or download performance. The NebuAd Ultra Transparent Appliance (‘‘UTA’’) is transparent when 

it comes to performance impact. Lab-tests of the NebuAd UTA and have found the 

performance of the NebuAd UTA matched or exceeded standard performance 

metrics expected from any network device such as a switch and/or a router. In addition, NebuAd has sophisticated monitoring capabilities to ensure performance expectations are maintained. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DAVID VITTER TO

ROBERT R. DYKES

Question 1. Does your company’s business model already accommodate the FTC’s 

proposed principles for industry self-regulation? If so, please explain how. 

Answer. NebuAd participated in the FTC’s proceeding by submitting written comments on the proposed principles. A copy of NebuAd’s comments is available at 

http://www.ftc.gov/os/comments/behavioraladprinciples/080411nebuad.pdf 

(‘‘NebuAd Comments’’). In its written comments, NebuAd agreed with the FTC Staff 

that the ‘‘self-regulatory principles that emerge from this process must rest within 

an overall framework that promotes transparency, consumer control, limited use of 

sensitive information, limited data storage, and strong security.’’ 

NebuAd’s comments focused on a central theme: any set of final proposals for selfregulation should focus on the ultimate goal—preventing consumer harm—and not 

on regulating different behavioral advertising technologies and companies in different ways based simply on the underlying technology used or individual entities 

involved. In other words, NebuAd believes that the final self-regulatory principles 

that emerge from the FTC proceeding must be consistent with the twin objectives 

of technology-neutrality and provider and publisher-neutrality. This will allow for 

innovation within a flexible self-regulatory framework while preventing an unintended consequence of inadvertently picking winners and losers in the emerging behavioral advertising marketplace, based solely on technology or business model. 

NebuAd looks forward to the Commission Staff’s release of its final principles. 

Like the Federal Trade Commission, NebuAd is ‘‘cautiously optimistic’’ that industry 

self-regulation will work to protect consumers. See Prepared Statement of the Federal Trade Commission on Behavioral Advertising, Before the Senate Committee on 

Commerce, Science, and Transportation (July 9, 2008) at 1, available at http:// 

www.ftc.gov/os/2008/07/P085400behavioralad.pdf. Moreover, NebuAd has joined a 

chorus of other companies in calling for baseline privacy legislation. See oral testimony of Mr. Robert R. Dykes, Chairman and CEO, NebuAd, Inc, in hearing before 

the Subcommittee on Telecommunications and the Internet: What Your Broadband 

Provider Knows About Your Web Use: Deep Packet Inspection and Communications 

Laws and Policies, July 17, 2008. 

NebuAd’s specific response to this question is as follows. (The FTC’s Proposed 

Principles for the Self-Regulation of Behavioral Advertising are available at http:// 

www.ftc.gov/os/2007/12/P859900stmt.pdf). 

Principle 1: To address the need for greater transparency and consumer control regarding privacy issues raised by behavioral advertising, the FTC staff proposes: 

• Every website where data is collected for behavioral advertising should provide 

a clear, consumer-friendly, and prominent statement that data is being collected 

to provide ads targeted to the consumer and give consumers the ability to 

choose whether or not to have their information collected for such purpose. 

NebuAd Response: NebuAd supports the underlying goal of this proposal, which 

is to ensure that consumers are provided with ample opportunity to understand 

what information is collected, by whom, for what purpose, and to provide consumers 

with control over their online experience. Unfortunately, the proposal, as written, 

is problematic for NebuAd for reasons that are business-model specific, and having 

nothing to do with providing consumers with meaningful transparency and consumer control. As we noted in our comments to the FTC, 

99 

‘‘[t]his proposal is apparently addressed to behavioral advertising companies 

that, unlike NebuAd, have direct relationships with those websites, typically as 

part of a network. Because NebuAd works through ISPs and other ad networks 

and does not necessarily have direct relationships with the websites consumers 

visit, it has no way to require them to post the proposed notice. For this reason, 

NebuAd respectfully asks the Commission Staff to consider alternative methods 

of notice, such as direct notice provided by ISPs to their subscribers, together 

with an opportunity to opt-out, as an appropriate means of meeting the Staff’s 

proposed transparency principle.’’ 

See NebuAd comments at p. 4. In other words, NebuAd is in full agreement with 

the policy of this principle, but must meet it in an alternative way. Indeed, that alternative way—direct notice to consumers, prior to the NebuAd service taking effect, 

with an opportunity to opt out then and persistently thereafter—may be more transparent than the Commission’s proposed transparency principle. 

Principle 2: To address the concern that data collected for behavioral advertising 

may find its way into the hands of criminals or other wrongdoers, and concerns 

about the length of time companies are retaining consumer data, the FTC staff proposes: 

• Any company that collects or stores consumer data for behavioral advertising 

should provide reasonable security for that data and should retain data only as 

long as is necessary to fulfill a legitimate business or law enforcement need. 

NebuAd Response: NebuAd is in complete agreement with this principle. While 

NebuAd does not collect personally-identifiable information and does not store raw 

data associated with individual users, NebuAd nevertheless provides state-of-the-art 

security for the data it does collect and store: commercial categories mapped against 

anonymous identifiers and some aggregate data used for analytics. Moreover, unlike 

some search some companies, NebuAd retains the data used for behavioral advertising purposes only for as long as it is useful for that purpose—generally from a 

few days to a couple of months. 

Principle 3: To address the concern that companies may not keep their privacy 

promises when they change their privacy policies, FTC staff proposes: 

• Companies should obtain affirmative express consent from affected consumers 

before using data in a manner materially different from promises the company 

made when it collected the data. 

NebuAd Response: NebuAd requires by contract that its ISP partners not only 

change their privacy policies to address NebuAd’s service, but also to provide direct 

notice to subscribers at least 30 days prior to the service taking effect, with an opportunity to opt-out. This allows for subscribers to exercise informed choice prior to 

the service taking effect. It is important to note that opting out does not mean that 

the subscriber must find a new ISP; rather, the subscriber may stay with the same 

ISP, without the NebuAd behavioral advertising service offering more relevant ads 

than those the subscriber would otherwise receive. 

Principle 4: To address the concern that sensitive data—medical information or 

children’s activities online, for example—may be used in behavioral advertising, FTC 

staff proposes: 

• Companies should only collect sensitive data for behavioral advertising if they 

obtain affirmative express consent from the consumer to receive such advertising. 

