Thursday, February 25, 2010

Wireless Carriers, Google Respond To FCC on ETFs

The four major U.S. wireless operators and Google Tuesday filed their responses to a Federal Communications Commission inquiry into the fees charged to customers who drop wireless service before their contracts end.

The carriers separately defended early termination fees (ETFs) as a necessary part of being able to offer discounted mobile devices and lower monthly rates while allowing operators to recoup a portion of lost revenue when customers cancel service prematurely. Google defended the "equipment recovery fee" on its Nexus One smartphone launched in January on similar grounds.

The FCC probe was initially sparked when Verizon Wireless doubled the ETF on smartphones and other high-end devices from $175 to $350 in November. The agency asked Verizon about the rationale behind the increase and how the company notifies customers about the ETFs.

The nation's largest wireless carrier in December told the FCC that the higher fee was justified not only by the cost of subsidizing higher-priced smartphones, but also the higher operational expenses required by the devices -- from advertising to running its broadband network. Verizon's reply drew the ire of at least one commissioner -- Mignon Clyburn -- who called Verizon's answers "unsatisfying, and, in some cases, troubling" in a sharply worded public rebuke.

Late last month, the FCC opened a formal inquiry into ETFs, sending letters to Verizon, AT&T, T-Mobile Sprint and Google asking about their policies and disclosure practices concerning the fees. For its part, Verizon essentially reiterated its prior response to the agency on the subject, maintaining that the increased ETF was commensurate with increased upfront costs associated with more sophisticated phones.

"In brief, term contracts with ETFs benefit consumers by enabling them to obtain access to devices at a significantly lower up-front cost, while enabling Verizon Wireless to recoup the extraordinarily expensive investment required to support its wireless network and operations and the cost of providing the devices at a substantial discount," stated Verizon's letter to the FCC.

Since its initial response, however, the carrier pointed out that it had removed 10 phones from the list of 46 "Advanced Devices" it sells that carry the $350 ETF. The $175 penalty is charged on other Verizon contract phones.

Other carriers made similar arguments, emphasizing the consumer benefits that ETFs help to make possible, including reduced pricing on high-end devices and product and service innovation. They also reiterated that customers are free to buy phones without contracts at full retail price to avoid ETFs.

"In that regard, despite the "no contract/no ETF" choices available to them, the overwhelming majority of AT&T customers choose a term plan arrangement that enables them to obtain a new handset at a discounted price," stated AT&T's letter. In contrast to Verizon, AT&T charges an ETF of $175 on all phones, while Sprint and T-Mobile impose a $200 fee across all models.

The wireless operators also defended their procedures for informing subscribers about ETFs as transparent and extensive, detailing disclosures made through print and online advertising, checklists for sales reps, contract language and sales receipts, among other ways of providing notification.

Google acknowledged that there had been "some concerns and confusion" in relation to separate early-termination penalties charged by itself and carrier partner T-Mobile in connection with the Nexus One device sold directly online by Google. The tech giant has also made the biggest concession to date on ETFs, dropping what it calls its equipment recovery fee, or ERF, on the Nexus One from $350 to $150 earlier this month.

The tech giant faced a backlash when it was revealed that customers who canceled or downgraded their T-Mobile service plans for the Nexus One within 120 days of purchase (but after the 14-day trial period) would have to pay the $350 fee to Google in addition to the standard $200 penalty owed to T-Mobile.

Google told the FCC the ERF -- albeit lower -- is necessary to help recover the device subsidy it provides when someone buys the Nexus One with a T-Mobile contract. The company said T-Mobile pays it a commission for each new subscriber buying the phone through its online store or existing ones upgrading service plans for the Nexus One.

The commissions are then passed along to consumers in the form of discounted pricing. New T-Mobile customers can buy the Nexus One for $179 instead of the full retail price of $529 for an unlocked version of the phone.

For its part, T-Mobile still imposes its $200 ETF on Nexus One service contracts, but stated that -- as with other phones -- the fee is intended to recoup a portion of lost revenue from early terminations rather than specific equipment costs. T-Mobile's letter also stated that Google and the carrier "have made changes to further enhance disclosures regarding the ERF and T-Mobile's terms and conditions, including the ETF, as part of the Google sales process."

