ANA Regulatory Rumblings

ANA Urges NY State Lawmakers to Reject New Restrictions on Online Behavioral Advertising

ANA has urged members of the New York State Legislature to reject two bills that would impose serious new state-specific restrictions on online behavioral advertising.  Assembly Bill 9275-B and Senate Bill 6441-B would subject all Internet advertising, wherever it originates, to a narrow and rigid set of notice, choice and security rules dealing primarily with the collection and use of non-personally identifiable information (non-PII).  These bills raise serious constitutional issues by burdening interstate commerce and could encourage other states to act, leading to a patchwork of inconsistent state laws on the collection and use of non-PII.  ANA’s letters to the Assembly and Senate committees are available here.

In addition to the letters, ANA Senior Vice President Keith Scarborough is joining several companies and other industry groups this week in Albany for a series of meetings with members of both the Assembly and the Senate.  Our message is that consumer privacy in the online world can best be protected through strong industry self-regulation, buttressed by enforcement at the national level by the Federal Trade Commission (FTC).  Balkanized regulation by the states, particularly of non-PII, would seriously undermine the architecture of the Internet and the financial foundation that advertising provides to many online services.    

Online behavioral advertising makes it possible for consumers to see the right ad at the right time for the right product and allows marketers to better target their messages.  Just last week, ANA and eleven other trade groups filed comments with the FTC on a proposed set of industry self-regulatory principles to govern online behavioral advertising.  We share the commitment of policymakers in the states and at the federal level to protecting the privacy of consumers online. 

Behavioral Advertising Helps Fund Valuable Online Services

Advertising is critical to the economic foundation of the Internet and the vast array of products, services and information that is available in the online world.  The government should not adopt any rigid, overly broad rules on the collection and use of consumer information that would undermine that vital role played by advertising.  The privacy interests of consumers can be best protected by strong industry self-regulation and positive industry leadership.  This leadership is already buttressed by the FTC’s enforcement powers to make sure that companies are fully complying with their privacy promises.

Those were the important messages conveyed to the Federal Trade Commission (FTC) today by ANA and nine other trade associations (the American Advertising Federation; the American Association of Advertising Agencies; the Consumer Bankers Association; the Direct Marketing Association; the Electronic Retailing Association; the Interactive Advertising Bureau; the National Retail Federation; the Retail Industry Leaders Association; and the U.S. Chamber of Commerce).  These groups filed detailed comments on a set of proposed self-regulatory principles for online behavioral advertising that were released for comments by FTC staff last December.  The industry comments are available here.

Online behavioral advertising involves the tracking of a consumer’s online activities in order to deliver targeted advertising to meet that individual consumer’s interests.  The FTC held a two-day town hall meeting last November focusing on the possible privacy issues raised by online behavioral advertising.  On December 20th, the Commission issued a staff draft of self-regulatory principles to govern the practice of online behavioral advertising.  That draft is available at http://www.ftc.gov/opa/2007/12/principles.shtm

Our comments described the critical role that advertising plays as a funding source and economic foundation for the various services that consumers enjoy in the online world – from free e-mail to chat rooms to the rich content of thousands of newspapers and magazines.  The Internet economy is strong and online advertising is a major contributor to fueling its growth.  Our comments noted that in 2007, revenues from online ad spending exceeded $21 billion and online advertising is expected to grow 24% annually through 2011.

Behavioral advertising is just one component of all online marketing but it provides tremendous benefits for both consumers and businesses.  Behavioral advertising makes it possible for consumers to see the right ad at the right time about the right product, rather than simply a series of ads that may be irrelevant to them.  It also provides marketers with a more efficient and effective means of reaching consumers who are most likely interested in their offerings.  This efficiency supports competition and innovation and substantially strengthens the U.S. economy. 

We have serious reservations about some of the proposed principles suggested by the FTC, particularly the notion that consumers should be given the ability to opt-out of anonymous tracking and the collection of non-identifiable information across multiple websites.  Everyone agrees that consumers should have the ability to control the transfer of personally identifiable information to third parties.  Under long-standing privacy self-regulation principles, consumers are provided notice and choices when PII will be transferred to third parties for marketing purposes.  Such choices exist in the guidelines of every major privacy self-regulatory program and are included in the privacy policies of most major commercial websites. 

