[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
RECENT DEVELOPMENTS IN PRIVACY PROTECTIONS FOR CONSUMERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS,
TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
OCTOBER 11, 2000
__________
Serial No. 106-160
__________
Printed for the use of the Committee on Commerce
------------------------------
U.S. GOVERNMENT PRINTING OFFICE
67-635CC WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications, Trade, and Consumer Protection
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL G. OXLEY, Ohio, EDWARD J. MARKEY, Massachusetts
Vice Chairman RICK BOUCHER, Virginia
CLIFF STEARNS, Florida BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California ANNA G. ESHOO, California
NATHAN DEAL, Georgia ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming BILL LUTHER, Minnesota
JAMES E. ROGAN, California RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Aftab, Parry, Special Counsel, Darby and Darby, P.C.......... 76
Baker, Roger W., Chief Information Officer, U.S. Department
of Commerce................................................ 33
Cady, Glee Harrah, Vice President for Global Public Policy,
Privada.................................................... 72
Chiang, Larry, Chief Executive Officer, MoneyForMail.com..... 69
Goodlatte, Hon. Bob, a Representative in Congress from the
State of Virginia.......................................... 12
Griffiths, Mike, Chief Technology Officer, Match Logic Inc... 89
Katzen, Sally, Deputy Director for Management, Office of
Management and Budget...................................... 28
Koontz, Linda D., Director, Information Management Issues,
U.S. General Accounting Office............................. 24
Pitofsky, Hon. Robert, Chairman, Federal Trade Commission.... 56
Shaw, Hon. E. Clay, Jr., a Representative in Congress from
the State of Florida....................................... 53
Shen, Andrew, Policy Analyst, Electronic Privacy Information
Center..................................................... 93
Material submitted for the record by:
Armey, Hon. Dick, Majority Leader, U.S. House of
Representatives, prepared statement of..................... 106
(iii)
RECENT DEVELOPMENTS IN PRIVACY PROTECTIONS FOR CONSUMERS
----------
WEDNESDAY, OCTOBER 11, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Telecommunications,
Trade, and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:15 a.m., in
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy''
Tauzin (chairman) presiding.
Members present: Representatives Tauzin, Gillmor, Cox,
Shimkus, Ehrlich, Markey, Boucher, Wynn, Luther, Sawyer, Green,
and McCarthy.
Staff present: Paul Scolese, majority professional staff;
Anthony Habib, legislative clerk; and Andy Levin, minority
counsel.
Mr. Tauzin. The subcommittee will please come to order.
Today the subcommittee will hold the hearing on the
important developments in the efforts to the protect privacy of
American consumers. Few issues in this industry generate such
strong emotions as how to deal with the enormous amounts of
personal information that are collected, distributed, stored
every day via the Internet.
Later this morning, we will hear from two of our
colleagues, Representative Clay Shaw and Representative Bob
Goodlatte. Representative Shaw will explain to this
subcommittee his legislation H.R. 4857, the Privacy and
Identity Protection Act of 2000, which has been reported out of
the Ways and Means Subcommittee on Social Security and is
currently awaiting action in this subcommittee.
In addition the subcommittee will hear from Representative
Goodlatte about the Lansdowne Privacy Summit which the National
Chamber Foundation hosted for House Republicans in May of this
year and what has come from that. I understand that the
foundation also scheduled a similar session with the House
Democrats, and unfortunately it got canceled, I believe.
Representative Goodlatte cohosted, along with my
colleagues, Chairman Bliley, Representative Ehrlich and myself,
this privacy summit; and I personally want to thank him for his
efforts in this endeavor. I also want to thank both of our
colleagues for coming this morning, for sharing their views
with us. The subcommittee has been a keen observer for many
years of this debate, holding hearings on this issue both in
1998, 1999 and again in 2000.
Over the last year, we have seen consumer concerns over
privacy heightened and, as a result, specific Federal
responses. Congress has adopted two Federal laws to deal with
specific areas of concern, the Gramm-Leach-Bliley law in which
financial privacy laws are written, and the Children's Online
Privacy Protection Act. In addition, Americans have witnessed
the development of a new private-sector technology and, in
fact, many technologies to help consumers, as well as voluntary
standards by industry to self-police, and educate consumers.
In certain areas, the Federal Government and commercial
entities have come together to achieve cooperative standards to
govern their online conduct. Privacy was not created with the
advent of the Internet. In fact, we have been passing privacy
laws, I believe, for the past 30 years, but the Internet adds a
level of dissemination beyond what Americans had ever thought
possible in many circumstances beyond which they feel
comfortable.
While the Internet is still relatively new, the issue of
privacy, of course, is not. Prior to the adoption of the GLB
and the COPPA laws, Congress had enacted privacy protections in
a dozen other circumstances, indeed over that past 30 years,
with the Fair Credit Reporting Act in 1970 starting that
process. Sharing personal information did not begin when the
Internet was established. Many people remember party-line
telephones and can recall door-to-door salesmen plying their
wares, using neighborhood directories. Businesses for decades
have bought and sold their business assets, including their
valuable information data bases about their customers. Nothing
new in that.
As I have said many times before, personal information has
value to both consumers and an information economy. We live in
an Internet Information Age and obviously information is the
lifeblood of that system. A consumer's purchasing patterns,
online behavior, is indeed valuable information to marketers.
But at the same time, I believe consumers should have the
ability to control that information or at least to be
potentially compensated for giving away personal information if
it indeed is a valuable asset.
One of my witnesses who will testify later this morning has
a business model that operates on consumers being compensated
for sharing their personal information.
The issue as we move forward in the coming years are these:
Has industry done enough to protect consumer privacy, or should
government step in to establish minimum standards to protect
against the bad player? And if there are standards that work
for private industry, should they also be applied to
government's collection of personal information? After all, I
can choose whether to give information to a private company,
but in many government agencies I don't have a choice. I am
obliged to provide them with personal information. Does the
government have a higher standard in play here to protect the
privacy of my information?
Well, hopefully this morning will shed some light on these
matters. While the tremendous amount of attention over the past
year has been paid to the privacy of consumers in dealing with
private industry, very little has been paid to the Federal
Government's collection of personal information. Last time I
checked, very few consumers indeed were providing information
to the IRS, strictly voluntarily. Consumers indeed can vote
with their feet in the private sector and go to another
business if they don't want to share private information with
them; but can you refuse to do business with the IRS or the EPA
or the Medicare program for that matter? And if you do, can you
refuse to provide them with information they require of you in
order to do business with them?
Earlier this year, Representative Dick Armey and I asked
the GAO to conduct a survey of the privacy policies of Federal
web sites and then compare it to the fair information practices
recommended by the FTC for commercial web sites. In short, we
wanted to see if Federal web sites would fare any better than
the commercial web sites if they were held to the exact same
standards that the FTC has held the commercial web sites in
their reviews. Was the Federal Government ready to practice
what it has preached?
Well, from the results of the survey which we will discuss
today, it appears that the Federal Government does not practice
what it preaches. Our report is not the only GAO report that
has produced failing grades for government web sites and data
bases. The Horn report on data base security and the Lieberman
report on OMB privacy requirements have also both shown that
the government is not doing an adequate job of protecting
America's personal information.
On just two issues in recent weeks, the government has
flunked. On the placement of cookies on government web sites
the results are troubling. Despite OMB memoranda in 1999 and in
June of 2000 prohibiting the placement of cookies on Federal
web sites, the practice continues today at the IRS and possibly
at other government web sites. In fact, we learned in the GAO
report, I think, that 14 percent of the web sites surveyed
potentially permit cookies on their Federal web sites. And just
last Friday, the AP reported that the White House web site
itself violates COPPA by collecting personal information from
children.
While government web sites can hide behind different
standards, in these two instances they certainly do not live up
to the spirit of the laws that apply in the commercial world.
Chairman Pitofsky of the Federal Trade Commission has
graciously agreed to testify today about the many FTC reports
and activities in the past year dealing with privacy. We will
also hear from private-sector witnesses who will discuss online
profiling, the Children's Online Privacy Protection Act, and
the use of technology in protecting privacy, and we will hear
from one entrepreneur with an interesting take on privacy. In
short, we will be looking at both the government sector and the
private sector today, and we will examine just how well we
stack up.
In short, while there is no obvious time this year for this
committee to engage in legislation in the remaining days of
this session, this hearing will be preparatory to activities
next year in which we will continue our efforts to guarantee
that both the Federal Government and the private sector respect
the privacy of American citizens.
I want to close by inviting you--I understand the web site
is down this morning, but to visit the EPA web site. Our staff
visited the EPA web site, I believe yesterday, and discovered
that there is on the EPA web site a section called Explorers
Club which invites children to give information about
themselves to the EPA. Nowhere on this web site is there a
disclosure that children should first get permission of their
parents before sharing their private information with a
government agency. There is something wrong when Federal
agencies can't obey the law that we impose on private citizens.
The Chair yields back his time and the Chair recognizes the
gentleman from Virginia, Mr. Boucher, for an opening statement.
[The prepared statement of Hon. W.J. ``Billy'' Tauzin
follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman,
Subcommittee on Telecommunications, Trade and Consumer Protection
Today this subcommittee will hold a hearing on important
developments in the efforts to protect the privacy of American
consumers. Few issues in this industry generate such strong emotions as
how to deal with the enormous amounts of personal information that are
collected, distributed and stored everyday via the Internet.
This morning we will hear from two of our colleagues Rep. Claw Shaw
and Rep. Bob Goodlatte. Rep. Shaw will explain to the Subcommittee his
legislation, H.R. 4857 the Privacy and Identity Protection Act of 2000
which has been reported out of the Ways & Means Subcommittee on Social
Security and is currently awaiting action in this Subcommittee.
In addition, the Subcommittee will hear from Rep. Goodlatte about
the Lansdowne Privacy Summit which the National Chamber Foundation
hosted for House Republicans in May of this year and what has come from
that. Rep. Goodlatte co-hosted along with my colleagues Chairman
Bliley, Rep. Ehrlich and myself, the Privacy Summit and I personally
want to thank him for his efforts in this endeavor.
I want to thank both of our colleagues for coming this morning and
sharing their views with us.
This Subcommittee has been a keen observer of the debate for many
years--holding hearings on this issue in 1998 and 1999. Over the last
year we have seen consumer concerns over privacy heightened and as a
result specific federal responses. This past year we have adopted two
federal laws to deal with specific areas of concern--the Gramm-Leach-
Bliley law and the Children's On-Line Privacy Protection Act. In
addition, consumers have witnessed the development of new private
sector technologies to help consumers as well as voluntary standards by
industry to self-police and educate consumers. In certain areas, the
federal government and commercial entities have come together to
achieve cooperative standards to govern their on-line conduct.
Privacy was not created with the advent of the Internet, but it
does add a level of dissemination beyond what Americans had ever
thought possible and in many circumstances are comfortable with.
While the Internet is still relatively new, the issue of privacy is
not. Prior to the adoption of the GLB and COPPA laws, Congress had
enacted privacy protections in a dozen other circumstances over the
past thirty years starting with the Fair Credit Reporting Act in 1970.
The sharing of personal information did not begin when the Internet was
established--how many people remember party line telephones and can
recall door to door salesmen plying their wares using neighborhood
directories. Businesses for decades have bought and sold their business
assets including the valuable information databases about their
customers.
As I have said many times before, personal information has value to
both consumers and to our economy. We live in an Internet and
information economy and information is the lifeblood that makes our
Internet engine run. A consumer's purchasing patterns and online
behavior is valuable information to marketers, and I believe that
consumers should have the night to control that information or be
compensated for giving such personal information to business. One of
our witnesses who will testify later this morning has a business model
that operates on consumers being compensated for their private
information.
The issue as we move forward in this debate in coming years is
this: Has industry done enough to protect consumer privacy or should
government step in an establish minimum standards? There are no simple
answers. Hopefully this hearing will help shed some light on these
matters.
While a tremendous amount of attention over the past year has been
paid to the privacy of consumers in their dealings with private
industry, very little has been paid to the federal government's
collection of personal information.
Last time I checked, very few consumers have the option of not
providing a government agency with their personal information. In the
private sector, consumers can vote with their feet and go to someone
else if they do not like the privacy policy of a business. Americans
must deal with the IRS, EPA and the Medicare program and cannot refuse
to provide personal information.
Earlier this year, Rep. Dick Armey and I asked the GAO to conduct a
survey of the privacy policies of Federal websites and compare it to
the fair information practices recommended by the FTC for commercial
websites.
We wanted to see how Federal websites would fare if they were held
to the same standards as commercial websites.