FCC To Propose 'Mobile Future Auction'

As part of a national broadband plan, FCC Commissioner Julius Genachowski Wednesday outlined a new initiative allowing television broadcasters to give up spectrum in exchange for a cut of auction revenue.

Speaking at the New America Foundation think tank, Genachowski said the FCC would propose a "Mobile Future Auction" in which broadcasters and other licensees could trade in spectrum in return for a share of the proceeds of spectrum auctions as a way to help expand mobile broadband.

"The Mobile Future Auction would allow broadcasters to elect to participate in a mechanism that could save costs for broadcasters while also being a major part of the solution to one of our country's most significant challenges," said the FCC Commissioner, who set a goal of freeing up 500 Megahertz of spectrum over the next decade.

He pointed to one study that suggested as much as $50 billion in value could be unlocked if we adopted policies to convert some of the broadcast spectrum to mobile broadband. To date, broadcasters have strongly opposed the FCC possibly taking back some of the national airwaves from TV stations to help meet growing demand for wireless broadband services.

TV executives say they want to use their broadcast spectrum to be able to offer more digital channels, HD and programming for mobile devices. The Mobile Future Auction would potentially provide a market-based incentive for broadcasters to free up spectrum for mobile broadband.

But Genachowski argued that spectrum allotted for broadcast TV isn't being used efficiently. "About 300 megahertz of spectrum have been set aside for broadcast TV," he said. "Even in our very largest cities, at most only about 150 megahertz out of 300 megahertz are used." That's true even with the recent reallocation of spectrum in the digital TV transition, he noted.

The National Association of Broadcasters fired back Wednesday in a statement defending its spectrum use: "As a one-to-many transmission medium, broadcasters are ready to make the case that we are far and away the most efficient users of spectrum in today's communications marketplace," read the NAB release.

"We look forward to working with policymakers to help expand the roll-out of broadband without threatening the future of free and local television, mindful of the fact that local TV stations just returned more than a quarter of our spectrum following our transition to digital."

But Genachowski suggested the future auction could be beneficial for all parties. "For broadcasters, who win more flexibility to pursue business models to serve their local communities; and for the public, which wins more innovation in mobile broadband services, continued free, over-the-air television, and the benefits of the proceeds of new and substantial auction revenues," he said.

To help increase broadband adoption, Genachowski also proposed a "Mobility Fund" as part of wider reforms to the Universal Service Fund. Without increasing the size of the USF, it would seek to provide one-time funding to build infrastructure enabling "robust mobile broadband networks, to bring all states to a minimum level of mobile availability."

For its part, the CTIA expressed support for the chairman's remarks. "By proposing to free up 500 MHz of new spectrum for mobile broadband use, Chairman Genachowski has taken a tremendous step toward maintaining our worldwide mobile ecosystem leadership," said CTIA head Steve Largent, in a statement.

Genachowski's speech Wednesday was the latest in a series of talks he has given on the national broadband plan which the FCC is scheduled to submit to Congress March 17.

Wednesday, February 24, 2010

Widespread Data Breaches Uncovered by FTC Probe

FTC Warns of Improper Release of Sensitive Consumer Data on P2P File-Sharing Networks

The Federal Trade Commission has notified almost 100 organizations that personal information, including sensitive data about customers and/or employees, has been shared from the organizations’ computer networks and is available on peer-to-peer (P2P) file-sharing networks to any users of those networks, who could use it to commit identity theft or fraud. The agency also has opened non-public investigations of other companies whose customer or employee information has been exposed on P2P networks. To help businesses manage the security risks presented by file-sharing software, the FTC is releasing new education materials that present the risks and recommend ways to manage them.

Peer-to-peer technology can be used in many ways, such as to play games, make online telephone calls, and, through P2P file-sharing software, share music, video, and documents. But when P2P file-sharing software is not configured properly, files not intended for sharing may be accessible to anyone on the P2P network.

“Unfortunately, companies and institutions of all sizes are vulnerable to serious P2P-related breaches, placing consumers’ sensitive information at risk. For example, we found health-related information, financial records, and drivers’ license and social security numbers--the kind of information that could lead to identity theft,” said FTC Chairman Jon Leibowitz. “Companies should take a hard look at their systems to ensure that there are no unauthorized P2P file-sharing programs and that authorized programs are properly configured and secure. Just as important, companies that distribute P2P programs, for their part, should ensure that their software design does not contribute to inadvertent file sharing.”