NebuAd Response: The NebuAd system does not make use of any market segments that are deemed to be sensitive. Specifically, NebuAd does not track or serve 

ads based on visits related to adult content, sensitive medical information, racial or 

ethnic origins, religious beliefs or content of a sexual nature, and does not have 

market segment categories for illegal products. Accordingly, the NebuAd system 

does not have nor does the system ever attempt to detect keyword patterns related 

to such subjects. NebuAd therefore looks forward to the final set of the FTC Staff’s 

‘‘sensitive’’ categories, which NebuAd assumes will be carefully tailored to prevent 

consumer harm, and, assuming so, will exclude those categories from the data used 

for behavioral advertising purposes or require an affirmative opt-in for them. 

Question 2. Does your system accommodate for a consumer’s choice not to receive 

behavioral advertising, and in your systems, is that request honored permanently? 

If so, please explain how. 

Answer. Yes. NebuAd’s service and policies were designed to provide consumers 

with prior, robust notice and the opportunity to express informed choice about 

100 

whether to participate, both before the service takes effect and persistently thereafter. 

If a consumer should exercise his/her choice to not receive behavioral advertising, 

the consumer’s choice is honored in the same manner as all other typical ad networks that provide ‘‘cookie-based opt-out mechanisms’’ and consistent with the selfregulatory guidelines of the Network Advertising Initiative (‘‘NAI’’). 

In addition, as stated on the opt-out page displayed to the consumer (either on 

the NebuAd website or on our partner ISP website), we inform that consumer that 

if he/she should delete the NebuAd cookie or if he/she should change computers or 

web browsers, then the consumer would need to opt-out again. This is similar to 

the statement that the members of the NAI make to consumers (http:// 

lwww.networkadvertising.org/managing/opt out.asp). 

NebuAd’s current opt-out system is a more robust mechanism than traditional 

‘‘cookie-based opt-out’’ systems and goes beyond the system offered by typical ad networks in the following situation. If a consumer’s web browser blocks cookies, the 

NebuAd system will consider the consumer to be an opted-out user and will exclude 

that consumer from NebuAd’s information collection and targeted ads. 

Finally, NebuAd recently announced that it is developing a network-based opt-out 

mechanism that is not reliant on web browser cookies. Leveraging this advanced 

technology, ISP partners will be empowered to offer this enhanced mechanism to 

their subscribers in order to honor their opt-out choices more persistently than current systems widely used today. 

Question 3. Can you expand on how NebuAd’s model collects information for marketing, depersonalizes that information into market segments, and keeps it depersonalized? To be clear, I am not asking that you reveal any of your company’s proprietary information, only a general overview of how this is done and how consumers’ information is protected in your system. 

Answer. The NebuAd system only uses a select set of a consumer’s Internet activities (that is, only a subset of HTTP traffic) to construct anonymous inferences about 

the consumer’s level of qualification for a predefined set of market segment categories (‘‘anonymous user profiles’’), which are then used to select and serve the 

most relevant advertisements to that consumer. 

Depersonalization into Market Segments 

An anonymous user profile is a set of numbers that represent the consumer’s level 

of qualification for a predefined set of NebuAd supported market segments (e.g., Las 

Vegas travel or domestic SUVs). NebuAd develops a set of keyword patterns associated with each specific market segment. 

As HTTP traffic flows through, the NebuAd system looks for appearances of these 

keyword patterns. A consumer’s level of qualification for each particular market segment increases for each detected keyword pattern appearance. None of a consumer’s 

HTTP traffic or the keyword patterns themselves is ever stored within an anonymous user profile. Only the set of numbers that represent the consumer’s level of 

qualification, at a given point in time, for a limited number of broad market segments is maintained within an anonymous user profile. This mechanism of constructing anonymous inferences about a consumer’s level of qualification and not 

storing the raw data that was used to create or update a user’s anonymous profile 

provides a strong additional layer of privacy protection that goes beyond the standards used by many Internet companies today. 

In addition, each market segment has a predefined lifespan associated with it so 

if no keyword pattern for that market segment is detected for some time, the consumer’s level of qualification will age fairly quickly—generally from a few days to 

a couple of months. 

Specifically, this means that a consumer’s anonymous user profile represents just 

his/her current qualification levels and does not retain a long-standing history of 

qualifications levels. 

Additional Protections 

The NebuAd system has also built-in multiple additional privacy protections from 

the ground up to ensure a consumer’s anonymity including: 

• The NebuAd system does not collect or use any information from password-protected sites (e.g., HTTPS traffic), web mail, e-mail, instant messages, or VoIP 

traffic. 

• As noted above, the NebuAd system does not make use of any market segments 

that are deemed to be sensitive. Specifically, NebuAd does not track or serve 

ads based on visits related to adult content, sensitive medical information, racial or ethnic origins, religious beliefs or content of a sexual nature, and does 

101 

not have market segment categories for illegal products. Accordingly, the 

NebuAd system does not have nor does the system ever attempt to detect keyword patterns related to such subjects. 

• Finally, by design, the NebuAd system’s set of keyword patterns do not contain 

any personally identifiable information about Internet consumers, and it ensures the anonymous information that its systems infer cannot be used to identify any individual. None of the anonymous information NebuAd uses can be 

compiled together and somehow reverse engineered to identify any individual. 

In other words, the information is not ‘‘pseudo-anonymous.′′ 

MEMORANDUM

July 8, 2008 

From: Nebuad, Inc. 

Re: Legal and Policy Issues Supporting Nebuad’s Services 

I. Introduction to NebuAd 

NebuAd is an online media company founded by Internet security experts in 2006. 

It provides online advertising in partnership with ISPs, using a select set of a user’s 

Internet activities (only a subset of HTTP traffic) to construct anonymous inferences 

about the user’s level of qualification with respect to a predefined set of market segment categories (‘‘anonymous user profiles’’), which are then used to select and serve 

the most relevant advertisements to that user. 

NebuAd is a newcomer to the world of online advertising. This world of Internet 

companies includes several industry giants, behavioral advertising networks, and 

countless website publishers. Currently, online advertising solutions operate in 

many locations throughout the Internet ecosystem—from users’ computers to individual websites to networks of websites. When an Internet user visits the sites of 

web publishers, like Yahoo! or Amazon, these sites typically collect information 

about the user’s activities to target ads based on that information. When an Internet user conducts a search, the search company may collect information from the 

user’s activity, which in turn may be used to improve the relevance of the sponsored 

search results and ads shown. When a user visits websites within an online advertising network, some of which include thousands of sites, the visits help the advertising network track the user for the purpose of serving higher-value targeted advertising. All of these activities are well-entrenched in the Internet and have become 

fundamental to the economic model that underpins the wide availability of content 

and services on the Internet today. These advertising capabilities, have proven to 

have mutual benefits for users, publishers—both large and small—and advertisers. 