Was the Federal government practicing what it preached?
From the results of the survey, which we will discuss today, it
appears that the Federal government does not. But our report is not the
only GAO report that has produced failing grades for government
websites and databases. The HORN report on database security and the
LIEBERMAN report on OMB privacy requirements have shown that government
is not doing an adequate job in protecting American's personal
information.
On just two issues in recent weeks the government has flunked. On
the placement of cookies on government websites the results are
troubling. Despite OMB Memoranda in 1999 and June 2000 prohibiting the
placement of cookies, that practice continues today at the IRS and
possibly at other government websites. And just last Friday the AP
reported that the White House website itself violates COPPA by
collecting personal information from children.
While government websites can hide behind different standards, in
these two instances they certainly do not live up to the spirit of the
laws that apply in the commercial world.
Chairman Pitofsky of the Federal Trade Commission has graciously
agreed to testify today about the many FTC reports and activities this
past year dealing with privacy.
We will also hear from private sector witnesses who will discuss
online profiling, the Childrens' Online Privacy Protection Act, the use
of technology in protecting privacy and we will hear from one
entrepreneur with an interesting take on privacy.
In closing I want to thank all of the witnesses for their
attendance today.
Mr. Boucher. Thank you, Mr. Chairman. I want to begin by
complimenting you on your handling of the delicate and complex
matter of establishing a Federal privacy policy respecting the
practices of web sites that collect information from the
Internet-using public. The chairman has properly taken a
cautious and deliberative approach toward the development of
legislation in this sensitive area. In my view, the time for
legislation has now arrived.
With the hearing today, I urge the subcommittee to begin
the process of developing a federally assured baseline set of
guarantees for personal privacy with respect to the information
collected by web sites through the use of cookies placed on the
hard drives of web site visitors. The requirements which
Congress should enact are straightforward and would be in the
nature of minimum guarantees that would be applicable to all
web sites. I suggest that our legislation contain the following
five elements: First, each web site should provide a clear
notice of what information is collected from the Internet-using
public and how that information is used. If the information is
used internally within the web site, that fact should be
stated. If there are circumstances under which the information
is transferred to third parties, that fact should also be
stated and those circumstances listed.
Second, after reviewing the policy, the web site visitors
should be able to limit the information about them which is
collected, and in practical terms that may mean that he would
depart the web site with no information being collected, a
practice that we commonly would refer to as an opt-out.
Third, the Federal Trade Commission should be directed by
statute to create a mechanism to assure compliance with these
basic privacy guarantees.
Fourth, the legislation should declare that the policy is
the national policy and preempt any State requirements that are
more onerous or inconsistent or in conflict with the national
guarantees as assured in the statute.
And, fifth, the Federal Trade Commission should be
instructed to review web site practices on an ongoing basis and
recommend any additional legislative steps that may be
appropriate.
I would suggest that a number of benefits would flow from
the passage of this set of minimum statutory guarantees. First,
it would assure that all web sites, whether privately operated
or operated by a government agency, respect privacy. The larger
commercial sites are presently members of self-regulatory
organizations and generally respect the privacy policies
announced by the SROs. Smaller web sites in large numbers do
not belong to SROs, and government agencies have observed a
privacy policy in a truly voluntary way, which has been
somewhat inconsistent, as the chairman has suggested. In our
view, all sites should be covered by a minimum Federal
guarantee.
Second, the legislation would establish only a minimum set
of guarantees and web sites could then offer higher levels of
privacy protection and market that enhanced privacy as a
competitive difference, and so offering greater levels of
privacy would then become a competitive asset in the
marketplace.
Third, this basic privacy guarantee would encourage the
growth and development of the Internet by creating the
confidence in Internet users that their privacy is being
protected.
And, forth, we can assure that the law is efficient and
workable by prevent a patchwork of inconsistent or conflicting
State requirements from arising.
The Federal Trade Commission has called on the Congress to
act and it is time for the Congress to accept that invitation.
And I believe that we can do so with a large consensus of
support from the private sector. Over the course of the last
several months, I have watched that consensus grow, and it is
in support of the kinds of steps that I am recommending that we
take this morning.
I want to welcome to the subcommittee today my friend and
Virginia colleague, Bob Goodlatte, with whom I have the
privilege of cochairing the House Internet Caucus. Eighteen
months ago, Mr. Goodlatte and I put forward legislation which
closely resembles the recommendations that I have made this
morning. Our Internet Caucus has also been active over the
course of the last year. We have conducted a technology
demonstration to demonstrate various technical means of
protecting personal privacy for Internet users. We have also
conducted two widely attended workshops on the question of
protecting Internet user privacy. And now we are planning to
take our activities to the next level.
During the coming days we intend to establish a working
group of interested Members of the House and Senate, primarily
composed, I suppose, of Members of the Internet Caucus, but
anyone is certainly welcome to participate. And our goal in
establishing this working group will be to help in developing a
broad consensus in support of the elements that should comprise
our privacy legislation during the course of the next Congress.
It is our hope that the consensus-building process will include
consultation with the industry and with the Federal Trade
Commission, and we hope to achieve the consensus that we are
seeking within a matter of just several months so that by
January, recommendations can be in hand that enjoy the support
of a broad consensus within the stakeholder community and among
Members of Congress.
I look forward to working with the interested members of
this subcommittee and with my friend, Mr. Goodlatte, and the
members of the Internet Caucus as we consider the best means of
enhancing privacy protections for the Internet-using public.
Mr. Chairman, I want to commend you for this timely
hearing. I frankly wish it was a little bit better attended
because it truly is an important subject. And I want to commend
you also for the careful and thoughtful way in which you have
addressed it, and I look forward to working with you as we seek
to assure that the Internet-using public, truly has its privacy
protected. Thank you.
Mr. Tauzin. I thank the gentleman and, believe me, I feel
very similar about the gentleman's involvement. I pledge to him
that, as I did privately, we are going to work very closely
over the next several months in preparing for some very serious
work on this issue next session. I thank the gentleman.
The Chair recognizes the gentleman from Illinois, Mr.
Shimkus, for an opening statement.
Mr. Shimkus. Thank you, Mr. Chairman. I will be brief. I do
believe, as many of us do, the big issue of the new millennium
will be privacy, and it is a great issue because it really
brings the political spectrum of the far left and the far right
together as teammates really trying to address the concerns of
the good government types that want to create new efficiencies
for government to provide services with the possibility of
accepting and storing personal data.
So this is a great time to have this hearing. I am
concerned about the policies and statements that we enact as
the Federal law, but I am more concerned that we follow those
policies and statements which it seems--because those of us who
are not that technology expert, you know, unfortunately we are
a very trustful Nation, we trust everybody. And so if an agency
says this information is not going to be used and they ask for
information, well, we think oh, good for them. But the
information is still being gathered and stored.
I hope that this debate stirs up the whole issues that I
think our Founding Fathers would be very proud of: the debate
of personal privacy, actually privacy rights which would be
similar to property rights, in that there are some--they are
part of the fabric of our national culture--that I think we
have lost through the technology age and information age that
we need to get back to some privacy rights issues.
Again, I think the Founding Fathers would be pleased about
this debate, and we have a lot of work to do. I appreciate this
hearing and I look forward to being engaged with my friends
from Virginia and members of this committee as we move forward
in the next Congress. I yield back my time.
Mr. Tauzin. The Chair recognizes the gentleman from Ohio,
Mr. Sawyer.
Mr. Sawyer. Thank you, Mr. Chairman. I can't help but think
our Founding Fathers would be proud but flabbergasted by this
debate. I want to join with my colleagues in thanking the
chairman for this hearing today. As he suggested, many
businesses and many other kinds of entities have long collected
information about Americans for a variety of purposes, but
today the users of individual reference services and lockup
services operate computerized data bases on personalized
information that have expanded the concept beyond what most
Americans have ever really seriously thought about, but they
will be thinking about them a great deal more in the future.
Most of us are familiar with the story Thomas Friedman
likes to tell. The New York columnist checked into a hotel with
his wife and children and, as children are wont, they wanted to
go to the hotel pool right away. So they jumped into their
swimsuits, went downstairs and got in the pool. When it came
time to get out of the pool and go back to their rooms, they
discovered that he had left the hotel key in the room. And so,
dripping wet, with little more than a bathing suit and a towel,
he went up to the front desk and asked the check-in clerk if he
could get an extra room key. And the clerk said, ``I am sorry;
if you don't have any identification with you, we can't do
that.''
Then he said, ``I will call my manager.'' And the manager
came out and said, ``Mr. Friedman, I really could not do that
in good conscience. Plus you wouldn't want me to give your key
to someone who simply came up in a bathing suit and said that
he was you.''
In the meantime he is standing there, he is working with
the computer. The manager said, ``But wait, can tell you what
room you are in.'' He said, ``When are your kids birthdays?''
He said, ``Here's your key.'' Friedman said, ``Why did you do
that?'' The manager said, ``Because you stayed here 9 months
ago and we have all of this information and a whole lot more
about you.'' And he said, ``Thank you very much.''
Friedman was gratified, but he was dumbfounded by the level
of information and the depth of knowledge they had about him as
a product of simply having checked into the hotel on a previous
occasion.
That is chilling information, and it is a remarkable
example of why the hearing that we are having today is
important. I appreciate the comments about the relationship
between information gathered by Federal agencies and those
gathered by businesses over the course of the last couple of
days, Mr. Chairman.
Ironically, I have rejoined a discussion that I have been
involved in for the last dozen years about data sharing across
government agencies. Those are efforts over the last 210 years
to gain access to private individual information gathered as a
product of the Census that has never been violated in the 210-
year history of this Nation.
If we are looking for principal examples of the fundamental
ideas behind which we might seek to guard information, we could
do no better than to turn to the kind of repeated efforts that
have been made to penetrate the Census, and the efforts that
the census has made to guard against that. Even as we learned
last spring, in times of war when efforts were made to
individually identify Japanese Americans living in the United
States, United States citizens, and that effort was directly
resisted as a product of the work of the census.
Personal information is our single most valued possession
and the work that we are doing here today could not be more
important. I thank you for that and yield back the balance of
my time.
Mr. Tauzin. By the way, that hotel has new personal data on
Mr. Friedman: the fact that he loses his key.
The gentleman from Maryland, Mr. Ehrlich.
Mr. Ehrlich. Real briefly, real brief. Everyone said really
what I can say. This is a timely issue. It is an emerging
issue. It has always been a second-tier issue, now rapidly
becoming a first-tier issue in American politics. If there is
any doubt for anybody in this room that this issue is very
important to them, let me assure you that there should be no
doubts, because the chairman and I regularly have conversations
about this. We have already had one conference, to be followed
by many more conferences and hearings, and hopefully a good
piece of legislation. And I yield back.
Mr. Tauzin. I thank my friend and also thank him for
cohosting the conference with Chairman Bliley and Mr. Goodlatte
and I. And, as you know, we will hear about that conference a
little later, but again I want to thank the gentleman for his
personal involvement because it is going to take a lot of
members' involvement for us to unravel all these issues by next
year.
The Chair welcomes and recognizes Mr. Luther for an opening
statement.
Mr. Luther. Thank you, Mr. Chairman. Thank you for holding
this important final subcommittee hearing.
I want to thank you and Mr. Markey and Mr. Boucher for your
leadership on this subcommittee and on this issue, and I am
pleased to hear you say that this hearing will only be the
beginning on this issue and that hopefully in the next Congress
we can deal very substantively with this particular issue for
the benefit of America's consumers.
Last November I was pleased to join Representative Markey
in introducing H.R. 3321, the Electronic Privacy Bill of
Rights, which would require web site operators to comply with
the so-called Fair Information Practice Principles.
I would also be remiss if I didn't mention this morning the
great work of my colleague and friend, Congressman Bruce Vento
of Minnesota, who passed away yesterday morning. Bruce
introduced two online privacy bills, and I want to recognize
him for his hard work on behalf of the American consumer on
this issue and on so many other issues through his lifetime.
Mr. Tauzin. Would the gentleman yield? I wonder, Mr.
Luther, if we might ask all our friends for a moment of silence
in memory of Mr. Vento. He was indeed a dear friend of many of
us, and his passing is very hard on many of us. We ask you all
now to join us in a moment of silence.
[Moment of silence.]
Mr. Tauzin. Thank you. Mr. Luther.
Mr. Luther. Thank you, Mr. Chairman.