As the nation’s consumer protection agency, the FTC enforces laws that require companies in various industries to take reasonable and appropriate security measures to protect sensitive personal information, including the Gramm-Leach-Bliley Act and Section 5 of the FTC Act. Failure to prevent such information from being shared to a P2P network may violate such laws. Information about the FTC’s privacy and data security enforcement actions can be found at

The notices went to both private and public entities, including schools and local governments, and the entities contacted ranged in size from businesses with as few as eight employees to publicly held corporations employing tens of thousands. In the notification letters, the FTC urged the entities to review their security practices and, if appropriate, the practices of contractors and vendors, to ensure that they are reasonable, appropriate, and in compliance with the law. The letters state, “It is your responsibility to protect such information from unauthorized access, including taking steps to control the use of P2P software on your own networks and those of your service providers.”

The FTC also recommended that the entities identify affected customers and employees and consider whether to notify them that their information is available on P2P networks. Many states and federal regulatory agencies have laws or guidelines about businesses’ notification responsibilities in these circumstances.

Samples of the notification letters can be found at:

The fact that a company received a letter does not mean that the company necessarily violated any law enforced by the Commission. Letters went to companies under FTC jurisdiction, as well as entities such as banks and public agencies over which the agency does not have jurisdiction.

The FTC appreciates the assistance of the Department of Health and Human Services, the Securities and Exchange Commission, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the Office of Comptroller of the Currency.

The new business education brochure – titled Peer-to-Peer File Sharing: A Guide for Business – is designed to assist businesses and others as they consider whether to allow file-sharing technologies on their networks, and explain how to safeguard sensitive information on their systems, and other security recommendations.

This information is available at

Tips for consumers about computer security and P2P can be found at

The Federal Trade Commission works for the consumer to prevent fraudulent, deceptive,
and unfair business practices and to provide information to help spot, stop, and avoid

To file a complaint in English or Spanish, click
or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other
fraud-related complaints into Consumer Sentinel, a secure, online database available to
more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad.

For free information on a variety of consumer topics, click

Claudia Bourne Farrell,
Office of Public Affairs
Alain Sheer,
Bureau of Consumer Protection

Tuesday, February 23, 2010

FTC, Disclosure And Your Blog

In December of 2009, the new FTC policy on blog disclosure went into effect. Here we are well into 2010, and nothing much has changed. In fact, even the FTC has said it is unsure how it will actually enforce the new policy. Is this something publishers, bloggers, or social media consultants need to worry about, or will this turn out to be a paper tiger without any bite?

While the FTC doesn’t have a game plan yet, that doesn’t mean it’s something you can ignore, it’s something you are going to have to address sooner or later. First you should read and try and understand the original FTC document (PDF link) and not rely just on summaries from the web. One of the main complaints in the document, had to do with unsubstantiated claims, or claims that were not typical (IE lose 30 pounds in 5 days with XYZ herbal supplement).

If you publish a website that sells products that make claims like this, or are an affiliate who runs ads with claims like this, you will probably need to make some adjustments. Check your content and any user generated content to make sure you are in compliance.

The second part of the FTC guidelines, which deals with advertising in “non traditional contexts,” and is much more problematic. An example of a non traditional context would be blogging a statement like “I had a great time on my Caribbean Cruise last week” with any part of the sentence containing an affiliate, or otherwise incentivized link. There are several types of arrangements that would be affected by these guidelines:


The simplest and easiest to understand is where a person or organization pays you directly with cash for making a post, putting up a link, making a tweet, Facebook post or other social media engagement.

Cash in kind

A cash in kind arrangement can be a significantly less clear situation. Basically, a company or person will give you something that has a cash value in exchange for you making a post, putting up a link, making a tweet, Facebook post or other social media engagement. This can be something like a free hotel visit, free spa treatments, or free cell phone.*


This type of arrangement constitutes a cash or cash in kind payment at a later date for hitting traffic milestones, generating leads, generating sales, for making a post, putting up a link, making a tweet, Facebook post or other social media engagement.

The context of the action is what’s really important, accepting payment for a sidebar banner isn’t what the FTC is concerned with as they are almost always labeled as advertisements. It’s the links or tweets that are in areas that generally aren’t used for advertising and aren’t labeled as advertising, that will be most likely to cause problems.