NebuAd offers a unique business model that allows ISPs to participate in the online advertising ecosystem, while not only adhering to industry-standard privacy 

policies but also establishing new state-of-the-art privacy protections and user choice 

policies that go far and beyond those used on the Internet today. 

Given the background of its founders, NebuAd architected its service and its policies to adhere to very strict privacy principles. These include: 

1. NebuAd’s service does not collect or use PII from ISP subscribers. The entire 

ad optimization and serving system does not collect or use any Personally Identifiable Information (PII), nor does it collect any information from password-protected sites, web mail, e-mail, instant messages, or VOIP traffic. 

2. NebuAd stores only a set of numbers that represent the user’s level of qualification for a predefined set of market segment categories (‘‘anonymous user profiles’’). NebuAd does not store raw data such as URLs navigated or IP addresses 

associated with an identifiable individual. 

Rather, the NebuAd service constructs anonymous inferences about the user’s 

level of qualification for a predefined set of market segment categories, and then 

discards the raw data that was used to create or update a user’s anonymous 

profile. This mechanism of constructing anonymous inferences about the user’s 

level of qualification and not storing raw data provides a strong additional layer 

of privacy protection that goes beyond the standards used by many Internet 

companies today. 

3. NebuAd’s ISP Partners are required to provide notice to users in advance of 

launch of the service. The notice, which must be direct and robust, discloses to 

the user that the ISP is working to ensure that advertisements shown will be 

more relevant advertisements, that to deliver these ads its partner creates 

anonymous profiles based on part of the user’s web surfing behavior, which does 

not include the collection of PII, and that the user may opt-out of the service. 

102 

1The user, of course, will continue to receive ads. 

2 18 U.S.C. § 2510 et seq. 3The Wiretap Act was amended by the Electronic Communications Privacy Act of 1986 

(‘‘ECPA’’), Pub. L. 99–508, 100 Stat. 1848 (1986). While the Wiretap Act is Title I of the ECPA, 

it was first passed as Title III of the Omnibus Crime Control and Safe Streets Act of 1968 and 

is generally known as ‘‘Title III.’’ 4See, e.g., United States v. Foster, 580 F.2d 388 (10th Cir. 1978) (telephone company taps 

phone line of user suspected of defrauding the telephone company out of long-distance charges); 

United States v. Harvey, 540 F.2d 1345 (8th Cir. 1976) (same); United States v. Auler, 539 F.2d 

642 (7th Cir. 1976) (same). 

For existing subscribers, the notice is required to be delivered 30 days prior to 

the launch of the service by postal mail, e-mail, or both. For new subscribers, 

the notice is required to be placed clearly and conspicuously in the new subscriber sign-up flow and outside the privacy policy. All subscribers can opt-out 

at any time, and on-going disclosure and opportunity to opt-out is required to 

be provided within the ISP’s privacy policy. 

4. NebuAd and its ISP partners offer users advance and on-going choice of opting-out of the service. Users are provided with a clear statement of what the 

opt-out means and the way it operates. Once the opt-out option is chosen, 

NebuAd honors that choice and ignores the user’s subsequent web surfing activity and thus does not serve the user with behaviorally targeted ads.1

5. NebuAd’s service only creates anonymous user profiles, which contain no PII 

and no raw data, and its placement of ads is completely anonymous. NebuAd 

uses proprietary algorithms and techniques, including one-way encryption of 

data, so that no one—not even NebuAd’s engineers who designed the system— 

can reverse-engineer an anonymous identifier, or the anonymous user profile associated with it, to an identifiable individual. 

6. NebuAd avoids any sensitive websites or product categories. NebuAd does not 

track or serve ads based on visits related to adult content, sensitive medical information, racial or ethnic origins, religious beliefs or content of a sexual nature, and does not have market segment categories for illegal products. 

7. NebuAd does not permit either complexity of data or narrowness of data to 

be reverse-engineered into PII. This protection is accomplished because anonymous user profiles are constructed by anonymous inferences about the user’s 

level of qualification for a predefined set of market segment categories. Raw 

data is simply not stored as part of the anonymous user profile. In addition, the 

NebuAd service does not have narrowly-defined segments. Finally, the anonymous profile identifier is the result of multiple encryptions, and based on multiple data elements including the hashed IP address. 

8. There is no connection or link between the ISP’s registration data systems and 

NebuAd. That means that no user-specific data is exchanged between NebuAd 

and ISP data systems. This boundary is preserved further, and inadvertent disclosure is prevented, because NebuAd immediately performs a one-way 

encryption of the IP address and other anonymous user identifiers used within 

the NebuAd system. 

9. NebuAd installs no applications of any type on users’ computers, has no access 

to users’ hard drives, and has no access to secure transactions. As such, NebuAd 

does not control a user’s computer or web-surfing activity in any way, e.g., by 

changing computer settings or observing private or sensitive information. 

10. NebuAd’s Data Centers are professionally operated and secured. NebuAd’s 

servers are located at secure sites with state-of-the-art protections against any 

intrusion, electronic or physical. 

II. The Federal Wiretap Act 

As a threshold matter, it is important to note that the Federal Wiretap Act 2 was 

last amended in 1986 before the widespread adoption of personal computing and online communications.3 When the Wiretap Act was enacted, and amended, the focus 

was on telephone communication and other similar technology. Case law is rich with 

examples of claims involving a tapped phone line.4 Notably, these cases primarily 

involve direct, one-on-one communication between the parties. The content is personal to the speakers, such that if one of the parties was replaced, the communication would not contain the same content. Although secrecy or confidentiality was not 

expressly built into the Wiretap Act, the Act was enacted at a time when the focus 

was on individual communications—likely as a result of the limitations of then-existing technology. 

103 

5There are always exceptions to this statement, such as online purchases, encrypted communication, and other secured data transactions, but notably, these private communications are the 

exact types of information that NebuAd’s services do not collect. NebuAd’s services personalize 

generic content rather than intruding upon private communications. 6See United States v. Amen, 831 F.2d 373, 378 (2d Cir. 1987). 7See Patricia L. Bellia, Spyware: The Latest Cyber-Regulatory Challenge, 20 BERKELEY TECH. 