In light of both the FTC and GAO studies that report that
an unacceptably low percentage of web sites comply with the
fair information practices, I look forward to hearing our
panelists' opinions. Hopefully their testimony will provide
insight as to what we as a committee and as a Congress can do
to protect the American consumer from this wholesale collection
and distribution of personal information.
Thank you, Mr. Chairman and I yield back.
Mr. Tauzin. Thank you, Mr. Luther.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Paul E. Gillmor, a Representative in
Congress from the State of Ohio
Mr. Chairman, I want to thank you for calling this important
hearing today on the matter of protecting consumer privacy. Public
opinion is strongly behind the need to safeguard personal information.
I believe this issue is important and I am pleased that our committee
is spending some time to look into this issue.
During our committee's most recent foray into the issue of privacy,
during the Gramm-Leach-Bliley financial services law, we learned just
how complex an issue this is. I was pleased to be one of the active
members of this panel on the privacy issue and think our work in this
arena has just begun.
Privacy laws, in themselves, are not new things. However, with
emerging Internet technologies, I believe it is crucial that Internet
users and consumers can feel safe that the information that they are
transmitting is being protected from others. I like to draw the
parallel on this subject from Federal wire-tapping laws that our nation
passed to protect telephone customers from unwanted parties. In the
same way, we must ensure the integrity of the lines carrying Internet
conversations.
I come from the perspective that a person's information is his or
her own. And, that when a person decides to give up some of their
individual data, it is for a specific and intended purpose. I do not
believe it is up to the merchant to decide how and when a person's
information should be used, especially if it falls outside of the
initial transaction that precipitated the need for the person's data.
I look forward to the testimony of our witnesses. I am especially
interested in listening to the Government Accounting Office's
assessment of the present situation, as well as the thoughts of the
Federal Trade Commission. As most members of the panel know, while the
FTC lacks the authority to regulate operators of commercial websites,
it has been busy looking into this matter and issuing reports a
direction it believes is the most appropriate from containing
unwarranted releases of personal information. I believe this will be a
good starting point for our most recent discussions.
Again, Mr. Chairman, I want to thank you for calling this hearing
and your diligent work on this matter. I pledge my support and help to
you in working on future legislation to ensure the privacy rights of
all Americans.
______
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
Good morning and thank you Mr. Tauzin for holding this hearing
today.
Two and one half years ago, when this subcommittee held its first
hearing on Internet privacy, many of us in Washington were just
starting to learn what the issue of online privacy was all about.
Consumers were just learning how companies collected information
from them and how the companies used it.
Businesses were just starting to become aware how important an
issue privacy was to their consumers and finally government was
starting to understand the public policy issues surrounding online
privacy and electronic commerce.
Looking back all those months, I think we have made great progress.
Consumers are more aware of how to protect their privacy as they go
online--whether through the use of new privacy protecting software or
by knowing what to look for in a privacy policy.
Businesses also understand how important it is for their customers
to feel safe, secure and private while online.
Industry groups like the Online Privacy Alliance have been working
on tough industry guidelines and they have made excellent progress
toward effective self-regulation.
But this said, there is still more for industry to do such as:
ensuring that consumers do have the choice to ``opt-out'' of providing
personal information and working with outside auditors to ensure
privacy policies are being adhered to and the consumers have recourse
if they believe their privacy has been violated.
I have said throughout this debate that I believe self-regulation
is a better approach than government regulation. Government regulation
by its nature is slower to respond than the marketplace and much less
flexible and could place a serious competitive burden on the dynamic
Internet economy.
Before I close, I would like to leave some advice for the future
Congresses that discuss and debate this issue.
My policy toward the Internet economy has been simple--``First do
no harm.'' It is a policy I hope that will continue in Congress and in
this Committee.
Privacy is a complex issue and Congress should not act hastily but
rather carefully and deliberately on this issue. Over-regulation of the
engine of growth of our economy would be foolhardy and imposing rigid
regulations that don't take into account new privacy protection
technology would be short sighted.
On that note, it is important to keep in mind that slightly
altering the current privacy restrictions can have a dramatic impact on
the business plans of Internet companies. Today, much of the
information on web sites is free, driven by advertising. Putting
burdensome privacy restrictions could fundamentally change this
structure and move us towards a pay-site world. We must be cautious. We
must know the effects of any changes that are proposed--not just on
privacy but also on Internet functionality and operations.
Thank you Mr. Tauzin and I yield back the balance of my time.
______
Prepared Statement of Hon. Gene Green, a Representative in Congress
from the State of Texas
Mr. Chairman: I want to thank you for holding this important
hearing on consumer privacy issues.
Mr. Chairman, as American consumers venture onto the Internet to
browse for information or to purchase one of the millions of products
available online, they do so with a belief that their time on the
Internet will be anonymous.
Unfortunately, that is not necessarily the case.
Sophisticated computer programs have been developed that allow
companies to track consumers as they surf the Internet.
What I find most disturbing about this practice is that the level
of detail that can be acquired about a consumer's personal habits and
preferences is staggering.
Fortunately, most of this data is still anonymous and is being
collected without the detailed personal information that would allow
direct marketers to bombard you at home with advertisements for
products you viewed while on the Internet.
However, the technology already exists to tie your name, address,
social security number, and other personal information traits to you
while you are online and that is where the true privacy battle must be
joined.
The Internet is a tool of convenience, but to use that tool
consumers should not be forced to relinquish their right to privacy.
I will introduce legislation today that allows e-businesses to
collect and compile customer information acquired through normal
business transactions so long as it is for internal use only.
This legislation will explicitly prohibit the anonymous tracking
and merging of personal data with site the individual has visited
online.
While I do not believe we can make shopping online as anonymous as
buying something at the mall with cash, that should be our goal.
I believe the fastest way to hurt the growth of the Internet is to
have American consumers lose faith in their ability to control their
personal information.
The FTC has taken a step in the right direction in outlining what
commercial Internet sites should consider having as a boilerplate
privacy policy.
The four FTC principals of notice, consent, access, and security
each are important components to ensuring online privacy.
It is my hope that in the next Congress we will begin to outline
the basic protections that all consumers can expect when they transact
business or just surf the Internet.
I commend the many e-businesses that have understood the need to
develop and update their privacy policies. These e-businesses are
responding to the concerns of their customers and are in turn
safeguarding their future business.
Mr. Chairman, I look forward to hearing from the witnesses and I
yield back the balance of my time.
______
Prepared Statement of Hon. Karen McCarthy, a Representative in Congress
from the State of Missouri
Thank you Chairman Tauzin and Ranking Member Markey for holding
this important hearing on recent developments in privacy protections
for consumers. It is vital that we address issues of consumer
protection and privacy in the information age to ensure that we are
providing the public with the security it needs and desires to deal
comfortably in the Internet marketplace.
Research done over the last several years indicates that consumers
are frustrated by the increase by website operators in gathering and
disseminating personal information, often without an individual's
knowledge. Technologies such as cookies and click streaming enable
website operators to collect personal information about visitors to
websites, then sell information regarding an individual's Internet
research. My constituents do not want their personal data collected by
either commercial or government websites.
I hope the panelists address what level of privacy individuals and
organizations can reasonably expect in our digital world. Consumers
want to be able to surf the Internet without having their viewing and
purchasing habits tracked. Marketers seek to better tailor their
advertisements as well as provide consumers with more personally
tailored products and services. We need to determine how to assure
privacy in a medium where incredible amounts of data reside.
I am looking forward to the testimony of witnesses today. I would
like to hear from all of them on what they believe the best way is to
strike a balance between the privacy desires of consumers and the
marketing desires of commercial website operators. Do all of the
witnesses believe that government must step in to establish minimum
protections as the Federal Trade Commission has suggested? Can industry
self-regulate itself? What do we do about bad actors in the system?
Should government websites be held to the same standard as commercial
websites?
It is my hope that both industry and government can reach a
consensus on what the best policies are to provide consumers with the
privacy protections they desire while giving online businesses the
ability to better tailor their marketing.
I am also interested to hear from the witnesses on the
implementation process for the Children's Online Privacy Protection
Act. Does the Federal Trade Commission need to revise some its rules
pertaining to the Children's Online Privacy Protection Act? Are the
concerns of children's website operators regarding their ability to
comply with the Act legitimate? Should Congress amend the law to
subject federal websites to the provisions of the Act?
Thank you Mr. Chairman. I yield back the balance of my time.
Mr. Tauzin. The Chair is now pleased to welcome our first
witness, indeed our good friend from the Judiciary Committee
who I think spends more time here than he does with his own
committee, the honorable gentleman from Virginia, Mr. Bob
Goodlatte. Bob, I spoke last night at midnight with your
Chairman, Mr. Hyde, and he was kind enough to get on the phone
with his staff last night and work out the final details of the
Firestone recall bill that we passed last night, and I again
wanted to thank all of you members of the Judiciary Committee
for the excellent cooperation your committee provided our
committee in resolving the technical areas of common concern in
the bill and for waiving referral to the Judiciary Committee.
Again, if you will extend my thanks on behalf of the
Commerce Committee to other members of the Judiciary Committee,
I would deeply appreciate it. As you know, the bill passed last
night and is now on the way to the Senate. Again, we are very
grateful for the work of our good friend Mr. Goodlatte on the
Judiciary Committee. You are recognized sir.
STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Goodlatte. Thank you, Mr. Chairman. I want to thank you
and other members of the Commerce Committee for similar
cooperation and coordination of legislation that these
committees share on many occasions, and you've been very
helpful to us. We very much appreciate that, and I will pass
your remarks to Chairman Hyde on to my colleagues on the
Judiciary Committee.
I also want to thank you for allow me to testify today. I
do want to know how many appearances are required before I can
get a guest member status, but I do very much appreciate the
opportunity to testify on this very important issue, which I
must also thank you for your leadership on this. You were very
instrumental in organizing the retreat which you have
referenced which Congressman Ehrlich, Chairman Bliley and
myself were privileged to cohost with you. I felt that it was a
very, very productive retreat for Republican Members, and while
this hearing is bipartisan in nature and we intend to work with
our Democratic friends on this issue as well, that retreat
which heard from experts in industry, academia and various
think tanks on this increasingly important issue, yielded I
think some very substantive results. I can say with confidence
that it was a success and I think members learned a great deal
about the issues. We discussed what the main privacy concerns
of our constituents are, including unsolicited direct mail
marketing, the collection of personal information on the
Internet, the disclosure of personal financial information by
financial institutions and identity theft and other criminal
uses of personal information for fraudulent purposes.
We also learned about the complexities of how information
is used by commercial entities and that any privacy legislation
needs to permit the beneficial uses of the information as well
as address consumer concerns. And finally, we learned that we
need to use a combination of tools to address privacy: 1)
targeted legislation that specifically identifies the harm we
are trying to regulate; 2) education to ensure consumers know
what their rights are and how to commercialize those rights; 3)
technological tools on the Internet to allow consumers to
control their information better; and 4) policies that
encourage and reward businesses for self-regulation and protect
consumer privacy at the same time that they extend enormous new
benefits to consumers by making valuable information available
to them. We also have to be careful not to increase identity
theft and fraud by making information unavailable to businesses
and law enforcement to detect and stop crime.
I also want to recognize and thank my colleague from
Virginia, Congressman Boucher, for his dedicated hard work on
this issue. We are, as you well know, the cochairs of the
Congressional Internet Caucus, and with the hard work of
Congressman Boucher the Caucus has sponsored a number of
privacy-related activities and events in recent years,
including several public policy forums, a technology
demonstration of the latest privacy technologies, and a
briefing book for Members that outlines various positions on
the issues of online privacy.
As my colleague mentioned, the Caucus will continue to be
active on this issue after we adjourn this year. Earlier this
year I had the opportunity to lead a congressional delegation
along with Congressman Boucher that was attended by several
members of the Commerce Committee, including Congressman
Gordon, Congressman Stearns, and Congressman Pickering, in
which we had the opportunity to testify before the European
Parliament on the issue of privacy as relates to electronic
commerce.
As a part of that testimony, we promoted the efforts to
coordinate privacy policy with the European Union, something
that, as you know, is vitally important and something that
hasn't been mentioned thus far today but is also important
looking toward our States as well. We have a great concern that
if we have 50 different State privacy policies enacted by our
State legislatures, many of which are very active on this issue
today, as well as differing privacy policies around the world,
we will have an unworkable situation on the Internet. And so
the effort to promote the safe harbor that allows U.S.
companies to do business in Europe by meeting certain
standards, while not requiring the United States to pass
legislation that may be contrary to our interest and the intent
of the majority of the Members of Congress, is vitally
important.