If you are publisher or an affiliate, it’s probably a good idea to disclose anywhere you think there might be confusion. If this happens with any regularity on your website, you should also look into incorporating a disclosure policy into your website or creating a page that deals specifically with disclosure.

If you’re looking for an extremely in-depth example of a disclosure statement, you should look at Kara Swisher’s or Walt Mossberg’s from If you are looking for an example of something more appropriate for an affiliate website, look at the disclosure policy for Shawn Collins on

At this point in the game, the rules are a bit fuzzy and enforcement is almost non-existent. However, that doesn’t mean should throw caution to the wind, and proceed ahead at full speed. Take this opportunity to get ahead of the curve and figure out how you are going to disclose. Don’t think approach disclosure from a negative position, look for ways you can turn disclosure into a selling point.

Monday, February 15, 2010

Google Revisits Privacy Controls On Buzz, Again

Google engineers have been working on three updates to Buzz during the weekend that address privacy concerns. The changes will become the second set that the Mountain View, Calif. search engine will implement since launching the social network last week. The first set of changes focused on limiting access to public profiles.

The latest round of changes based on feedback from people using the tool provides better privacy controls, and makes the setting more visible. Google spokesperson Victoria Katsarou says Google engineers have been working overtime to get the features implemented quickly. "The changes should go live within the next couple of days," Katsarou told MediaPost Sunday afternoon. "This is important. Our entire team has been working nonstop to respond as quickly as possible. We want to respond to their complaints and have been listening closely to their feedback."

Katsarou says Google wants to improve the product and remains open to receiving feedback from people using Buzz.

Replacing the auto-follow with an auto-suggest feature is one of three updates in this group. Google decided to make the change after people complained that the feature revealed names of people on private email lists. Todd Jackson explains in a blog post that instead of Buzz automatically setting the follows to the people the person emails and chats with most, the tool makes suggestions and asks the user to click on "Follow selected people and start using Buzz."

Aside from changing auto-follow to auto-request, Buzz will no longer connect a user's public Picasa Web album and Google Research shared items automatically. The change, also based on feedback shared with Google by users, replaces an auto-connect feature that shared already public content. Jackson explains that "if you had previously shared photos in an unlisted album or set the Google Reader shared items as 'Protected,' no one except the people you'd explicitly allowed to see your stuff has been able to see it."

Google also will add a Buzz tab to Gmail settings. In the tab, users can hide Buzz from Gmail or disable it completely. A link to these settings will become available from the initial start-up page to easily decide from the start to turn it off if you don't want to use Buzz.

Katsarou says the addition of Buzz tab under "Settings" not only makes it easier to hide Buzz from Gmail or disable it completely, but it gives people another easy way to decide if you want your followers -- the people you follow -- to remain public or private. "Another way to change this is by editing your profile," she adds.

Aside from privacy concerns, a host of posts on the Buzz social network describe requests for upgrade and improvements. Buzz user wish lists include everything from increasing search options to translating foreign languages within the network and rebuzz tools similar to the retweet tool in Twitter.

Google Buzz users have also begun to develop tricks, such as a "@" before the person's name or Gmail address helps to locate all the posts from the person (For instance, @Janek Mann or @Laurie Sullivan). Searching in the "Search Buzz" tool allows people to find user-posted tips on everything from sending direct messages, to saving searches.

Google Buzz Publicly Airs Privacy Confusion

Mixing an email tool with a social network may lead people to confuse the type of conversations that people can read across Google's Buzz social network. Some don't realize that all public posts are open for anyone using Gmail to search, read and join in the conversation.

No need to follow anyone on Google Buzz. Simply open the Buzz tab, type in a few keywords in the search keyword box and hit return on the computer keyboard. The tool returns all public posts across the Gmail network related to the keyword search.

Google does give Buzz users a way to make posts private or public. But some don't realize that making a profile public means any Gmail user can see the post. They can find it by searching on a related keyword in the Buzz search box.

Only posts that Gmail users choose to share publicly are included in Buzz search, according to a Google spokesperson. "Private posts are only shared with the people you choose, and will not appear publicly in search results," she says. "You choose whether to share your posts privately or to the Web at large. You can set your default as private, and you can also choose to make individual posts private or public."