L.J. 1283, 1296, 1311–12 (2005). Another law review article described the question as to whether URLs contain contents as ‘‘surprisingly difficult’’ and ‘‘quite murky.’’ Orin S. Kerr, Internet 

Surveillance Law After the USA Patriot Act: The Big Brother That Isn’t, 97 NW. U.L. REV. 607, 

645–46 (2003). 8 18 U.S.C. § 2511(1)(a). 9Id. § 2511(2)(d). 10 United States v. Amen, 831 F.2d 373, 378 (2d Cir. 1987) (‘‘ ‘Consent may be expressed or 

implied. Surveillance devices in banks or apartment houses for institutional or personal protection would be impliedly consented to.’ ’’ (quoting S. Rep. No. 1097, 90th Cong. 2d Sess., reprinted 

in 1968 U.S.C.C.A.N. 2112, 2182)). 

11George v. Carusone, 849 F. Supp. 159, 164 (D. Conn. 1994); see United States v. Faulkner, 

439 F.3d 1221, 1224–25 (10th Cir. 2006) (‘‘We are not persuaded to depart from the unanimous 

view of the holdings by our fellow circuit courts.’’); Griggs-Ryan v. Smith, 904 F.2d 112, 118; 

United States v. Corona-Chavez, 328 F.3d 974, 978–79 (8th Cir. 2003); Amen, 831 F.2d at 378; 

United States v. Willoughby, 860 F.2d 15, 19–20; United States v. Tzakis, 736 F.2d 867, 870, 

872 (2d Cir. 1984); Borninski v. Williamson, No. Civ. A. 3:02CV1014–L, 2005 WL 1206872, at 

*13 (N.D. Tex. May 17, 2005); United States v. Rittweger, 258 F. Supp. 2d 345, 354 (S.D.N.Y. 

2003); Chance v. Avenue A, Inc., 165 F. Supp. 2d 1153, 1162 (W.D. Wash. 2001); In re 

DoubleClick Inc. Privacy Litig., 154 F. Supp. 2d 497, 514 (S.D.N.Y. 2001). 12Griggs-Ryan, 904 F.2d at 116. 13 Amen, 831 F.2d at 378. 14 Rittweger, 258 F. Supp. 2d at 354. 15George, 849 F. Supp. at 164. 

The environment that has since evolved for online communications is markedly 

different. While online communications are still carried by wire, there are important 

policy distinctions between the types of communications that the Wiretap Act was 

enacted to address, and the types of communications present in the online environment today. Internet users are not engaged in a personal, direct conversation with 

non-secure website publishers.5 Such publishers provide online content indiscriminately to all users. As stated below, even under the Wiretap Act, courts look to the 

circumstances surrounding a communication.6 Yet, the evaluation of circumstances 

that surround a telephone communication between two parties is not analogous to 

an online communication between a party and a website. To date, there are no litigated decisions directly addressing the application of the Wiretap Act to a URL provided as part of a consumer’s online navigations or provided via publicly available 

search request and response. Therefore, it is still an open question as to whether 

these types of communications are even covered by the Wiretap Act.7

Assuming, for the purposes of this memorandum, that the Wiretap Act applies to 

NebuAd’s services, the Act expressly prohibits the intentional interception of an 

electronic communication 8 unless ‘‘one of the parties to the communication has 

given prior consent to such interception.’’ 9 The legislative history of the Wiretap Act 

clearly indicates ‘‘that Congress intended the consent requirement to be construed 

broadly.’’ 10 As a result, ‘‘courts have resoundingly recognized the doctrine of implied 

consent.’’ 11 The Court of Appeals for the Second Circuit stated that the Wiretap Act 

‘‘affords safe harbor not only for persons who intercept calls with the explicit consent of a conversant but also for those who do so after receiving implied consent.’’ 12

To determine whether a party has impliedly consented to an interception under 

the Wiretap Act, courts examine the totality of the circumstances and ‘‘imply consent in fact from surrounding circumstances indicating that the [party] knowingly 

agreed to the surveillance.’’ 13 In such evaluations, courts have found that parties 

impliedly consented to an interception in various fact patterns. The Federal district 

court for the Southern District of New York found implied consent when an employer circulated memoranda regarding telephone monitoring and recording. Although the party denied receiving the notice, and evidence proving such receipt was 

destroyed, the court determined that the party had knowledge of the monitoring and 

recording and impliedly consented to such monitoring and recording by continuing 

to use the monitored telephone lines.14

Similarly, a Connecticut Federal district court found that employees had given 

their implied consented to the recording of conversations on work telephones, as 

many of the telephones displayed warning labels, memoranda were circulated to all 

employees regarding the recordingof incoming and outgoing telephone calls.15 The 

court stated that employees’ ‘‘knowledge of the system and subsequent use of the 

phones is tantamount to implied consent to the interception of their conversaVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00107 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
104 

16 Id. 17Griggs-Ryan, 904 F.2d at 117–19. 18 Borninski v. Williamson, No. Civ. A. 3:02CV1014–L, 2005 WL 1206872, at *13 (N.D. Tex. 

May 17, 2005). 19Website publishers may also consent to an interception, as website publishers make web 

content available for any user. Such posting does not constitute an exclusive communication between the website publisher and the user, but rather it is public communication that is intended 

to be viewed by any number of simultaneous users. As a result, website publishers have no reasonable expectation that the communication between it and any consumer will remain private 

or confidential, and thus impliedly consent to the interception by a third party. 20 Cable Communications Policy Act (1984), 47 U.S.C. § 551 et seq. 21 Id. § 551(b)(1). 22 Id. § 551(c). 23 Id. § 551(c)(2)(A). 24 Id. § 551(c)(2)(C)(i). 25 Id. § 551(c)(1). 26 Id. § 551(a)(2)(A). 

tions.’’ 16 The Court of Appeals for the First Circuit held that repeated oral statements that all incoming telephone calls would be monitored was sufficient notice, 

and that the party’s taking an incoming phone call was implied consent to the interception.17 Additionally, a Texas Federal district court found that an employee consented to monitoring of Internet communications at work because the employee had 

signed a form stating that ‘‘Internet access should be limited to ‘business use only,’ 

and that the company ‘logs and archives all incoming and outgoing data communications through its gateway system. Use of the gateway implies consent to such monitoring.’ ’’ 18

Using the framework established by the courts, NebuAd satisfies the implied consent exception to liability for interception under the Federal Wiretap Act.19 NebuAd 

requires, by contract, that all of its ISP partners give subscribers notice of NebuAd’s 

services, including the collection of anonymous information regarding subscribers’ 

online activities, for use in advertising. This notice must be given directly, and prior 

to the initiation of the ISP’s use of NebuAd’s services. The ISP partners are also 

required, by contract, to alter their privacy policies accordingly. NebuAd further requires that all ISP partners provide users with an option to opt-out of NebuAd’s 

services, initially upon receipt of the direct notice, and in an ongoing manner 

through the ISP’s privacy policy. 