It is also important to recognize the contribution that
industry has made because substantial progress has been made in
the area of self-regulation. At this time, the vast majority of
Internet sites of major businesses have good, solid privacy
policies that are enforced by those companies, and that
progress which would indicate that, for example, of the top 100
web sites in the country, they have improved from 71 percent
having a privacy policy to now better than 95 percent is
progress, but obviously more work needs to be done in this
area.
Mr. Chairman, you have noted the substantial progress we
have already made in a number of targeted areas dealing with
children's privacy, financial privacy, and medical privacy. I
think that is the type of approach that we should continue to
pursue, not a shotgun approach, but a targeted approach to
where the problems exist. We believe that through private
initiative and this targeted Federal action, we have been
making and will continue to make substantial progress toward
achieving balance, toward ensuring adequate consumer
protection, encouraging the development of electronic commerce.
As we look ahead, obviously bipartisan support is vital.
And I am pleased to hear so many Members on each side of the
aisle commit to that, because that is exactly what is called
for. There have been several legislative proposals introduced
and considered in the Congress this year, and it is unlikely
they will see any of them enacted into a general online privacy
law this year. That is a good thing, that is not a bad thing.
And I know there have been those who have been pushing for us
to take action before we adjourn this year, but quite frankly
the Congress must approach the issue of comprehensive online
privacy information in a careful and deliberate manner, and
that is exactly what we are doing with your leadership here
today.
Last, I want to say a little bit more about what
Congressman Boucher mentioned, and that is the desire of the
Internet Caucus to work with you and other Members of the
Congress as we brainstorm, if you will, for ideas on this work
in this direction. And I do think Congressman Boucher has
outlined the shape of a very good potential piece of
legislation, very similar to what came out of the privacy
retreat which we host, and we are moving toward that kind of
consensus; but during the time between now and when the
Congress reconvenes in January, there is much work to be done,
and the Internet Caucus intends to be a part of that by
coordinating a working group of Caucus members and others to
develop a statement of principles on Internet privacy.
This working group will consist of any member of the Caucus
or others who are interested in the issue of online privacy,
will work informally from now until the new Congress convenes
in January to outline those areas the Caucus deems important to
address in any legislative initiative. And Members who have
been leaders on privacy issues from both sides of he aisle and
both sides of the Hill, from Congressman Asa Hutchinson to
Senator Ron Wyden we hope will be actively involved in the
working group. And we are also hopeful that by working in a
bipartisan manner, we can contribute to the process which will
begin in your committee, and to ensure that all Members of the
House, including new Members who are still looking for
information, are prepared to act on any legislation that is
considered in the early part of this year. I thank you again
for the opportunity to testify today and look forward to
continuing to work with you.
Mr. Tauzin. Thank you, Mr. Goodlatte.
Let me first of all--you mentioned Asa Hutchinson. I wanted
to state publicly our concern about Asa's bill to create a
commission, which many members of this committee voted against,
was not, of course, that we don't do an awful lot of work done
on this issue and, as you pointed out, perhaps even some
legislation next year, but it was our concern that this work
ought to be done by Members of Congress rather than some
commission. And Asa and I have had many discussions about that.
Our opposition was simply that it was a job we had to do and we
needed to get about doing it.
Second, I think you will recommend to our good friends on
this side of the aisle the experiences of the Lansdowne
conference. I know the Chamber Foundation has agreed to conduct
a similar treatment for Members of the Democratic Conference or
Caucus.
Let us talk about the Lansdowne conference quickly, Bob.
First of all, it rained all weekend, so everybody had to listen
to each other, which was pretty good after all the meetings,
all the panels, which included, as you pointed out, members of
industry, academia, think tanks, consumer representatives.
After everybody had a chance to listen to one another, wasn't
there a major shift in the conference opinion by the time we
left the early morning sessions on the first day until the last
session, and didn't that shift represent a sort of major
redefining of our mission bearing on privacy?
Mr. Goodlatte. I think there was definitely a coming
together of ideas. And speaking about Asa again, one of the
reasons why I also did not vote for his legislation was, in
addition to the fact that Congress needs to address this, I
think the speed with which we need to address it is upon us;
and therefore, some might take the establishment of a
commission that would last for some lengthy period of time as a
putting off of addressing this, and I don't think we should do
that. And I think that one of the things that came out of that
conference was that we need to act in a comprehensive manner
and we need to do it in such a way that sets a minimum
baseline. There is an opportunity for legislation here that
promotes self-regulation.
Mr. Tauzin. Let us talk about some of the issues the
conference highlighted. One of them was harmonizing various
privacy laws. The conference--I noted the fact that in some of
the State legislatures of our land, there were as many as 200
bills filed. I know most of them didn't pass, but there is a
lot of activity going on in State legislatures to establish
privacy rights that may be very different from one another and
may create some very different laws, all set on top of an
Internet interstate-international commerce question, and would
you address that quickly for us?
Mr. Goodlatte. Well, I think we have an international
problem here. We have to start by having our own house in order
in the United States.
And the chairman is absolutely right. One of the things
that I mentioned earlier that came out of the conference was
the need to have Federal legislation. To avoid having 50
different States have 50 different privacy policies that are
inevitably going to conflict with each other in a company
attempting to do business in interstate commerce on the
Internet is going to have to have a consistent policy. I mean,
you can't have a web site which has two conflicting
requirements on it, much less perhaps 50 different States with
a multitude of different components of regulation that could
collectively make it a totally unworkable proposition,
particularly for a small business that wants to do something to
supplement their bricks-and-mortar business with some Internet
business and suddenly find that they have an enormously
impossible task of complying with regulations. So we need to
come up with something simple and understandable and
comprehensive that everyone can comply with and avoid this
problem.
Mr. Tauzin. We also ran into the question of various
Federal agencies adopting privacy policies that may or may not
be in conflict with one another or in conflict with those State
laws and businesses that have to comply with more than one
agency privacy policy that may be different from one another.
And the question was, do we need to focus on harmonizing the
Federal standards as it applies to private businesses doing
business with the Federal Government?
Mr. Goodlatte. Well, I think that is absolutely correct.
And we have to make sure the Federal Government itself, as you
noted earlier, is setting the example of protecting the privacy
of consumers and not abusing already existing laws much less.
Mr. Tauzin. Finally, we are going to hear from the GAO
about the various tests by which web sites are judged or rated,
and we will hear from the FTC about how well privacy is being
protected in the private commercial sites of America and we
will learn that there are always going to be some bad actors,
some bad players. Can we trust on privacy to be totally
protected by private sort of self-policing organizations, or
will we need some minimum standard by which--or something that
applies to those sites that refuse to be members of self-
policing organizations?
Mr. Goodlatte. We are always going to have, of the millions
of commercial web sites, some that are going to, either through
neglect or through deliberate desire to misuse consumers'
privacy, abuse this process in very unacceptable ways that are
going to harm consumer confidence in the entire Internet. And
therefore it seems to me that legislation should include a
baseline standard to go after those outliers who are not going
to meet that standard.
When we do that we have to be very, very careful that we
don't get into the idea that we should dictate the minutia of
how businesses protect privacy of consumers when we have, in
fact, a long history, as you cited, of useful information being
made available to consumers through businesses.
Mr. Tauzin. Finally, Bob, I want to ask one thing of you,
the Internet Caucus. If you don't mind, I would very much
appreciate if before we get to this matter next year, if you
would perhaps cohost with us a technology demonstration for all
Members of the Congress to see the new technology in privacy.
At the Lansdowne conference we saw some new software, some new
hardware, some new IP systems by which consumers can and will
be able to protect themselves from sites that might be
negligent or intentionally damaging to their privacy, and I
think a demonstration of all those new technologies would
probably help us understand what needs to be done in law and
what can be taken care of in technology and self-policing.
So I would ask of you that consideration of perhaps some
sort of technology demonstration for our committee, perhaps in
union with the Internet Caucus perhaps next year.
Mr. Goodlatte. We would be delighted to work with you to do
just that. We have hosted some similar demonstrations and, you
know, it is a hard time reaching so many Members of Congress
who have such busy schedules, so continuing to do that and
perhaps in conjunction with the committee here, tap a committee
room or something.
Mr. Tauzin. They could come or we threaten to release their
private information.
Mr. Boucher is recognized.
Mr. Boucher. Well thank you, Mr. Chairman. And let me echo
the comments of Mr. Goodlatte about our willingness through the
Internet Caucus to integrate our activities more closely with
those of this subcommittee, both in terms of conducting
demonstrations and perhaps also in terms of having panel
discussions that are apart from the formal hearing process and
through other ways collaborating in the development of good
policy.
I want to commend Mr. Goodlatte on his superb statement
here this morning, I will note in passing that I am not a
particular fan of partisan retreats, so you will not be
surprised if the Democrats do not accept the invitation to have
a purely partisan retreat. I tend to think that the best policy
is made in a bipartisan fashion, but I am very pleased that
tremendous pub members gained education from the retreat that
they had.
Mr. Tauzin. Would the gentleman yield?
Mr. Boucher. I will be pleased to yield.
Mr. Tauzin. Did I notice sarcasm there?
Mr. Boucher. Oh, no, Mr. Chairman there was no sarcasm; the
statement speaks for itself.
Mr. Goodlatte, I enjoy very much the visit that we paid to
the European Parliament in February of this year and I am glad
that you mentioned that. I thought it was an informative
exchange on both sides. We did have, as Mr. Goodlatte
indicated, the opportunity to testify before the European
Parliament on the concerns that we have on this side of the
ocean about privacy protection.
At that time we strongly encouraged the formation of a safe
harbor agreement which subsequently was negotiated. I am not
sure we can claim much credit for, but we certainly endorsed
the concept, and I was pleased to hear Mr. Goodlatte mention
this morning that that safe harbor arrangement between the
United States and the European Union is in the nature of a
foundation. It is a minimum set of guarantees; it is in the
nature of a floor. And it is anticipated that the privacy
understandings between the U.S. and the European Union evolve
over time.
And I would ask Mr. Goodlatte if he agrees that adopting a
set of guarantees as national policy here in the United States
that would assure the privacy protection of those who are using
the Internet and visiting web sites, whether commercial or
governmental, would be in keeping with the spirit of the safe
harbor agreement between the U.S. and the European Union and
would serve to strengthen that agreement to the mutual benefit
of U.S. citizens and European citizens alike.
Mr. Goodlatte. Well, I say that the legislation that you
and I introduced earlier and which is a shorter form of
legislation that I know that the chairman and others have been
formulating in their thinking process would provide such a
baseline standard of guarantees. But we have to be careful that
we don't try to, I think, micromanage that as the Europeans
have done. I think that the purpose of that safe harbor is to
allow us to take our course of action and to continue to
promote privacy in a way very different than the way that the
European Union has taken that approach of basically an opt-in
policy, in fact, and opt in each time somebody wants to use
information. And I would say that that would be the wrong
direction to head.
If I might give an analogy to other areas: If I go into a
men's clothing store that I frequent every year in Roanoke
Virginia--the gentleman is probably familiar with it--and they
were to remember that I wear a size 40 suit and I like a
particular brand of suit and so on--I am giving away a lot of
privacy information--and he happens to remember that either in
his head or by writing it down on a little card and keeping it
in the back room, so when I come in again, he tells me about a
special sale they have on this particular type of suit and
pulls out the size 40 or goes directly to size 40 to see what
they have in that stock, I am not in the least bit offended by
that.
And I am also not offended if I go online to Amazon.com or
BarnesandNoble.com and the first screen pops up and says,
``Welcome, Mr. Goodlatte. We know that you are interested in
biographies and we have a new biography that we think that you
might be interested in.'' That to me is a value to consumers,
in fact, in some areas like purchasing airline tickets, you are
also notified of a potential reduced rate on a particular hotel
room notary public in the city that you are going to. I think
most consumers would appreciate having that information and
they should have the opportunity to opt-out if they don't like
that. But I don't think we should get into the business of
cutting people off from that, and I think that is the effect of
the policy in Europe that we need to steer away from.
Mr. Boucher. Well Mr. Goodlatte, thank you very much. In
the interest of time, I am going to stop with this. But I do
want to thank you once again for being here this morning. We
always enjoy having you before this subcommittee and hope that
you will return.
Thank you, Mr. Chairman.
Mr. Tauzin. The Chair asks unanimous consent, by the way,
that all members' written statements be made a part of the
record, including those of our witnesses. Is there any
objection? Without objection so ordered.
The gentleman from Maryland first, Mr. Ehrlich.
Mr. Ehrlich. I yield my time, Mr. Chairman.
Mr. Tauzin. The gentleman from California, Mr. Cox.