It may come down to confusion on the part of the Buzz user. Privacy policies are confusing. They typically are not well-written for the average person to understand. Jared Kaprove, domestic surveillance council at the Electronic Privacy Information Center, says people may become confused about Buzz privacy policies because they typically think of email as a semi-private correspondence between the sender and the recipient. Mixing a social network with the tons of Gmail users might confuse people even more.

"It's a weird mix," Kaprove says. "The issue might be conceptual -- the blurring of the line between your email and public facing Internet use."

Put simply: When people post on Twitter, they know it's a public activity. When people use Gmail, they think it's a private activity. Buzz blurs the line between presumed public and private activities.

For instance, in response to a Buzz post by Chris Myler asking Google Software Engineer DeWitt Clinton whether followers can see all posts, Adewale Oshineye and Larry Anderson respond by writing that people can only see the posts of those they follow, which is untrue.

The Federal Trade Commission regulates unfair and deceptive trade practices, but these guidelines likely won't come into play here because the company would have to represent the feature to consumers as being private, but later reveal it as public.

Maybe so, but the search box changes that behavior because it allows people to search and find posts based on keywords. Similar to google. com, the search engine will likely collect, store and analyze the search queries, and tie them to contextual advertisements in Gmail, as well as to ads that run across the Google Content Network.

Electronic Frontier spokeswoman Rebecca Jeschke calls Google a "honey pot" of information collected from a variety of tools, such as search and Gmail. "They know who you are and what you're searching for," she says. "They only keep the information for a specific length of time, and then make it anonymous, but make no mistake they have it. And because it's a honey pot, people want it, whether law enforcement or marketers."

The search engine inside Gmail is much more powerful than site search in Twitter. Twitter allows people to search and find tweets across the network, but the posts, or tweets, are limited to 140-characters or less and they are not tied to an email service.

There have been a host of privacy issues surrounding Buzz. The EPIC is reviewing what happens when users first activate the account because it makes the follower list public by default, and the list of who they follow is derived from the most common email contact.

Wednesday, February 10, 2010

Could Google Buzz Hit Privacy Roadblock On Mobile?

Will the introduction of Buzz bring Google to another privacy roadblock? Some people aren't ready to trust an application that ties Facebook-like sharing features with email, especially when you consider that Google also added a geographic, location-based feature for the mobile phone.

Buzz pulls your profile from the profile you posted last year when the Mountain View, Calif., company introduced social features in the search engine.

As with most technology, people will need to take time to become familiar with new applications and features, as well as decide if location-based mobile applications just give away too much information on their whereabouts.

Google already has the built-in Gmail user base. Perhaps adoption rates for Buzz will follow.

Maybe it will attract the audience that Twitter has not been able to capture. College-age adults say their friends are on Facebook, not Twitter. They view Twitter as a creepy tool without privacy controls. And although Google has built privacy controls into Buzz, it's not clear yet whether Gmail users won't have the same thoughts toward the location-based services and sharing features built into Buzz. The only difference is, Google may attract the young adults that Twitter has turned off.

Trip Chowdhry, managing director at Global Equities Research, estimates the demographic profile of those who will use Buzz long-term are single male adults ages 16 to 23, which puts the count at between 2 million and 3 million people. "I doubt the average female will use Buzz, because many are more skeptical than men about these types of services," he says.

Google made three separate mobile announcements Tuesday related to Buzz: the ability to use Buzz from on iPhone or Android devices, shortcut app, and Buzz Layer on Google Maps.

Buzz for mobile allows you to tag your location with each entry. The nearby view shows all the public buzz nearby - even from those you don't follow.

Google co-founder Sergey Brin told people tuning in to a live presentation and Webcast Tuesday that the company is concerned about privacy and security because the mobile service gives people the ability to share geographic coordinates, but individuals must decide for themselves whether to share and post their location. The Google Buzz privacy policy goes into more details.

Forrester Analyst Augie Ray says some folks will likely keep an eye on privacy issues, but consumers, "in great numbers," have not expressed concerns. In fact, consumers are still willing to give up some of their privacy for free tools. Facebook and Google will have to closely monitor privacy to make sure they meet "expectations."

Go back to the Beacon debacle that Facebook faced. Ray says hundreds of millions of users weren't up in arms about it, but rather just a few key people observing Beacon and the legal concerns it raised.

Amielle Lake, chief executive officer at Tagga Media, which helps marketing and advertising agencies take campaigns mobile, doesn't think consumers will have privacy concerns as long as they have an opt-in option to share location-based information.