III. The Cable Act 

The Cable Act 20 was enacted to protect cable subscribers’ personal information. 

Among other things, it requires cable operators to obtain written or electronic consent from a subscriber prior to collecting any PII concerning the subscriber.21 In addition to the limitations on the collection of subscriber PII, the Cable Act limits the 

disclosure of subscriber PII by cable operators.22 The Cable Act sets out multiple 

standards that a cable operator must satisfy in order to disclose subscriber PII. If 

the disclosure is necessary for a legitimate business activity, a cable operator is not 

required to provide the subscriber with any notice.23 A cable operator may disclose 

the name and mailing addresses of subscribers if it provides subscribers with the 

opportunity to opt out of such disclosure.24 For all other disclosures of subscriber 

PII, a cable operator must obtain ‘‘the prior written or electronic consent of the subscriber’’—essentially an opt-in standard.25

Notably, under the Cable Act, PII ‘‘does not include any record of aggregate data 

which does not identify particular persons.’’ 26 NebuAd’s service specifically complies 

with the Cable Act because NebuAd’s service does not collect PII. Instead, using 

only non-personally identifiable information, NebuAd uses a select set of a user’s 

Internet activities (a subset of HTTP traffic) to construct anonymous inferences 

about the user’s level of qualification for a predefined set of market segment categories, which are then used to select and serve the most relevant advertisements 

to that user. The use of NebuAd’s services certainly does not require a subscriber 

to opt in—the strictest notice and consent requirement. Although not an activity 

conducted by NebuAd, even the disclosure of a subscriber’s mailing address, widely 

recognized as PII, only requires that the subscriber have an opportunity to opt out. 

NebuAd’s service, on the other hand, does not even collect subscriber PII. Because 

NebuAd’s service does not collect subscriber PII, there is no violation of the Cable 

Act. 

Additionally, a 2002 FCC ruling concluded that ‘‘cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a 

cable service, and that there is no separate offering of a telecommunications servVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00108 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
105 

27 In re Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, 

17 FCCR 4798, 4802 (2002). 28 Nat’l Cable and Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005). 29 Klimas v. Comcast Cable Commc’ns, Inc., 465 F.3d 271 (6th Cir. 2007), reh’g en banc denied 

Klimas v. Comcast Cable Commc’ns, Inc., 2007 U.S. App. LEXIS 13658 (6th Cir. May 1, 2007). 30 Use of a consumer opt out is consistent with other consumer information protection statutes 

such as the Gramm-Leach-Bliley Act (financial data), the Health Insurance Portability And Accountability Act (health data), the Fair Credit Reporting Act (consumer reports), the Telemarketing and Consumer Fraud and Abuse Prevention Act (telemarketing), and the CAN– 

SPAM Act (e-mail marketing). 1 Center for Democracy and Technology, Privacy Implications of Online Advertising (July 9, 

2008) [hereinafter ‘‘CDT Memorandum’’]. 2 CDT Memorandum at 23. 

3 Id. at 15. 

ice.’’ 27 This determination that cable Internet services are not classified as telecommunications services was upheld by the Supreme Court as a lawful interpretation of the Communications Act.28 A recent decision by the Court of Appeals for the 

Sixth Circuit upheld this distinction and stated that the plain language of the Cable 

Act precludes its application to broadband Internet services, even those provided by 

a cable operator.29 Examining the application of the Cable Act, the court emphasized that as the cable provider was providing broadband Internet access and not 

cable service, the Cable Act was inapplicable. 

IV. Policy Implications 

NebuAd provides users with a great amount of privacy protection. Unlike many 

online advertising models today, NebuAd’s service does not collect or use any PII. 

In addition, NebuAd’s anonymous user profiles do not contain any original raw data, 

such as URLs navigated, but only consist of a set of numbers that represent anonymous inferences about the user’s level of qualification for a predefined set of market 

segment categories. (NebuAd does retain some anonymous data for analysis and reporting.) Additionally, NebuAd is one of the only models—if not the only model— 

that provides users with advance notice of the nature of its services and an opportunity to opt-out before the service takes effect. NebuAd’s service also complies with 

the government’s consent policy on privacy as NebuAd’s service does not collect any 

PII, and provides users with the opportunity to opt-out.30 Finally, NebuAd’s service 

does not observe encrypted traffic, does not observe VoIP sessions, does not store 

raw search queries linked to an identifiable user, and does not track users’ IP addresses, thus providing an excellent set of privacy protections. Because of the privacy protections that NebuAd has incorporated into the architecture of its service, 

it is able to provide users with relevant advertising messages in a safe, secure, and 

privacy-respecting manner. 

MEMORANDUM ADDENDUM

July 8, 2008 

From: Nebuad, Inc. 

Re: Legal and Policy Issues Supporting Nebuad’s Services 

I. The Memorandum on Behavioral Advertising 1 by the Center For 

Democracy and Technology Is Based on a Misunderstanding of 

Nebuad’s Services 

NebuAd’s service was architected to comply with very strict privacy principles. 

The Center for Democracy and Technology (‘‘CDT’’) misunderstands how NebuAd’s 

service operates. First, the service does not ‘‘cop[y] all or substantially all Web 

transactions.’’ 2 NebuAd’s service uses only a subset of HTTP traffic to construct 

anonymous inferences about the user’s level of qualification with respect to a 

predefined set of market segment categories. NebuAd’s service only stores a one-way 

encrypted anonymous user identifier, which is used to represent an anonymous 

user, and a set of numbers which represent the user’s level of qualification with respect to a predefined set of market segment categories. NebuAd does not store raw 

data such as URLs navigated or IP addresses associated with an identifiable individual. Second, to provide additional privacy protection, NebuAd’s service does not 

track or serve ads based on visits to sensitive websites or product categories. CDT 

also unfortunately erroneously stated in its Memorandum that a NebuAd ISP implementation ‘‘did not provide a way for subscribers to give or withhold consent.’’ 3 This 

is not so. NebuAd requires its ISP partners, by contract, to give their ISP subVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00109 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
106 