Mr. Cox. Thank you. I just want to welcome my colleague,
Mr. Goodlatte, and likewise thank you for your informed
statement on this and all of the hard work and study that you
are putting into this subject. I would like to ask you because
of your role also as a member of the Judiciary Committee,
whether or not you think that it would be possible to improve
choices for consumers and protections for consumers by using
property rights in personal information as the means by which
we regulate as individuals the information sharing that goes on
both over the Internet and in other forms of commerce.
I want to stress, too, that I hope we can think about this
in nontechnologically bound terms, because while the Internet
is certainly today's medium, the Internet wasn't around a few
years ago and it may not be around in recognizable form some
years from now. Catalog sellers have collected financial
information long before there was an Amazon.com. Direct
marketers have bought lists of names and mailing addresses long
before there was e-mail. Americans have used the white pages to
look up people's names and phone numbers long before search
engines like People Finder were around. So in that sense, what
the Internet has done is simply to improve vastly the
efficiency and reduce the expense of this kind of data
collection and dissemination, and that development has brought
into sharp attention the longstanding tension between the
desire for privacy on the one hand and the benefits of
dissemination of information on the other.
So my question is whether or not as a consumer I shouldn't
have the opportunity to take advantage, as you have said, of
the opportunities to benefit, in many cases, from sharing my
personal information. But if I am a consumer who just disagrees
with you and, you know, what suit size I wear is nobody's
business but my own, and that may be good for Goodlatte, may be
good for Cox, but it is not good for me, the consumer, you
know, should I have that choice? And can we do this, therefore,
on market basis, on an individual basis, and give people
property rights in the form of laws that we might pass here
that would permit them in essence to license this information,
sometimes for free or nominal cost, sometimes just for the
benefits of whatever it is that they would be getting over the
Internet, as a means of implementing this because--but I will
just leave it to you to think about it and answer it--because I
so fundamentally agree with what you said about the need for
some predictability and uniformity. In the sense that we don't
want to have all of these different privacy regimes in place
and so some uniformity with a national rule might be useful,
isn't it true that if you had a one-size-fits-all policy, that
the downside of that is that it might not satisfy consumers,
that the consumers come in a lot of different shapes and sizes,
that is what markets are all about; what you really want are
neutral rules of universal application that permit the maximum
amount of flexibility so we can all have our own privacy
policies. And the Cox privacy policy might be different from
the Goodlatte privacy policy, which might be different from the
privacy policy of every member of the panel, but what is the
same is the law that gives us the right to choose and to
enforce our choice in a legally binding way so that everybody
leaves a market-based transaction happy because they chose the
result, and so that we avoid the problems with government
mandates which are almost impossible for everyone to leave
happy because it is forced on everyone whether they like it or
not.
Mr. Goodlatte. Well, I think you make a very interesting
observation. In fact, I think everyone does have their own
privacy policy. If I don't like the fact that the fellow
remembers my suit size and so on, I will go to another store
the next time around. And similarly with other types of
information. If I don't want to be listed in the phone book, I
will asked to be deleted. And if there is an abuse of that
information, I think we do need to set the policy to give the
consumer that right so that, for example, when you go into a
store or go to visit a web site, and that web site has
information about me that they might want to use to give me
more information, that is different than if that web site takes
that information and sells it to somebody else. I need to have
the opportunity to know that and make a decision about whether
or not I want to deal with somebody who is going to turn around
and share that information with somebody I may not want to have
it shared with.
Now, there are lots of new technologies that are enabling
people to establish that personal privacy policy and fine-tune
it to their own preferences. P3P for example is a new
technology that is growing in its use on the Internet that
allows you to set your computer so that when you visit a web
site it will tell you whether or not that web site has met
certain privacy policies based upon your own criteria that you
devise at the outset and will warn you that this site does not
meet all of those criteria and therefore you can leave the site
if you don't want to participate in the standard that they
have, or you can let them know you don't agree with their
standard and negotiate with them to change that policy as they
deal with you.
But I think that should be a part of the opportunity not
only of each consumer but each business to negotiate as a part
of their doing business with you. But when they take that to
the next step of taking that information beyond their own usage
of it because, after all, the transaction that took place in
the past between you and them is information that both you and
they share in ownership, but if they even attempt to turn
around and sell that to somebody else or give it to somebody
else for whatever reason, I think you need to have the
opportunity to avoid that if you don't want to.
Mr. Cox. Can I ask you to comment just briefly on the other
part of that question, which is whether it is possible to use
property rights as the basis for enforcing this regime of
privacy protection and information sharing and apply it across
all technologies, pen and ink, typewriter, telephone, U.S.
mail, the Internet, whatever it is going to be; we write a law
that says you have these protections, you have these rights,
businesses also have rights and ways to conduct themselves,
they are all clear in advance and aren't dependent upon the
Internet?
Mr. Goodlatte. Well, framing it as a property right, I
think we have laws that do that to a certain extent today, but
in limited areas like intellectual property and so on. Whether
you can take that beyond that is a good thinking tool, I guess,
as we move forward to address this. But it would be, I think, a
major change in policy to try to write every use of every piece
of information about anybody that cannot be known; there are
lots of things we pick up by looking around this room.
Mr. Cox. To the contrary, what I would have in mind is
simply by clarifying that people can do whatever they want, you
would have the maximum freedom to exchange information, but
also individuals would have the maximum opportunity if they
chose not to participate in that regime to pick something else.
Mr. Goodlatte. I think that is the direction we are headed
in an opt-out policy here.
Mr. Cox. Can you extend that to life on the planet as
opposed to just the Internet?
Mr. Goodlatte. Well, we I think should certainly consider
that as we move forward, if it is necessary and appropriate, to
make sure that we are not singling out the Internet.
Mr. Cox. I think if we could do that, that would be ideal,
because I worry about law, however well intended, will end up
discriminating against the Internet. We need to recognize that
some of this transcends the technology and a lot of these
things have been going on for an awfully long time.
Mr. Goodlatte. We also have some laws in those other areas
that in a new technology we need to make sure that those same
protections exist there. I think our objective is the same, but
also important is how we achieve it----
Mr. Cox. Thank you, Mr. Chairman.
Mr. Tauzin. The Chair recognizes Mr. Sawyer for a round of
questions.
Mr. Sawyer. Thank you, Mr. Chairman. I am grateful for the
work that both of the gentlemen from Virginia have done, not
only within this Congress but internationally. I think the work
that you have done internationally may be even more important
than the work that has taken place here, as important as it may
have been.
I was interested in your tailor analogy. My tailor has gone
one step beyond yours. He has been able to project trend lines.
I came in when I was in the legislature at 38 and then when I
was mayor it was 40, and now as a Member of Congress it is 42.
I am stunned by his ability to anticipate such things.
Mr. Tauzin. He has an inflated view of your potential.
Mr. Sawyer. I was out of the room for a moment.
Am I correct in hearing the tail end of your comment to the
gentleman from California, you believe that there ought to be a
distinction between information gathered for the internal use
of a vendor of a service and that which is subsequently offered
for sale for profit to others?
Mr. Goodlatte. I think that there needs to be a standard
set that allows people to know if that information is going to
be used for other purposes to give them the opportunity to opt
out. That is one of the things that Congressman Boucher
outlined in potential legislation that I think would promote
the Internet, at the same time make sure that consumers are
aware of some of the risk and misuse of their information.
Mr. Sawyer. Might that be an important point of distinction
between opt-out and opt-in?
Mr. Goodlatte. It is the opportunity to find out whether
the information is going to be used for those purposes and
choose not to do business with that company or have the company
agree that in dealing with you they will not use the
information for that purpose.
Mr. Sawyer. Let me touch on the subject that you and Mr.
Boucher talked about in terms of the work which has been done
with the European Union. Clearly that is only one arena where
this kind of problem will arise in a global market. To what
degree do you believe this has served as a template for broader
negotiations, and how would you propose to go about doing it?
Mr. Goodlatte. We have such widely divergent approaches to
consumer privacy on the Internet that it only works in the
intermediate term, if you will.
Mr. Sawyer. You are rather answering my second question.
Mr. Goodlatte. Let me say----
Mr. Sawyer. There are huge cultural differences between the
United States and Europe in terms of their government-business
relationship.
Mr. Goodlatte. There are, and the Internet is probably the
greatest challenge to the sovereignty of states and nations to
insist on a particular format or standard. I think we need to
continue to work with parts of the world that have taken the
lead in addressing this issue, like the European Union, with
whom we may have substantial disagreement, and attempt to forge
a workable solution to that, and also show more leadership in
the United States as we continue to evolve this policy so that
then as other countries in the world begin to address this, we
can have some influence over that process. Again, we will have
the same problem with 150 nations around the world as we do
with 50 States in the United States attempting to have
different privacy policies.
Mr. Sawyer. Or 18 members of the European Union. I yield
back the balance of my time.
Mr. Tauzin. I thank the gentleman. The gentleman, Mr.
Luther, is recognized.
Mr. Luther. Mr. Chairman, thank you. I will pass.
Mr. Tauzin. Ms. McCarthy.
Ms. McCarthy. I thank both gentlemen from Virginia for
their efforts to raise and resolve this very important issue;
and, Mr. Chairman, I would like to reserve my questions for the
panelists who are coming.
Mr. Tauzin. Thank you. Mr. Green from Texas.
Mr. Green. Thank you, Mr. Chairman. I have one question
that I would like to ask our colleague. I know that you
mentioned beneficial uses earlier and data collection and I
want to echo your comments. I think we in Congress must be
careful not to restrict legitimate business practices.
One of the concerns that I have on data collection, do you
believe that Congress should prevent third parties from trying
to collect an individual's anonymous web site visits with that
individual's personal information? Now we are hearing new
technology like this being developed every day. One time it was
cookies, you didn't accept that, but now there is other
technology that the individual user may not know. Again, it is
hard to write laws to stop this type of practice when
technology can change from day to day and week to week. I would
appreciate a comment on third parties tracking someone who may
not have a business relationship with that entity.
Mr. Goodlatte. I think that is a very great concern and we
have in our Constitution protections against governments doing
that in our Fourth Amendment, and we certainly should have
protections against other individuals who are not engaged in a
transaction with you using some technological device to track
your activities and gather information about you without your
knowledge or approval. I think that is a serious problem.
I think quite frankly that some existing laws and
regulations enforced by the FTC give some protection in that
area, but we need to continue to look at that. We also need to
have the kind of spotlight on that activity that has, I think,
been effective thus far in pointing out some entities that have
stepped over the line on the Internet, and there has been an
outcry, and if they are a reputable business they have backed
away from some of these things. That is good and important.
So in addition to disclosure to individuals, we also have
to have prohibitions in any law that we write that say if you
are gathering information about somebody without their
knowledge and not disclosing that to them, that there is a
consequence to doing that.
Mr. Tauzin. I thank the gentleman. The Chair again wishes
to thank our friend for his patience and again we pledge to
work with him in the next Congress where we can continue this
dialog and eventually a resolution on some of these issues.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Tauzin. We welcome our second panel. I want to preface
the second panel with an explanation that the second panel will
discuss with us findings of several reports, the Horn report,
the Lieberman report and the recent GAO report done at the
request of Mr. Armey and myself insofar as it covers the
Federal web sites and the status of the Federal web sites.
In prefacing this panel, I want to read the results of that
GAO report in brief. As of July 2000, all of the 65 web sites
in our survey conducted by GAO, collected personal identifying
information from their visitors. 85 percent of the sites posted
a privacy notice. That means 15 percent did not. The majority
of these Federal sites, 69 percent, also met the FTC's criteria
for notice, which implies that 31 percent did not. However, a
much smaller number of sites implemented the three remaining
principles of the FTC: Choice, 45 percent; access, 17 percent;
and security, 23 percent. Few of the Federal sites, 3 percent,
implemented elements of all four of the FTC's fair information
principles. Three percent implemented elements of all four of
the FTC's fair information principles. Finally, a small number
of sites, 22 percent, disclosed that they may allow third party
cookies. Fourteen percent actually allowed their placement.
That is 14 percent of the sites surveyed by GAO indicated that
they allowed placement of cookies on the Federal web sites.
In fact, we learned in the news today that the White House
itself discovered that it permitted the collection of
information through a cookie system and has ordered it to be
dismantled. Where is that notice? I want to refer to it so that
everybody can see that this is a real problem. This is a story
on the web today, White House on cookies, dah. Cookie dough, I
guess. After being chastised by watchdog groups, the White
House has issued an order to all Federal departments and
agencies, no more cookies. The White House was embarrassed last
week by the revelation that it used cookies, bits of consumer
code, that track and record users' movement across web sites,
on some of its web sites, violating its own privacy policies,
and possibly violating Federal privacy laws. Check it out on
the web entitled White House on cookies, dough, Wired News
report.