Buzz mobile features will increase the accuracy of ad targeting on mobile phones. "The more Google expands its platform capabilities to social via Buzz, while placing importance on making their social tools useful and easy for mobile, you can expect more people to use Google's social tools on the go," Lake says. "The more people use the service, the more targeting data will become available, which in turn will flow through to Google's targeting algorithms, creating better targeting opportunities that leverage behavior data and location information across mobile through social media platforms."

My reaction to the Buzz debut: Goggle seems to have thrown out its focus on simplicity. Not that the look of the Buzz tab appears crowded with information, but there are plenty of choices: to link to mobile applications, and tie the service to Picasa, Twitter, Google Reader, YouTube, Google Chat, Blogspot, and Flickr. And, dear Google, since some of the people you set me up to automatically follow are located in non-English-speaking countries, I need a translation tool to understand what they write without taking the text into another platform.

Friday, February 5, 2010

Is Behavioral Targeting Being Used for Click Fraud?

Spyware was and still is the bane of neophyte PC users. I don't know how many times over the years I have been enlisted to cure the dysfunctional computers of my teen daughter and her friends. In every case, their youthful, shallow-pocketed pursuit of "free" anything online had led them to sites that inevitably clog their systems with spyware, which, once on a system, opens the door to all of its spy friends. It can take less than a month for a new PC to grind to a halt under the weight of all of those competing background processes.
But according to Harvard Business School Assistant Professor Ben Edelman, spyware and its behavioral tracking is also hurting marketers by contributing to click fraud. In research he published to too little notice last month, Edelman found that spyware surreptitiously planted on PCs was deliberately tracking users' browsing habits to see their likely purchase intent. The spyware knows what merchants the user already visits and likely buys from, and then the system "fakes a click" on the Google pay-per-click ad for the same merchant the consumer already uses.

"If the user proceeds to make a purchase - reasonably likely for a user already intentionally requesting the merchant's site - the merchant will naturally credit Google for the sale," Edelman says in his report. "Furthermore, standard optimization strategy will lead the merchant to increase its Google PPC bid for this keyword on the reasonable (albeit mistaken) view that Google is successfully finding new customers. But in fact Google and its partners are merely taking credit for customers the merchant had already reached by other methods."

One of Edelman's correspondents likens the practice to hiring someone to give out street flyers advertising an establishment. But then the rogue plants himself at the entrance to hand incoming patrons the sheet, effectively getting credit for "converting" existing customers.

Edelman says he tested for this problem on a virtual computer in his lab that was running the Trafficsolar spyware software. He used the PC to browse to sports apparel vendor He was able to detect that Trafficsolar opened an unlabeled pop-up window that eventually redirected back to via a fake Google PPC click. The path between the spyware and is extremely complex, but Edelman says his screenshots and packet logs show the click being generated on the test PC without user interaction, hopping across seven or eight redirects.

If these schemes are widespread, then they undermine the trustworthiness of the PPC model in several critical ways, Edelman argues. First, it makes the advertiser pay for a customer it has already acquired. Then it encourages inflated keyword bidding by giving the advertiser the false impression the campaign is working well. And finally, it is producing an illegitimate click, one that the user never actually made.

Let's say the PPC was valued at $1. Each of the many intermediaries is passing along some share of the original Google fee to the network that redirected the traffic. By the time the original spyware vendor takes a cut, it is likely down to pennies. "The many intermediaries and their many fees, reinforce why this is such a terrible deal for the advertisers," Edelman tells me. "The advertiser agreed to pay a high price for traffic that was supposed to be valuable - worth the full $1 per click. Yet the ultimate seller [the spyware that originated the click path] is willing to sell it for just a penny or two, because the seller is selling something that just isn't worth it. But through the series of intermediaries, the advertiser nonetheless gets charged the high price for the low value placement."

It is hard to say how prevalent or widespread the offending spyware software is, but Edelman's tests suggest a number of intermediaries are happy to participate in this system. In the model he describes, behavioral targeting is turned on its head to work against rather than for advertising efficiency.

Wednesday, February 3, 2010

In Europe, Challenges for Google

Google has a problem in China. But it may have bigger headaches in Europe.

On issues as varied as privacy, copyright protection and the dominance of Google’s Internet search engine, the company is clashing with lawmakers, regulators and consumer advocates. And the fights are escalating across Western Europe.