4 Id. at 26. 5 Id. at 26. 6 Id. at 27. 7 Id. at 30–31. 8 Id. at 31. 9 Id. At 30 (quoting Watkins v. L.M. Berry & Co., 704 F.2d 577, 579 (11th Cir. 1983). 10Griggs-Ryan v. Smith, 904 F.2d 112, 116 (1st Cir. 1990); see, e.g., United States v. Amen, 

831 F.2d 373, 378 (2d Cir. 1987); United States v. Faulkner, 439 F.3d 1221, 1224 (10th Cir. 

2006); George v. Carusone, 849 F. Supp. 159, 164 (D. Conn. 1994). 11See, e.g., Griggs-Ryan v. Smith, 904 F.2d at 116–17. 12Watkins v. L.M. Berry & Co., 704 F.2d 577 (11th Cir. 1983). 13See also Griggs-Ryan, 904 F.2d at 119 (finding the plaintiff’s heavy reliance on Watkins to 

be mislaid because of the limited consent in that case). 14Griggs-Ryan, 904 F.2d 112 (1st Cir. 1990). 15 Id. at 116. 16See Pharmatrak, Inc. Privacy Litig., 329 F.3d 9, 19–20 (1st Cir. 2003) (The court found that 

‘‘consent must be actual, not constructive.’’ The court in Pharmatrak indeed made this point but 

only insofar as to cite to the decision from which it originated, namely, Williams v. Poulos, 11 

F.3d 271 (1st Cir. 1993).); United States v. Corona-Chavez, 328 F.3d 974, 978 (8th Cir. 2003) 

(The court held that there must be actual consent to meet the consent exception under the Wiretap Act. The court provides the example that ‘‘when someone voluntarily participates in a telephone conversation knowing that the call is being intercepted, this conduct supports a finding 

of implied consent to the interception.’’); Berry v. Funk, 146 F.3d 1003, 1011 (D.C. Cir. 1998) 

(The court found that ‘‘[w]ithout actual notice, consent can only be implied when the surrounding circumstances convincingly show that the party knew about and consented to the 

interception.’’ In this case, the government tried to show implied consent by arguing that any 

scribers prior, direct notice about NebuAd’s service and an opportunity to withhold 

consent or to express their informed choice before the service takes effect. 

II. The CDT’s Evaluation Is Largely a Policy Argument on How the Existing 

Law Ought to Apply in the Internet Context 

A. Federal Wiretap Act 

While citing a number of cases and policy arguments, the CDT acknowledges that 

exceptions to the Federal Wiretap Act may apply. The CDT Memorandum contains 

hedging language that an exception ‘‘probably does not permit’’ NebuAd’s service,4

that it is ‘‘unlikely’’ that the ‘‘necessary incident’’ exception would apply,5 and citing 

no cases on point, that it is ‘‘unclear’’ whether the ‘‘business use’’ exception would 

apply.6 It is therefore unclear from the CDT’s own Memorandum whether NebuAd’s 

service qualifies for either of these exceptions. 

The CDT also does not deny that implied consent, where a consumer receives notice, prior to the service taking effect, has the opportunity to opt-out, and continues 

to use the service, can and often amounts to implied consent under the Wiretap Act, 

which has been well-recognized by the Federal courts. The CDT Memorandum 

equivocates on NebuAd’s service in particular, stating that prior notice of NebuAd’s 

service ‘‘might not be enough,’’ 7 to meet the implied consent standard, and that the 

courts would be skeptical ‘‘if’’ the notice to consumers did not provide sufficient notice of the services.8

The CDT’s Memorandum does not give a full picture of the implied consent standard. While courts have stated ‘‘that consent under the Wiretap Act ‘is not to be cavalierly implied,’ ’’ 9 courts have equally stated that ‘‘Congress intended the consent requirement to be construed broadly.’’ 10 These statements are not mutually exclusive, 

and courts have made both statements in the same case.11

Moreover, none of the cases the CDT relies on for its policy argument that optin should be required is on point, and some contain language affirming the use of 

implied consent. For example, reliance on Watkins 12 for the proposition that implied 

consent is insufficient is misplaced, as Watkins involves an employee that had consented to limited monitoring practices by an employer, and the employer subsequently exceeded the authorized monitoring. Thus, Watkins does not state that implied consent is invalid, but rather that consent may be limited.13 Similarly, the 

CDT cites to Griggs-Ryan v. Smith 14 for the proposition that ‘‘consent should not 

casually be inferred.’’ The context surrounding this statement is important in order 

to gauge the statement’s full meaning. In the preceding paragraphs of the same 

case, the court described how ‘‘Congress intended the consent requirement to be construed broadly,’’ and ‘‘that Title III affords safe harbor not only for persons who 

intercept calls with the explicit consent of a conversant but also for those who do 

so after receiving implied consent.’’ 15 The Griggs-Ryan court found implied consent 

based on repeated oral statements that all incoming calls would be monitored. The 

other cases CDT cites on implied consent are either distinguishable or don’t apply 

here.16

107 

reasonable person would assume that an operator stayed on the line if not told otherwise. In 

dismissing this argument, the court found that ‘‘[t]he key question in such an inquiry obviously 

is whether parties are given sufficient notice.’’); Deal v. Spears, 980 F.2d 1153 (8th Cir. 1992) 

(holding that a warning about the possibility, rather than actual notice, of monitoring did not 

constitute sufficient notice for implied consent); Specht v. Netscape Commc’ns Corp., 306 F.3d 

17 (2d Cir. 2002) (evaluating claims outside the Wiretap Act and considering the sufficiency of 

notice provided by an inconspicuous software download license agreement); United States v. 

Lanoue, 71 F.3d 966, 981 (1st Cir. 1995) (standing for the general proposition that ‘‘[d]eficient 

notice will almost always defeat a claim of implied consent,’’ this acknowledges that sufficient 

notice will support a finding of implied consent). 17See supra notes 4–8 and accompanying text. 18 CDT Memorandum at 33. 19 Id. 

B. State Wiretap Statutes 

In addition to noting various all-party consent states, the CDT has focused on 

California. First, the CDT Memorandum contains hedging language regarding the 

application of various exceptions, such that if such an exception were met, the issue 

of all-party consent would not be reached as NebuAd’s service would be exempted 

from liability under alternative grounds.17 Additionally, the CDT notes the lack of 

developed case law on the extension of the California wiretap statute to Internet 

communications.18 The CDT points to the extraterritorial application of the California wiretap statute involving telephone communications—notably after recognizing that such statute may be inapplicable to NebuAd’s service—but then offers 

a countervailing argument that California’s consent requirement may be inapplicable to behavioral advertising altogether.19 While focusing on the California wiretap statute as a roadblock to NebuAd’s service, the CDT Memorandum itself recognizes that the statute may exempt NebuAd’s service or may be inapplicable to the 

industry altogether. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. DAVID VITTER TO

CLYDE WAYNE CREWS, JR. 