I am pleased to welcome Linda Koontz, Director, Information
Management Issues, U.S. General Accounting Office, Ms. Sally
Katzen, Deputy Director for Management, OMB; and Mr. Roger
Baker, Chief Information Officer, Department of Commerce, who
chairs a privacy subcommittee of the Chief Information Officers
Council.
We welcome our first witness, Linda Koontz. Remember, your
written statements are a part of our record. Please summarize
your comments and then open yourself up to a dialog with us on
some of the issues that we have discussed today.
Let me thank the GAO on behalf of Mr. Armey and myself and
this subcommittee for conducting the survey. That information
combined with the Lieberman and Horn reports is again the basis
of this panel's discussion. We will begin with Linda Koontz.
STATEMENTS OF LINDA D. KOONTZ, DIRECTOR, INFORMATION MANAGEMENT
ISSUES, U.S. GENERAL ACCOUNTING OFFICE; SALLY KATZEN, DEPUTY
DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND
ROGER W. BAKER, CHIEF INFORMATION OFFICER, U.S. DEPARTMENT OF
COMMERCE
Ms. Koontz. Mr. Chairman, thank you for inviting us to
discuss online privacy, a subject which has emerged as one of
the key and most contentious issues surrounding evolution of
the Internet. My testimony today will discuss the findings in
our recent report on Internet privacy, which is based on the
survey of Federal web sites that we conducted at your request
in July 2000.
Specifically, you asked us to determine how Federal web
sites would fare when measured against the FTC's fair
information principles for commercial web sites. These
principles are: Notice. Data collectors must disclose their
information practices before collecting personal information
from consumers.
Choice. Consumers must be given options with respect to
whether and how personal information collected from them may be
used for purposes beyond those which the information was
provided.
Access. Consumers should be able to view and contest the
accuracy and completeness of data collected about them.
And security. Data collectors must take reasonable steps to
ensure that information collected from consumers is both
accurate and protected from unauthorized use.
Using the methodology that the FTC developed to evaluate
commercial web site privacy disclosures, we analyzed a sample
of 65 Federal web sites to determine whether they collected
personal information such as name, address, e-mail; and if so,
whether the sites included disclosures to indicate that they
met the fair information principles. We did not try to
determine whether the web sites actually followed their stated
policies.
I should note that Federal agencies are not required to
follow FTC's fair information principles, but instead are
subject to the requirements of law such as the Privacy Act and
guidance issued by the Office of Management and Budget. In
addition, FTC staff expressed concern about our use of the
methodology stating that there are fundamental differences
between Federal and commercial web sites which in their view
make the methodology inappropriate for use in evaluating
Federal web site privacy policies.
You have already summarized very accurately what our
findings were in this report, so I will conclude my statement
here and I will be happy to answer any questions that you have
at the end of the panel.
[The prepared statement of Linda D. Koontz follows:]
Prepared Statement of Linda D. Koontz, Director, Information Management
Issues, GAO
Mr. Chairman and Members of the Subcommittee: Thank you for
inviting us to discuss the privacy policies of selected federal web
sites and their conformity with the Federal Trade Commission's four
fair information principles--Notice, Choice, Access, and Security.
After providing brief background information including an overview of
the laws and guidance governing on-line privacy of federal web sites,
my testimony today will discuss the findings in our recent report on
Internet privacy which is based on the review we conducted at your
request in July and August 2000.1
---------------------------------------------------------------------------
\1\ Internet Privacy: Comparison of Federal Agency Practices With
FTC's Fair Information Principles (GAO/AIMD-00-296R).
---------------------------------------------------------------------------
As you know, on-line privacy has emerged as one of the key--and
most contentious--issues surrounding the continued evolution of the
Internet. The World Wide Web requires the collection of certain data
from individuals who visit web sites--such as Internet address--in
order for the site to operate properly. However, collection of even
this most basic data can be controversial because of the public's
apprehension about what information is collected and how it could be
used.
You asked us to determine how federal web sites would fare when
measured against FTC's fair information principles for commercial web
sites. In applying FTC's methodology, we analyzed a sample of 65
federal web sites to determine whether they collected personal
identifying information, and if so, whether the sites included
disclosures to indicate that they met the fair information principles
of Notice, Choice, Access, and Security. We also determined the extent
to which these sites allowed the placement of third-party cookies
2 and disclosed to individuals that they may allow the
placement of these cookies. We did not, however, verify whether the web
sites follow their stated privacy policies.
---------------------------------------------------------------------------
\2\ A cookie is a small text file placed on a consumer's computer
hard drive by a web server. The cookie transmits information back to
the server that placed it, and, in general, can be read only by that
server. A third-party cookie is placed on a consumer's computer hard
drive by a web server other than the one being visited by the
consumer--often without the consumer's knowledge.
---------------------------------------------------------------------------
I should note that FTC staff expressed concern about this use of
their methodology, stating that there are fundamental differences
between federal and commercial web sites which, in their view, make
FTC's methodology inappropriate for use in evaluating federal web site
privacy policies. For example, an agency's failure to provide for
Access or Choice on its privacy policy may reflect the needs of law
enforcement or the dictates of the Privacy Act or other federal
statutes that do not apply to sites collecting information for
commercial purposes.
As of July 2000, all of the 65 web sites in our survey collected
personal identifying information 3 from their visitors; 85
percent of the sites also posted a privacy notice. A majority of these
federal sites (69 percent) met FTC's criteria for Notice. However, we
found that a much smaller number of sites implemented the three
remaining principles--Choice (45 percent), Access (17 percent), and
Security (23 percent). Few of the federal sites--3 percent--implemented
elements of all four of FTC's fair information principles. Finally, a
small number of sites (22 percent) disclosed that they may allow third-
party cookies; 14 percent actually allowed their placement.
---------------------------------------------------------------------------
\3\ Information used to identify or locate an individual, e.g.,
name, address, e-mail address, credit card number, Social Security
number, etc.
---------------------------------------------------------------------------
BACKGROUND
Concerned about the capacity of the on-line industry to collect,
store, and analyze vast amounts of data about consumers visiting
commercial web sites, the FTC reported in May 2000 on its most recent
privacy survey of commercial web sites. The survey's objective was to
assess the on-line industry's progress in implementing four fair
information principles which FTC believes are widely accepted.
Notice. Data collectors must disclose their information
practices before collecting personal information from
consumers.
Choice. Consumers must be given options with respect to
whether and how personal information collected from them may be
used for purposes beyond those for which the information was
provided.
Access. Consumers should be able to view and contest the
accuracy and completeness of data collected about them.
Security. Data collectors must take reasonable steps to ensure
that information collected from consumers is accurate and
secure from unauthorized use.
In addition, the survey looked at the use of third-party cookies by
commercial web sites. Although FTC noted improvement over previous
surveys, it nonetheless concluded that the on-line industry's self-
regulatory initiatives were falling short. As a result, a majority of
the FTC commissioners, based on a 3 to 2 vote, recommended legislation
to require commercial web sites not already covered by the Children's
Online Privacy Protection Act (COPPA) 4 to implement the
four fair information principles.
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\4\ 15 U.S.C. 6501 et seq. The provisions of COPPA govern the
collection of information from children under the age of 13 at web
sites, or portions of web sites, directed to children or which have
actual knowledge that a user from which they seek personal information
is a child under 13 years old. These provisions took effect April 21,
2000.
---------------------------------------------------------------------------
While the FTC's fair information principles address Internet
privacy issues in the commercial sector, federal web sites are governed
by specific laws designed to protect individuals' privacy when agencies
collect personal information. The Privacy Act of 1974 is the primary
law regulating the federal collection and maintenance of personal
information maintained in a federal agency's systems of
records.5 The act provides, for example, that (1) agencies
cannot disclose such records without the consent of the individual
except as authorized by law, (2) under certain conditions, individuals
can gain access to their own records and request corrections, and (3)
agencies must protect records against disclosure and loss. While these
requirements are generally consistent with FTC's fair information
principles, the act's specific provisions limit the application of
these principles to the federal government. Specifically, the Privacy
Act applies these principles only to information maintained in a system
of records and contains exceptions that allow, under various
circumstances, the disclosure and use of information without the
consent of the individual. On June 2, 1999, OMB provided additional
guidance on Internet privacy issues in Memorandum M-99-18, directing
agencies to post on principal federal web sites privacy policies that
disclose what information is collected, why it is collected, and how it
will be used. In a separate report issued earlier, 6 we
evaluated selected federal web sites' privacy policies against certain
aspects of applicable laws and guidance, and included a comparison of
the Fair Information Principles and the Privacy Act. We also have
ongoing work--which we intend to report on later this year--addressing
in greater depth the use of cookies on federal web sites.
---------------------------------------------------------------------------
\5\ A system of records means a group of any records under the
control of any agency from which information is retrieved by the name
of the individual or by some identifying number, symbol, or other
identifying particular assigned to the individual.
\6\ Internet Privacy: Agencies' Efforts to Implement OMB's Privacy
Policy (GAO/GGD-00-191, September 5, 2000.
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SCOPE AND METHODOLOGY
As you requested, we used FTC's methodology to provide a snapshot
of the privacy practices of two groups of web sites operated by
executive branch agencies compared to the fair information principles.
We reviewed a total of 65 sites during July 2000. One group consisted
of web sites operated by 32 high-impact agencies, which handle the
majority of the government's contact with the public.7 A
second group consisted of web sites randomly selected from the General
Services Administration's (GSA) government domain registration
database.8 This group consisted mostly of web sites operated
by small agencies, commissions, or programs. Finally, at your request,
we assessed the FTC web site itself. (For the purpose of our analysis,
the FTC site was added to the sites operated by the 32 high-impact
agencies.)
---------------------------------------------------------------------------
\7\ According to the National Partnership for Reinventing
Government, these agencies handle 90 percent of the federal
government's contact with the public.
\8\ Our random sample was not large enough to project to the
universe of federal web sites.
---------------------------------------------------------------------------
In conducting our survey we generally followed the FTC methodology,
including the selection of similar groups of web sites and the use of
its data-collection forms and analytical techniques. We requested--and
received--training from FTC similar to that provided to staff who
collected and analyzed its survey information. Our staff underwent 2
half-days of training by FTC staff on its methodology and content
analysis procedures for commercial web sites.
We visited the web sites in our samples from July 12 through July
21, 2000. We reviewed the web pages within the site--for up to a time
limit of 15 minutes--to determine whether the site (1) collected any
personal or personal identifying information, (2) posted a privacy
statement, information practice statement, or disclosure notice, (3)
provided individual access to and choice regarding use of the
information, and (4) provided security over the information. We also
looked for the placement and disclosure of third-party cookies.
FEDERAL WEB SITES SURVEYED COLLECT PERSONAL DATA BUT VARY IN DEGREE OF
CONFORMITY TO FTC PRINCIPLES
We found that all of the 65 web sites surveyed collected personal
identifying information from their visitors. Most sites--85 percent--
posted a privacy notice. However, they varied in the extent to which
they provided Notice to consumers, allowed consumers Choice and Access
regarding their information, disclosed that they provided Security for
the information provided, and allowed and disclosed the placement of
third-party cookies.
Using the same scoring methodology that FTC used for commercial
sites, our survey showed that only 6 percent of the federal high-impact
agencies and 3 percent of the randomly sampled sites federal web sites
implemented, at least in part, each of the four fair information
principles. The following explains how we scored the sites to determine
conformance with each principle and describes how the federal web sites
in our survey fared in conforming with each of the principles.
Notice
The Notice principle is a prerequisite to implementing the other
principles. We concluded that a site provided Notice if it met all of
the following criteria: (1) posted a privacy policy, (2) stated
anything about what specific personal information it collects, (3)
stated anything about how the site may use personal information
internally, and (4) stated anything about whether it discloses personal
information to third parties. Our survey showed that 69 percent of all
sites visited met FTC's criteria for Notice.
Choice
Under the Choice principle, web sites collecting personal
identifying information must afford consumers an opportunity to consent
to secondary uses of their personal information, such as the placement
of consumers' names on a list for marketing additional products or the
transfer of personal information to entities other than the data
collector. Consistent with such consumer concerns, FTC's survey
included questions about whether sites provided choice with respect to
their internal use of personal information to send communications back
to consumers (other than those related to processing an order) and
whether they provided choice with respect to their disclosure of
personal identifying information to other entities, defined as third-
party choice.