The stakes are high — potentially higher for Google than anything that happens in China — because Google’s operations in Europe are so much larger and more lucrative. In Britain alone, Google has roughly 10 times its estimated sales in China. Across most of the Continent, Google is by far the most popular search engine, with a substantially larger market share over its rivals than it has over those in the United States.

Google’s border-straddling scale and its brash ambitions raise alarms with some European politicians.

The government of Prime Minister Silvio Berlusconi of Italy has proposed a law making online video services like YouTube liable for invasions of privacy, violations of copyright and other transgressions that occur in user-generated content. Meanwhile Google is contesting a copyright lawsuit from Mediaset, Mr. Berlusconi’s family company, which is the largest commercial television broadcaster in the country.

“It’s a full-scale battle against Google in Italy,” said Paolo Brini, a spokesman based in Perugia for ScambioEtico, a group that campaigns for civil liberties online.

In Germany, the minister of justice, Sabine Leutheusser-Schnarrenberger, complained recently about Google’s instinct for “pressing ahead” and its “megalomania.” She said the company was tearing down privacy protections.

“On the whole, I see a giant monopoly developing, largely unnoticed, similar to Microsoft,” she said in an interview with the magazine Der Spiegel. A spokesman later clarified that she had not meant to express an opinion on antitrust matters, which are outside her jurisdiction.

Google says that ordinary Europeans do not have similar fears. It says the complaints are from competitors like Microsoft and media companies whose longtime business models are threatened by technological change.

“We love being in Europe, and we have many users across many countries who enjoy our products,” the company, which threatened last month to withdraw from China in response to an attack on its computer systems, said in a statement. “Our popularity means some people will complain. The important thing for us is to do the right thing, and that means not locking our users into our products and working well with our partners.”

Google’s most immediate challenges may be in Italy. This month, a decision is expected in a trial in Milan, where four Google executives were charged with defamation and privacy violations in a case involving videos posted on a Google Web site that showed the bullying of a boy with autism.

The company says a guilty verdict might require it to edit content on YouTube before it is posted, which it says, would be incompatible with the open spirit of the Internet, as well as European Union guidelines.

Prosecutors say Google was too slow to remove the video.

On another front, Italian authorities last summer raided the company’s offices in Milan, opening an investigation of Google News, which displays excerpts from online news articles. Italian publishers contend that Google News violates their copyrights, but say they cannot remove their articles from the service without slipping in Google’s search rankings, which would cost them ad revenue. Google says there is no such link between Google News and the search engine.

German newspaper and magazine publishers have complained to their government, saying that all of their Web sites together earn only about 100 million euros a year from advertising, while Google generates an estimated 1.2 billion euros from search advertising in Germany.

The federal anticartel agency is gathering information, but has not yet decided whether to open a formal investigation.

German publishers have persuaded the government of Chancellor Angela Merkel to support a new kind of copyright protecting journalistic content on the Web. Analysts say the measure, which has not yet been introduced, could require Web companies like Google to buy special licenses to cite content published elsewhere.

Attitudes toward Google in Germany have been colored by a heated debate over privacy. Several German towns and cities have moved to block Google from taking pictures of storefronts and homes for its Street View service, which links street-level pictures to maps — though not yet in Germany.

While Street View has been popular in some European countries, Swiss data protection authorities recently sued Google to try to press it to increase privacy protections.

The European Commission in Brussels has pushed Google and other American Internet companies to shorten the period for which they retain consumer data.

But Google has largely avoided run-ins with the commission’s powerful competition arm, which has struck fear in American boardrooms because of its dogged pursuit of antitrust cases against Microsoft, Intel and other American multinational companies.

With a new commission set to take office, rivals of Google, including Microsoft, are stepping up their lobbying efforts, highlighting the strength of Google’s position in Europe.

“Whenever you have a company that has more than a 90 percent market share in a key market, it is inevitable that people will have questions to ask,” Brad Smith, Microsoft’s general counsel, told reporters in Brussels last week. “We say that with some experience.”

According to comScore, a research firm, Google handles 80 percent of European Web searches — compared with 65 percent in the United States.

Yahoo with 17 percent, and Bing, from Microsoft, with 11 percent, offer modest competition in the United States, but they are nearly nonexistent in Europe, with less then 2 percent each, according to comScore.

