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Although “online profiling” is a phrase that conjures up images of Big Brother tracking your online movements for some ambiguous, but nefarious, purpose, it may lead e-businesses to the promised land of profits. It lets a business build a database of customers’ habits and hobbies by keeping track of where its customers go online after they leave its Web site. The specter of potential abuse of online profiling has spooked several federal agencies into considering legislation to limit its use. In an effort to prevent legislation, eight major Internet advertising companies worked with the Federal Trade Commission and developed self-regulatory rules that limit how and when online consumers’ actions may be traced and recorded by e-businesses. These rules were just given the green light by the FTC and are now in effect. You need to be aware of these rules and analyze how they affect the way your clients conduct their e-business, both now and in the future. HOW ONLINE PROFILING WORKS It all begins with a customer’s Web browser. When a customer visits a Web page that contains banner ads, there’s special code written into the Web page. This code tells the customers’ Web browser to get the banner ads from an advertising network site on the Internet, or ad network. The browser then asks the ad network for an ad, which then pops up inside the Web page. The customer usually doesn’t realize that the ads are coming from the ad network and the Web page contents from site provider. When a customer clicks on one of the ads, the ad network receives a message, which then sends the customer to wherever the ad goes. Yet the fun doesn’t end there. The ad network keeps a record of the customer’s Internet protocol address and the number of times the customer’s particular IP address responded to a particular ad; more important, the ad network may begin to track the customer’s IP address as she moves from site to site on the Net. THE VALUE OF ONLINE PROFILING Knowing where customers go after they leave a business’s Web site can be valuable information for the business. It can help direct how you spend your precious advertising dollars. Now a business will know those Web sites that tend to attract traffic from people who will likely visit and purchase things from its Web site. Let’s say, for instance, that the URL GolfClubsForEveryone.com sells golf clubs. An Internet user happens to see its e-store’s banner advertisement on another site, and clicks on the ad, which takes him to the GolfClubsForEveryone.com Web site. Let’s also assume that after browsing the site, the user decides to keep his credit card firmly entrenched inside his wallet. Instead, he next visits a Web site devoted to the stock market, followed by another Web site that sells home theater equipment. Although the golf company didn’t make a sale, it still may have profited if it used online profiling to track the potential shopper’s activities after he left its Web site. If it did, it got an inside look at his personal interests. After tracking many people in this manner, the golf company could build a database of its visitors’ interests and adjust its advertising focus accordingly. Therefore, the next time our browsing shopper visits its site, he may just find that they are offering a free CD player with every purchase. This might make him reach for his credit card. THE NEW RULES Before the new rules took effect, Web companies had few guidelines as to when and how they could use online profiling to build databases about their customers. Predictably, this caused concern among various privacy watchdog groups, and the government began to consider heavy-handed legislation to curb the use of online profiling. In an effort to make the Web a kinder, gentler place without the need for legislation, eight of the leading Internet ad networks (24/7 Media, AdForce, AdKnowledge, Avenue A, Burst! Media, DoubleClick, Engage, and MatchLogic) teamed with the FTC to develop rules that prevent companies from abusing the information they receive through online profiling. The result of their effort was a set of four self-regulatory principles. These principles not only require an e-business to tell its customers about its online profiling activities, but also require it to give customers the option to choose whether the business can store and use their online habits and interests. The specifics follow. First, the rules provide that customers be told if online profiling is being employed to track their online interests and hobbies. The Web site must clearly and unambiguously notify customers beforehand if any personally identifiable information, such as names, addresses, or telephone numbers, is being collected. Second, customers must be given a choice on participation in profiling. Under the rules, the choice method offered depends on the type of information collected. For example, if a business wants to link personally identifiable information that it already knows about a customer with data just acquired (such as the fact that the customer just visited GolfClubsForEveryone.com), the customer must first “opt in.” This means that a business must receive its customer’s permission before linking the pieces of information together. If the business simply wants to merge nonpersonal data about its customers, it has to give the customers the ability to “opt out” before doing that. Third, the rules provide that customers be given reasonable access to any personally identifiable information kept about them for profiling. This one could be a business’s worst nightmare. It may mean that a business must spend significant amounts of time and money running a search of an entire database upon the request of anyone who asks the business to do so. A large enough business may find it necessary to hire additional staff to conduct these searches on a full-time basis. Ouch. Having said that, I suspect that over the next few months we’ll see software solutions develop that will allow compliance with the “reasonable access” problem with little or no human intervention. Finally, the rules require reasonable efforts to protect data collected for profiling purposes from loss, misuse, alteration, or improper access. Of all the rules, this is the least controversial because you’re probably doing this anyway. And if you’re not, then the rule is good medicine for you. You should be protecting your data regardless of what any rule tells you to do. YOU NEED TO COMPLY NOW This is important stuff. If you don’t think so, ask yourself this: When was the last time that eight of the largest companies in any industry not only agreed with each other, but also agreed with the federal government? It doesn’t happen often. So if your client’s business does online profiling of its customers, then implementing the new rules should be on your client’s short list of things to do. The simple fact is that online privacy is becoming an increasingly regulated area. Businesses are going to need to ensure that they’re in full compliance immediately. Mark Grossman leads the computer and Internet law department of Becker & Poliakoff in Miami. Bradley Gross is an associate with the firm. Your questions and comments are welcome. E-mail them to [email protected] Also, visit his home page at www.mgrossmanlaw.com. Online research for this column is provided by Lexis-Nexis.

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