We concluded that a site provided Choice if both internal choice
with respect to at least one type of communication with the consumer
and third-party choice with respect to at least one type of information
were given to individuals. Our survey showed that 45 percent of all
sites met FTC's criteria for Choice.
Access
Access refers to an individual's ability both to access data about
himself or herself--to view the data in the web site's files--and to
contest that data's accuracy and completeness. Access is essential to
improving the accuracy of data collected, which benefits both data
collectors who rely on such data and consumers who might otherwise be
harmed by adverse decisions based on incorrect data. FTC's survey asked
three questions about Access: whether the site stated that it allows
consumers to (1) review at least some personal information about them,
(2) have inaccuracies in at least some personal information about
themselves corrected, and (3) have at least some personal information
deleted.
We concluded that a site provided Access if it provided any one of
these disclosures. Our survey showed that 17 percent of all sites met
the FTC criteria for Access.
Security
Security refers to the protection of personal information against
unauthorized access, use, or disclosure, and against loss or
destruction. Security involves both management and technical measures
to provide such protections. FTC's survey asked whether sites disclose
that they (1) take any steps to provide security, and if so, whether
they (2) take any steps to provide security for information during
transmission, or (3) take any steps to provide security for information
after receipt.
We concluded that a site provided Security if it made any
disclosure regarding security.
Our survey showed that 23 percent of all sites met FTC's criteria
for Security.
Third-Party Cookies
FTC defines a third-party cookie as a cookie placed on a consumer's
computer by any domain other than the site being surveyed. Typically,
in the commercial environment, the third party is an on-line marketing
organization or an on-line service that tracks and tabulates web-site
traffic. However, some federal web sites also allow placement of third-
party cookies. Our survey showed that 22 percent of all sites disclosed
that they may allow third-party cookies and 14 percent allowed their
placement.
Mr. Chairman, this concludes my statement. I would be happy to
respond to any questions that you or other members of the Subcommittee
may have at this time.
Contact and Acknowledgements
For information about this testimony, please contact Linda D.
Koontz at (202) 512-6240 or by e-mail at [email protected].
Individuals making key contributors to this testimony include Ronald B.
Bageant, Scott A. Binder, Mirko J. Dolak, Michael P. Fruitman,
Pamlutricia Greenleaf, William N. Isrin, Michael W. Jarvis, Kenneth A.
Johnson, Glenn R. Nichols, David F. Plocher, Jamie M. Pressman, and
Warren Smith.
Mr. Tauzin. Thank you. We will now hear from Ms. Katzen,
Deputy Director of the Office of Management and Budget.
STATEMENT OF SALLY KATZEN
Ms. Katzen. Thank you, Mr. Chairman. I congratulate you on
having this hearing on this very important issue and I
appreciate your inviting me to testify on privacy on government
web sites.
As the members of this panel know, protecting the privacy
of American citizens is a very high priority for this
administration. We have worked hard to ensure that fundamental
privacy protections are properly safeguarded as our government,
indeed society at large, moves into the Digital Age. Nowhere is
this task more important than in the Federal Government's
obligation to continue to protect the privacy and
confidentiality of the personal information that it maintains
and to protect the privacy of individuals in their interactions
with the government over the Internet.
Today the Federal Government is increasingly becoming an
electronic government full of new opportunities to provide
information easily and quickly to the public. But as everyone
has noted today, we must be vigilant to ensure that personal
privacy protections remain constant or improved in the process
of this transformation. I am proud to be able to testify here
today about the success of this administration in meeting this
challenge and in taking major steps to boost the level of
privacy afforded to American citizens when they access the
government electronically. Without doubt we have more to learn
as the government in this time of rapid change in technology
and information flows; all organizations do, no matter their
size. But I am confident that we are achieving significant
progress and clearly heading in the right direction.
Now to understand the GAO reports on privacy practices, it
is important to put them in proper context and history, and I
would begin with the Privacy Act of 1974, as you did, Mr.
Chairman, in your opening comments. For over a quarter of a
century, it has afforded Americans strong legal protections for
personal information stored in government systems of records,
no matter whether they exist in papers or in electronic form.
This is not voluntary. This is mandatory. It is the law of the
land. These protections include notice, prohibitions on the
unauthorized release of personal information, ability to access
your records and change errors that may appear, and security
safeguards as well.
I would just note that Representative Horn's grades on
security, which you have mentioned a couple of times now, was
the subject of another hearing that I participated in, and
there is grave concern about the methodology that he used and
the grades that he gave. That is not an uncontested system that
he established. We believe that the security of the government
web sites is indeed very strong and will remain so.
Now, while the Privacy Act provides the bedrock privacy
protections for Americans in their relationship with
government, the changes in technologies have produced a
different world than existed in 1974. And as has been noted, to
keep current with meaningful privacy protections, the Office of
Management and Budget has augmented the Privacy Act provisions
with policy guidance. The agencies' response to that guidance
has been outstanding.
For example, in April 1999 a study revealed that just over
a third of the Federal agencies had privacy policies posted on
their main web pages. In June, 2 months later, OMB Director
Jack Lew issued a memo to all agency heads directing them to
post clearly written privacy policies on their web sites by
September 1, 1999. Director Lew, echoing the sentiments of Mr.
Boucher, said we cannot realize the full potential of the web
until people are confident we protect their privacy when they
visit our sites.
The message was received by the Federal agencies, and the
GAO confirmed this result, in what you have referred to as the
Lieberman study. This was a study conducted in April 2000 and
released on September 5, 2000. I call it the first GAO study.
Now the chairman suggested that GAO found the privacy
policies to be wanting. In fact, this study found that 69 of 70
principal agency web sites had a privacy policy posted on their
sites and all 70 did within days of release of that report.
Equally impressive, the GAO identified 2,692 major points of
entry to six Federal Government agencies. These are sites where
the largest number of people interact with the Federal
Government. And of the sites they reviewed, GAO found only 9
lacked privacy policies. This record is impressive, and I
believe is an accurate picture of Federal privacy policies
online.
In view of this, it is, I think, fair to ask why GAO
reached the conclusions that it did about Federal agencies'
compliance with the fair information practices written by the
Federal Trade Commission for commercial web sites, which is the
second GAO report. The answer, I believe, has more to do with
the questions that were asked than the practices reported.
Specifically, the administration pointed out to GAO staff
in the course of that study that the study was misdirected and
the answers to the study's questions would likely be
misleading. GAO has also reported that the FTC independently
expressed concern that its methodology was ``inappropriate for
use in evaluating Federal web site privacy policies.''
Why is this, you might ask. Let me explain. A central
premise of the study that was done was that the FTC formulation
of fair information practices for commercial sites could
appropriately be used to measure the privacy protections of
government web sites. We think it cannot because the FTC
practices were designed for the private sector, where the
Privacy Act and OMB guidance do not apply. This is a very
important distinction between commercial companies and Federal
agencies.
The fact that there is no law establishing privacy
protection for individuals in the commercial arena led the FTC
to stress the need for a statement about policies, because
absent a statement, the companies cannot be held accountable.
That is, you must have a representation of what you will do and
not do to be enforceable by the FTC. Government web sites by
contrast do not have to make any representations to be held
accountable. The Privacy Act establishes in the most public way
possible the standards to which citizens can hold Federal
agencies accountable and exactly how they can hold those
agencies accountable.
Thus, the test of whether a Federal web site provides
privacy protection is not whether it includes a statement that
makes it comparable with commercial practices, but rather
whether good privacy protections are in fact in place. And the
first GAO report, the Lieberman report, showed that the major
Federal web sites inform citizens of how their data are used at
their web sites, and I would refer you specifically to page 25
of that report, which takes each of the fair information
practices and documents that they are covered either by OMB
policy or by the Privacy Act. It is against that which the
first study measured the Federal web sites and it is against
that standard that they did as well as they have done.
Now, we recognize that in this Information Age it is
critical that the Federal Government continue to use technology
to keep the public informed and provide services to the public
and stay on the cutting edge of technology. The launch on
September 22 of firstgov.gov was a major step to enable us to
continue providing information and resources to the American
people. In this and many other ways, the need for privacy
protection online and the need for public confidence in the
Federal Government's online privacy standards is expected to
only increase in the years ahead. It would be most unfortunate
if any misleading conclusions as to the state of privacy on
Federal web sites interfered with our common goal of achieving
electronic government without full participation of the public.
I thank you for holding this hearing and giving me an
opportunity to testify.
[The prepared statement of Sally Katzen follows:]
Prepared Statement of Sally Katzen, Deputy Director for Management,
Office of Management and Budget
Mr. Chairman and members of the Committee, I thank you for inviting
me here today to discuss the important topic of privacy on government
web-sites. As you know, protecting the privacy of American citizens is
a very high priority for this Administration. We have worked hard to
ensure that fundamental privacy protections are properly safeguarded as
our government, and society at large, moves into the Digital Age.
Nowhere is this task more important than in the federal government's
obligation to continue to protect the privacy and confidentiality of
the personal information that it maintains, and, now, to protect the
privacy of individuals in their interactions with the government over
the Internet.
Today the federal government is increasingly becoming an electronic
government, full of new opportunities to provide services and
information to the public quickly, easily, and when the public wants
them. But as you, Mr. Chairman, and so many others here have noted, we
must be vigilant to ensure that personal privacy protections remain
constant or are improved in the process of this transformation. I am
proud to be able to testify today about the success of this
Administration in meeting this challenge--in taking major steps to
boost the level of privacy afforded to American citizens when they
access the government electronically. Without doubt, we have more to
learn as a government. In this time of revolutionary changes in
technology and information flows, all organizations do, no matter their
size. But I am confident that we have achieved significant progress,
and are clearly heading in the right direction in this critical area.
To understand the recent General Accounting Office reports on the
privacy practices of federal agencies on-line, it is helpful to put
them in their proper context and history. First, there is the Privacy
Act of 1974, which for over a quarter of a century has afforded
Americans strong legal protections for personal information stored in
government systems of records--no matter if they exist in paper or
electronic form. These protections include notice, prohibitions on the
unauthorized release of your personal information, the ability to
access your own records, the ability to change errors in your records,
and security safeguards, among other protections.
While this Act provides the bedrock privacy protections for
Americans in their relations with the government, changes in
technology--most notably the dramatic increase in Internet-access to
the government--have produced a different world than existed in 1974.
To keep current with meaningful privacy protections, the Office of
Management and Budget has augmented the Privacy Act provisions with
policy guidance, and the agencies' response, I believe, has been
outstanding.
For example, in April 1999, a study revealed that just over one-
third of federal agencies had privacy policies clearly posted on their
main web pages. In June 1999, OMB Director Jacob J. Lew issued a
memorandum to all agency heads directing them to post clearly labeled
and clearly written privacy policies on their web-sites by September 1,
1999. Director Lew told agencies then, ``We cannot realize the full
potential of the web until people are confident we protect their
privacy when they visit our sites.''
The message was received by federal agencies. The General
Accounting Office confirmed this result in a review conducted in April
of 2000 and released on September 5, 2000 (``the first GAO report'').
This GAO study found that 69 of 70 principal agency web-sites had a
privacy policy posted on their sites--and all 70 did within days of the
report's release. Even more impressive, the GAO identified 2,692 major
Web-site points of entry to six federal government agencies. These are
sites where the largest number of citizens interact with the Federal
government. Of the sites they reviewed, GAO found that only nine lacked
privacy policies.
This record of progress is impressive, and, I believe, it is an
accurate picture of the state of Federal privacy policies on-line. It
is a story of working rapidly, across the expansive federal government
and across thousands of web-pages, to ensure that citizens' privacy is
protected when they choose to visit the federal government over the
Internet.
As part of our continuing efforts in the area, OMB Director Lew
issued another memorandum this June to further enhance privacy
protections on federal web-sites. Director Lew directed that cookies
will not be used on Federal web-sites, except under very limited
conditions. He also made clear, as a matter of Federal policy, that
agencies are to comply with the standards of the Children's Online
Privacy Protection Act, even though Congress did not include the
Federal Government within the scope of that law. In addition, he
directed each agency to describe its privacy practices and the steps
taken to comply with Administration privacy policies in its budget
submissions this fall to OMB. In this way, good privacy protection gets
built into the budget process, emphasizing to everyone in the
Government the importance of assuring citizen privacy.
These efforts to boost privacy safeguards have extended to areas
beyond the federal government's practices on-line, as the
Administration has supported strengthening citizens' legal privacy
protections in such areas as medical information, financial records,
genetic information, and Social Security numbers. These are categories
of sensitive data that require protection in both the public and
private sectors.