Question. As our Committee continues to examine the issue of online privacy, 

should we focus on the variations in different technologies used to provide what appears to be essentially similar marketing services? Or, should we instead focus on 

the use of the information collected—by whatever method it is collected—to ensure 

that data is used for legitimate marketing purposes, that privacy is protected, and 

that we can go after those who misuse any data they collect? 

Answer. Targeted marketing encompasses a diverse array of relationships between users, marketers, and websites. While all types of behavioral advertising 

techniques are often lumped together, there is in fact a great deal of variety among 

online marketing business models. 

Even across search engines, there is no uniform method of dealing with user data 

from search queries. Google, for example, to improve search accuracy by recording 

every search query along with the user’s IP address and the time the search was 

conducted. Yet, Google does not utilize this data to create user profiles. Another 

search provider, the recently launched Cuil, does not retain any personal data. 

Microsoft recently unveiled plans to deliver search results that take into consideration each user’s individual browsing habits, arguing that Microsoft’s Live Search 

engine will be better equipped to compete against Google if it can analyze the intent 

of each user. 

The misuse of sensitive information is an important concern for policymakers 

evaluating online privacy issues. However, misuse can only be defined on a caseby-case basis. This cannot be accomplished by prescriptive legislation—especially in 

frontier sectors like the Internet. The danger of stifling nascent markets is far 

greater than any potential benefits of legislation which privacy mandates could 

bring. 

Controversial practices like the use of deep-packet inspection by Internet Service 

Providers may offer commercial opportunities with benefits to consumers. Lower 

broadband bills are just one possible benefit from the delivery of personalized ads 

to subscribers. Of course, for many users, privacy concerns trump potential benefits. 

In some instances, firms may inaccurately assess consumer preferences, resulting in 

mistakes like the NebuAd scuffle. Such mistakes, however disturbing, will be resolved by market forces as competing firms respond to consumer concerns by revising data collection practices as needed. 

Consider two users with different levels of concern regarding personal privacy. 

One user lists his hobbies, friends, and demographic details on a public social netVerDate Nov 24 2008 14:12 Oct 23, 2012 Jkt 075679 PO 00000 Frm 00111 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\76329.TXT JACKIE
108 

1See http://www.ftc.gov/os/comments/behavioraladprinciples/080411microsoft.pdf. 2Microsoft’s Privacy Principles for Live Search and Online Ad Targeting are available at 

http://www.microsoft.com/mscorp/twc/privacy/default.mspx. 3Microsoft’s Privacy Guidelines for Developing Software Products and Services are available 

at http://www.microsoft.com/privacy. 

working profile and does not expect that data to remain private. On the other hand, 

another user whose Gmail inbox contains sensitive personal correspondence assumes the data will not be made public. In the current environment—where government enforces voluntary privacy arrangements, but does not dictate them—both 

users can be satisfied. Thanks to Gmail’s robust privacy policy, the concerned user 

can rest assured that her e-mails will be safe from outside prying. And the user of 

the social networking site can enjoy the services and content sustained by marketing income without undesired rules preventing the use of data that is clearly in 

the public sphere. 

The technologies that drive online advertising are incredibly complex, and new 

ways of analyzing data are constantly being developed. Therefore, the fundamental 

question in the online privacy debate is how we arrange for our data to be used once 

it has been transferred to a third party. Calls for Congress to build walls around 

personal information would preclude these arrangements, giving us too little privacy 

in some cases and too much in others. A set of guidelines that seems reasonable 

when applied to ISP deep-packet inspection might eliminate other, more innocuous 

business models that rely on targeted marketing. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DAVID VITTER TO

MICHAEL D. HINTZE

Thank you again for your interest in the important privacy implications of online 

advertising. Microsoft has a deep and longstanding commitment to consumer privacy issues, and we welcomed the opportunity to testify before the Senate Commerce Committee about the concrete steps we are taking to protect consumers’ privacy online. As we indicated in our testimony, Microsoft believes that strong privacy 

protections are not only compatible with bringing the benefits of online advertising 

to consumers, advertisers and publishers, but are essential to ensuring the success 

of this important business model. This means that Microsoft, and all companies operating online, must adopt meaningful privacy practices that build trust with consumers. We believe our responses to your important follow-up questions demonstrate that Microsoft takes this responsibility seriously. 

Question 1. Does your company’s business model already accommodate the FTC’s 

proposed principles for industry self-regulation? If so, please explain how. 

Answer. Yes, Microsoft’s business model accommodates and even exceeds the Federal Trade Commission’s proposed principles for self regulation. In our comments to 

the FTC, we urged the Commission to focus on a broad array of online advertising 

activities (not simply behavioral advertising) because all online advertising involves 

the collection of data about computer users and may be contrary to consumers’ expectations.1 To this end, Microsoft specifically advocated for a tiered approach to self 

regulation that is appropriately tailored to account for the types of information 

being collected and how that information will be used. Our proposal would establish 

a baseline set of privacy protections applicable to all online advertising activities 

and additional obligations for those companies that engage in practices that raise 

additional privacy concerns. 

Microsoft’s broad approach to self regulation is based on the comprehensive privacy principles for online search and ad targeting we announced in July 2007.2

These principles include commitments to user notice, user controls, anonymization, 

security, and best practices. Microsoft has embraced these privacy principles, and 

they will shape the development of our new product offerings. We also have released 

a set of privacy guidelines designed to help developers build meaningful privacy protections into their software programs and online services.3 The following paragraphs 

highlight the ways in which we have implemented our own privacy principles into 

practice and, by doing so, have also accommodated the FTC’s proposed principles 

for industry self-regulation. 