But what is the potential consumer harm if non-PII information is transferred to a third party?  Providing the same choice or control over non-PII as industry currently does for PII could have serious implications for the architecture of the web and undermine many business models.

We look forward to continued dialogue with the FTC and other groups about online behavioral advertising.  This is a very complex area involving numerous players.   There is clearly a need for more consumer education about how online behavioral advertising works and the tremendous benefits it can provide for them.  We also pledge to continue to evaluate our various self-regulatory privacy programs to make sure they are protecting the legitimate privacy interests of consumers in the online marketplace.

Tobacco Markup

The House of Representatives’ Committee on Energy and Commerce has reported favorably to the full House an amended version of H.R. 1108, the Family Smoking Prevention and Tobacco Control Act.  The final vote in favor was 38-12, with 11 Republicans joining the Democratic majority.  While there were no amendments offered that affected the troublesome advertising provisions in the bill, there were a few interesting exchanges during the markup that related directly to their constitutionality. 

Rep. Steve Buyer (R-IN) first asked whether the “findings” in the bill, couched as fact, were written in a way to satisfy the U.S. Supreme Court’s Central Hudson test.  Specifically, findings #30 and #31 state that the advertising provisions of the FDA’s final rule of August 28, 1996, which the bill would require the FDA to implement, are “substantially related to” and would “directly advance” the government’s interest in preventing youth smoking.  The findings also contend that “less restrictive and less comprehensive approaches have not and will not be effective in reducing the problems addressed by such regulations.”  As Rep. Buyer noted, however, since the tobacco industry reached the Master Settlement Agreement with 46 state attorneys general in 1998, youth smoking rates have declined.  In light of this decline, he asked whether it was still true that “less restrictive means” were not effective.   Rep. Henry Waxman (D-CA), the main sponsor of H.R. 1108, responded that the government’s interest in this area remains substantial, and this interest has been recognized by the Supreme Court. 

In this first exchange, Rep. Buyer also contended that the regulations went beyond the government’s asserted interest in lowering youth smoking and restricted speech about a lawful product to an adult audience, and thus violated the Central Hudson test.   In response, Rep. Waxman claimed that the provisions were narrowly tailored and would not affect advertising targeted to a primarily adult audience, such as in magazines directed to adults. 

Rep. Buyer also noted in a subsequent exchange that the Supreme Court struck down similar restrictions on advertising as those in the FDA rule in its 2001 decision in Lorillard v. Reilly.  In Lorillard, the Court struck down a Massachusetts law that banned outdoor ads within 1,000-feet of schools, parks and playgrounds and also restricted point-of-sale advertising for tobacco products.  In finding that the law was not narrowly tailored to satisfy the First Amendment, Justice Sandra Day O’Connor also wrote for the Court that the FDA rule raised similar issues.  Rep. Waxman argued that the Court struck down a state law in Lorillard and that the federal interest was different. 

Rep. Nathan Deal (R-GA) and Rep. Joe Barton (R-TX), the Committee’s ranking Republican, also warned that the advertising provisions raise First Amendment issues and could be subject to court challenge.  ANA, in conjunction with the American Association of Advertising Agencies (AAAA) and American Advertising Federation (AAF), filed extensive testimony with the committee that lays out all of the constitutional issues with the legislation’s provisions, and notes that there is opposition from leading constitutional experts across the political spectrum, from Judge Robert Bork to Professor Lawrence Tribe, to these proposals.  That testimony can be viewed at http://www.ana.net/advocacy/content/1097. 

ANA believes that these advertising provisions clearly violate the First Amendment and the Supreme Court’s Lorillard decision. 

It is not clear yet when the bill will be scheduled for floor action.  We hope that the committee will continue to work on revising the advertising provisions so that they do not unconstitutionally restrict truthful, nondeceptive speech about a product which is legal for adults to purchase.