Commission officials have said that a dominant market share is insufficient cause for an antitrust case; there must be evidence that a company is abusing this position to stifle competition. Analysts say the dearth of homegrown rivals to Google could also undermine any move to take regulatory action against the company.

“Brussels may not want to pick a fight with Google,” said C. Evan Stewart, an antitrust expert at the law firm of Zuckerman Spaeder, “because there is no one to reward if they win.”

Monday, February 1, 2010

FTC's Focus Re Privacy Issues Emerging

Based on the comments of Federal Trade Commission officials and panelists at Jan. 28's FTC roundtable on privacy issues, the commission's core focus lies in identifying and addressing disparities between consumer expectations and marketer practices.

That is the assessment of Reed Freeman, partner in the Washington, D.C.-based legal firm Morrison & Foerster, who represents clients in FTC and state consumer protection investigations and negotiations.

The agenda for this second of three FTC roundtables on privacy was designed to explore both how evolving technology can be used to compromise consumers' privacy and how it can be used to enhance privacy. This seems to indicate that the current commission does not view technology itself as being either "good or bad," but instead recognizes that "it's how it's used that can be good or bad," observes Freeman.

The remarks and discussions also appeared to confirm that the current commission is seeking a more "holistic" privacy framework that allows for addressing areas where businesses' consumer data practices diverge from what consumers would reasonably expect. David Vladeck, director of the FTC's Bureau of Consumer Protection, indicated that the commission believes that while consumers care deeply about privacy, they have little understanding of commercial data collection, sharing and distribution practices, Freeman points out.

FTC leadership in place during the last two administrations focused, respectively, on "notice and choice" and "harms-based" approaches, Freeman explains. The "notice and choice" concept resulted in the FTC strongly encouraging businesses to create privacy policies that clearly inform consumers about their data practices and to then ensure that they adhered to their policies. The "harms-based" concept resulted in the FTC focusing its resources on addressing practices deemed to present the most potential harm to the greatest number of consumers -- a focus that led to the creation of trade regulation rules such as the "Do Not Call" list and the CAN-SPAM Act.

The current commission "may not throw the babies out with the bath water," but is looking for a more complete solution for consumer privacy -- hence its emphasis on identifying and addressing consumer expectations/practices gaps, says Freeman.

Freeman offers examples of the types of areas where such gaps might be deemed to exist, such as an online retailer sharing data supplied for a purchase transaction with other marketers, who then send commercial emails to the consumer without notice.

A company that does not comply when a consumer opts out of receiving its emails is both violating the law and failing to meet consumer expectations, Freeman adds. And the first FTC privacy roundtable focused to a large degree on exploring the implications of "behavioral" advertising, indicating that this is one of the areas being assessed, he notes.

During last week's roundtable, commission officials also made it clear that in addition to using these forums and other means to gather the information needed to issue its report on privacy issues (due out in June or July), it will be actively investigating and taking enforcement actions in more privacy cases.

For marketers, the core questions about the FTC's report include what form it will take, as well as the specific recommendations or directives made, says Freeman. The commission could opt to issue either a staff report or an FTC report detailing what actions it believes it can take under the scope of its existing authority and spell out which practices require no consumer notice (because consumers expect them), which require notice and an opt-out, and which are flatly prohibited (even with notice/consent).

Or the FTC could send a report to Congress asking that Congress pass the FTC Improvements Act, perhaps also asking that the Act be amended to instruct the FTC to create a new privacy trade regulation rule.

The commission has the authority to create such rules (which carry the force of law), but might seek Congressional backing to "have the wind at its back," says Freeman -- particularly if it decided to address an area such as use of behavioral data for marketing/ advertising purposes, which could have significant and possibly unintended consequences for Web content providers, as well as advertisers.

The FTC Improvements Act -- which was passed by the House and is now pending consideration by the Senate Commerce Committee -- would give the FTC substantially more authority, including the ability to seek civil penalties from the courts in Section 5 (unfair/deceptive practices) privacy cases, Freeman says.

Currently, the FTC can ask courts to order companies to cease illegal privacy practices and require them to compensate victims for harm caused by privacy violations -- but quantifying the harm created by privacy violations is problematic, he explains. The ability to seek civil penalties would provide the FTC with a more practical, forceful deterrent.