A. Transparency. Microsoft agrees with the FTC that transparency is critical to 

enable consumers to make informed choices. To this end, Microsoft’s Online Privacy 

Statement is readily accessible from every page of our websites, including the home 

page. It also is written in clear language and offered in a ‘‘layered’’ format that provides consumers with the most important information about our privacy practices 

upfront, followed by additional layers of notice that provide a more comprehensive 

109 

4Microsoft’s Online Privacy Statement can be found at http://go.microsoft.com/fwlink/ 

?LinkId=74170. 

examination of our general privacy practices.4 With respect to the delivery of advertisements online, the Microsoft Online Privacy Notice Highlights clearly informs 

users about Microsoft’s online advertising practices, noting that Microsoft ‘‘use[s] 

cookies and other technologies to keep track of your interactions with our sites and 

services to offer a personalized experience’’ and that Microsoft’s services ‘‘may include the display of personalized content and advertising.’’ In addition, our full privacy statement includes complete descriptions of the types of information collected 

for online advertising and the ways in which such information may be used. We believe our upfront and more detailed privacy statements help ensure consumers are 

fully informed of our data collection and usage practices. 

B. Consumer Control. Microsoft also agrees with the FTC that the collection of 

information about consumers to generate a profile of their behavior upon which ads 

can be targeted raises heightened concerns that warrant additional levels of user 

control. For this reason, Microsoft has taken the following steps: 

• Microsoft was the first major online advertising provider to announce it would 

give customers the opportunity to opt out of receiving targeted advertising on 

all of the websites where Microsoft provided advertising, including both Microsoft sites and third-party partner websites. 

• Microsoft prominently provides information and links to our opt-out mechanism 

in the top-layer of our privacy statement and in our full privacy statement. 

• Microsoft allows users to tie their opt-out choice to their Windows Live ID so 

their choice will be effective across multiple computers without any additional 

effort on the user’s part. 

• Microsoft’s opt-out method is more persistent than others—for example, deleting 

cookies will not erase consumer’s opt-out selection; rather, their opt-out choice 

will be reset when they sign in with their Windows Live ID. 

We also recently announced three features of our new Internet Explorer product 

that will improve consumer control. First, users may choose to activate InPrivate 

browsing so their web surfing history, temporary Internet files, and cookies are not 

recorded on their computer after browsing. Second, users are given notice and a 

choice about whether they want to block content coming from third parties that may 

track and aggregate their online behavior by using the InPrivate Blocking feature. 

Third, users have the choice to clear all or some of their browsing history by using 

the enhanced Delete Browsing History feature. 

C. Security. Microsoft is committed to the FTC’s principles around data security. 

We have adopted strong data security practices, implemented meaningful data protection and security plans, and undertaken detailed third-party audits. We also have 

taken steps to educate consumers about ways to protect themselves while online, 

and we have worked closely with industry members and law enforcement around 

the world to identify security threats, share best practices, and improve our coordinated response to security issues. 

D. Data Retention. Microsoft supports the FTC’s principle that entities that collect 

data through online advertising ‘‘should retain data only as long as is necessary to 

fulfill a legitimate business or law enforcement need.’’ As the Commission notes, 

there are often sound and legitimate business reasons for retaining data collected 

from users. These reasons include enhancing fraud detection efforts, helping guard 

consumers against security threats, understanding website usage, improving the 

content of online services, and tailoring features to consumer demands. 

Microsoft’s policy around retaining search query data provides a good example of 

the careful balance of interests that must be taken into account when analyzing retention periods. Specifically, Microsoft has committed to make search query data 

anonymous after 18 months by permanently removing cookies, the entire IP address, and other identifiers from search logs, unless the user has provided consent 

for us to retain data for a longer period of time. Unlike other companies, our 

anonymization method involves irreversibly removing the entire IP address and 

other cross-session identifiers, such as cookies and other machine identifiers, from 

search terms. Some companies remove only the last few digits of a consumer’s IP 

address, which means that an individual search query may still be narrowed down 

to a small number of computers on a network. We think that such partial methods 

do not fully protect consumer privacy, so we have chosen an approach that renders 

search terms truly and irreversibly anonymous. 

E. Use of Personal Information for Online Advertising. Microsoft agrees with the 

FTC that the merger of personally identifiable information with other information 

110 

5Microsoft’s ‘‘de-identification’’ white paper is available at http://www.microsoft.com/privacy. 6Microsoft’s opt-out page is available at https://choice.live.com/advertisementchoice/ 

Default.aspx. 

collected about consumers through behavioral advertising for the purposes of ad targeting presents further privacy risks. This is because consumers are unlikely to expect that a third party may combine such pieces of information and use it to deliver 

ads (whether online or offline). For this reason, Microsoft has developed its online 

ad targeting platform to select appropriate ads based only on data that does not personally and directly identify individual users, and we take steps to separate the 

data used for ad targeting from any personally identifiable information before using 

it to serve ads—a process we refer to as ‘‘deidentification.’’ 5 Specifically, for users 

who have created Windows Live accounts, rather than using the account ID as the 

basis for our ad systems, we use a one-way cryptographic hash to create a new 

anonymized identifier. We then use that identifier, along with the non-identifiable 

demographic data, to serve ads online. Search query data and web surfing behavior 

used for ad targeting is associated with this anonymized identifier rather than an 

account identifier that could be used to personally and directly identify a user. 

Question 2. Does your system accommodate for a consumer’s choice not to receive 

behavioral advertising, and in your systems, is that request honored permanently? 

If so, please explain how. 

Answer. Yes, Microsoft’s system does accommodate for a consumer’s choice not to 

receive behavioral advertising. In July 2007, Microsoft was the first major online advertising provider to announce it would give customers the opportunity to opt out 

of receiving targeted advertising on all of the websites where Microsoft provides advertising, including both Microsoft sites and third-party partner websites. This optout option became available in the Spring of 2008. We prominently provide information and links to our opt-out mechanism in the top-layer of our privacy statement 

and in our full privacy statement. 

Microsoft’s opt-out choice is also unique from any other offered in industry today 

because it is more persistent and applies across multiple computers. As background, 

the industry-standard approach for offering an opt-out choice is merely to place an 

‘‘opt-out’’ cookie on their machines. While this process generally works well, it does 

have some inherent limitations. For example, opt-out cookies are computer-specific—if a consumer switches computers, he or she will need to specify any opt-out 

preferences again. Similarly, if cookies are deleted, that user’s opt-out choice is no 

longer in effect. To address these limitations, the mechanism Microsoft offers gives 

consumers the option to associate their opt-out choice to their Windows Live ID. 

This means that even if they delete cookies on their machine, when they sign back 

in their opt-out choice will persist. It also means that a single choice can apply 

across multiple computers that they use. This will help ensure that consumers’ 

choices are respected without requiring undue effort on their part.6

Microsoft appreciates the opportunity to provide more information about our privacy practices. We look forward to continuing to work with you and all stakeholders 

to ensure consumers’ privacy is protected online. 

Æ