In light of this record of significant achievement, you may well
ask why GAO reached the conclusions that it did about the Federal
agencies' compliance with the fair information practices written by the
Federal Trade Commission for commercial web-sites (the second GAO
report). The answer, I believe, has more to do with the questions that
were asked than the practices reported. Specifically, the
Administration pointed out to GAO staff in the course of that study
that the study was misdirected and that the answers to the study's
questions would be misleading. GAO also has reported that the FTC
independently expressed concern that its methodology was
``inappropriate for use in evaluating federal web site privacy
policies.''
The central premise of this particular study was apparently that
the FTC formulation of fair information practices for commercial web-
sites could appropriately be used to measure the privacy protections of
government web-sites. We think it cannot. As noted, the FTC practices
were designed for the private sector, where the Privacy Act and OMB
policy do not apply. This is an important difference between commercial
companies and federal agencies, even though both the government and
businesses often use web-sites for the same core purposes: to provide
information to consumers and to provide services to the public. The
fact that there is no law establishing privacy protections for
individuals in the commercial arena led the FTC to stress the need for
those web-sites to make clear statements as to their privacy
protections. The FTC does the same--that is, require clear statements--
about commercial web-site policies with respect to access and security
practices. It is through these statements that these companies can be
held accountable.
Government web-sites, by contrast, do not have to make any
representations to be held accountable. The Privacy Act establishes--in
the most public way possible--the standards to which citizens can hold
federal agencies accountable and exactly how they can hold agencies
accountable. Thus, the test of whether a federal web-site provides
privacy protection is not whether it includes statements that make it
compatible with commercial practices, but rather whether good privacy
protections are in place. The first GAO report confirmed that they are:
When government web-sites were measured against government privacy
standards, the results were impressive.
In this Information Age, it is critical that the federal government
continues to use technology to keep the public informed and to provide
services for the public. The launch of the Federal government's
FirstGov web-site on September 22 was a major step to enable easy
access to government resources on-line. In this and many other ways,
the need for privacy protection on-line--and the need for public
confidence in the Federal government's on-line privacy standards--is
expected to only increase in the years ahead. It would be most
unfortunate if any misleading conclusions as to the state of privacy on
federal web-sites interfered with our common goal of achieving an
electronic government with full public participation.
As I said before, the federal government can, and should, continue
to improve in its protection of the privacy of those individuals who
access government web-sites. The first GAO report pointed out that we
could do a better job of posting privacy policies at specific Federal
web pages where a substantial amount of personal information is
collected. That report also made recommendations about how OMB might
provide clearer guidance to agencies, and we are working with the
Federal CIO Council to respond to those recommendations. Beyond that, I
think that we will learn much from the privacy materials included with
the agency FY 2002 budget submissions to OMB. At the same time, I would
again emphasize that the Administration's record on privacy protection
in this area is strong, with a resolute commitment to safeguard
personal privacy.
I thank you, Mr. Chairman, for holding this hearing today and for
inviting me to testify. I look forward to continuing to work with you
and the other members of this committee in making the federal
government a model of good privacy practices.
Mr. Tauzin. Mr. Roger Baker, Chief Information Officer of
the U.S. Department of Commerce.
STATEMENT OF ROGER W. BAKER
Mr. Baker. Thank you, Mr. Chairman. Thank you for inviting
me to testify before the committee today. I am testifying as
the Chairman of the Chief Information Officers Council
Subcommittee on Privacy. However, as a practicing Chief
Information Officer for an agency, my testimony also includes
some anecdotal information from the Department of Commerce.
I would like to make three points: First, privacy is an
important issue for Chief Information Officers throughout the
government and the Federal CIO Council. Second, our fundamental
guidance on privacy inside the Federal Government comes from
the Privacy Act, other applicable Federal laws and OMB policy,
and that in the past 2 years we have made substantial progress
in both the quality and quantity of the privacy policies posted
on Federal web sites and significantly raised the awareness of
privacy issues within the Federal information technology
community.
First, privacy is an important issue for the Federal CIO
Council. By creating a Subcommittee on Privacy, the Federal CIO
Council signaled to all Federal information technology workers
that protecting the personal privacy of the public is one of
the key issues facing us today.
The American public provides government agencies with the
most sensitive of personal information. It is our duty as
Federal employees to protect this information to the best of
our ability. This means that our information systems must be
secure from intrusion and the systems must work in accordance
with applicable Federal laws. The CIO Council keeps this issue
at the forefront of IT discussions by making it a key part of
our annual strategic plan, by including privacy in the
conferences we support and the speeches we make, and providing
agencies with best practices or examples of how to improve the
privacy and security aspects of their information systems.
There are many examples of these best practices for privacy
and security on the CIO Council web site at www.cio.gov.
I would like to submit with my testimony the privacy impact
assessment best practices developed by the IRS and recommended
by the Security, Privacy and Critical Infrastructure Committee
for use by all Federal agencies. The CIO continues to work with
OMB and others to identify further best practices and other
useful guidance to be provided to agencies to help them in
their efforts to protect personal privacy on the Internet and
other information systems.
Second, our fundamental guidance on privacy inside the
Federal Government comes from the Privacy Act and other
applicable Federal laws. Federal information systems, including
Internet web site servers, are subject to the provisions of the
Privacy Act. OMB has issued policy directives regarding privacy
protections on Federal web sites that focus on a number of
issues. First, that all major entry points and all points where
personal information is collected should have easily accessible
privacy policies posted; second, that those privacy policies be
clearly written and reflect actual agency policy with regard to
the collected information; third, those policies are in
accordance with the Privacy Act and other laws and guidance
that may be applicable to specific agencies; and, fourth, that
there is a presumption against the use of technologies that
allow the tracking of activities over time and across different
web sites; for example, persistent cookies as differentiated
from session cookies, unless a high level of approval is
obtained.
The CIO Council has worked closely with OMB to support the
development and implementation of these directives. As a result
of an example of this work, I would like to submit the privacy
policy posted on the main page of the Census Bureau's Internet
web site, www.census.gov. While admittedly somewhat long, this
privacy policy clearly conveys the types of information that
may be collected, how used and the specific legal protections
provided that information. I used the Census privacy policy as
an example because it involves both the Privacy Act and Title
13 protections.
Mr. Chairman, I believe the following points were made in
the GAO report, but they are so important I will quickly make
them again.
Federal records are covered by specific laws that give
individuals specific rights and the remedies if their private
information is disclosed. These laws apply whether or not a
privacy policy is posted on a Federal web site. There are no
equivalent laws covering nongovernmental systems. The FTC rules
regarding privacy policies for private sector web sites are
meant to establish a legal basis under which a private sector
web site operator can be held responsible for the protection of
private information collected on a web site. Once posted, the
privacy policy falls under the jurisdiction of the FTC, which
uses existing laws to hold companies to the promises they make
to the consumers.
In short, if a private sector web site does not post a
privacy policy, there is no ready legal recourse available to
an individual whose privacy has been violated. In contrast, the
Privacy Act and other laws apply even if a Federal web site
does not post a privacy notice. We can and should do a better
job of communicating the protections that the Privacy Act and
other Federal laws provide users on Federal web sites, but we
should continue to use existing Federal laws or guidance in
these areas instead of the FTC policies clearly intended to
achieve a different purpose.
In the past 2 years we have made substantial progress in
both the quantity and quality of privacy policies posted on
Federal web sites. In 1999, the secretary of commerce called on
private sector web site operators to improve their privacy
practices, placing special emphasis on the need for: One,
posting privacy policies; and,second, that policies include the
fair information practices of notice, choice, access and
security. We quickly recognized that we also needed to make
major improvements in our own web site privacy policies, both
at the Department of Commerce and throughout the Federal
Government. Working with OMB, we raised the profile of the
privacy issues with both agency and technical management and
made substantial strides in both the quality and quantity of
privacy practices posted on Federal web sites. And I won't go
through the GAO reports again, since you have that information.
Clearly we made a major improvement, and I believe this is
evidenced by the examples from the Census Bureau. The overall
qualities of these privacy policies have seen substantial
improvement as well.
In closing, I would like to reiterate my main points.
Privacy is a very important issue for agency CIOs and the
Federal CIO Council. Our fundamental guidance on privacy inside
the Federal Government comes from the Privacy Act and other
applicable laws and OMB guidance, and in the past 2 years I
believe we have made substantial progress in quality and
quantity of privacy policies posed on Federal web sites.
Thank you for your time and I look forward to any questions
you may have.
[The prepared statement of Roger W. Baker follows:]
Prepared Statement of Roger W. Baker, Chief Information Officer, United
States Department of Commerce
Mr. Chairman and members of the Committee: Thank you for inviting
me to testify before the committee today. I am testifying in my role as
the Chairman of the Federal Chief Information Officer's Council
subcommittee on Privacy. However, as a practicing CIO, I will also
include some anecdotal information from my agency, the Department of
Commerce.
In my testimony today, I would like to make three points.
Privacy is an important issue for agency CIOs and the Federal
CIO Council.
Our fundamental guidance on privacy inside the federal
government comes from the Privacy Act, other applicable federal
laws, and OMB policy.
In the past two years, we have made substantial progress in
both the quantity and quality of privacy policies posted on
federal web sites, and significantly raised the awareness of
privacy issues within the federal IT community.
Privacy is an important issue for CIOs and the Federal CIO Council.
By creating a subcommittee on privacy, the Federal CIO Council
signaled to all federal information technology workers that protecting
the personal privacy of the public is one of the key issues facing us
today. The American public provides government agencies with the most
sensitive of personal information. It is our duty, as federal
employees, to protect this information to the best of our ability. This
means that our information systems must be secure from intrusion, and
that these systems must work in accordance with applicable federal
laws.
The CIO Council keeps this issue at the forefront of IT discussions
by making it a key part of our strategic plan, by including privacy in
the conferences we support and speeches we make, and by providing
agencies with ``best practices'' to provide them with examples of how
to improve the privacy and security aspects of their information
systems.
There are many examples of these ``best practices'' for privacy and
security on the CIO council web site at www.cio.gov. I would like to
submit with my testimony the Privacy Impact Assessment best practice
developed by the Internal Revenue Service and recommended by the
Security, Privacy, and Critical Infrastructure Committee for use by all
federal agencies. The Privacy Impact Assessment best practice provides
agencies with a template for evaluating and certifying that an
information system has been implemented in accordance with applicable
agency policies and federal laws on privacy.
The CIO Council will continue to work with OMB and others to
identify further best practices and other useful guidance that can be
provided to agencies to help them in their efforts to protect personal
privacy on the Internet and other information systems.
Our fundamental guidance on privacy inside the federal government comes
from the Privacy Act and other applicable federal laws.
Federal information systems, including Internet web servers, are
subject to the provisions of the Privacy Act. In addition, OMB has
issued policy directives regarding privacy protections on federal web
sites that focus on a number of issues. First, that all major entry
points and all points where substantial personal information is
collected should have easily accessible privacy policies posted.
Second, that those privacy policies be clearly written and reflect
actual agency policies with regard to the collected information. Third,
that those policies are in accordance with the Privacy Act and other
laws and guidance that may be applicable to specific agencies. And
fourth, there is a presumption against the use of technologies that
allow the tracking of the activities of users over time and across
different web sites (for example, persistent cookies) unless high-level
approval is obtained. The CIO Council has worked closely with OMB to
support the development and implementation of these directives.
As an example of the results of this work, I would like to submit
into the record the privacy policy posted on the main page of the
Census Bureau's Internet web site, www.census.gov. While somewhat long,
this privacy policy clearly conveys the types of information that may
be collected, how that information will be used, and the specific legal
protections provided that information. I use the Census privacy policy
as an example because it involves both the Privacy Act and Title 13
protections.
Mr. Chairman, I believe the following points were made in the GAO
report, but they are so important that I will quickly make them again.
Federal systems of records are covered by specific laws that give
individuals specific rights and remedies if their private information
is disclosed. These laws apply whether or not a privacy policy is
posted on a federal web site. There are no equivalent laws covering
non-governmental systems. The FTC rules regarding privacy policies for
private sector web sites are meant to establish a legal basis under
which a private sector web site operator can be held responsible for
the protection of private information collected on a web site. Once
posted, the privacy policy falls under the jurisdiction of the FTC,
which uses existing laws to hold companies to the promises they make to
consumers.
In short, if a private sector web site does not post a privacy
notice, there is no ready legal recourse available to an individual
whose privacy has been violated. In contrast, the Privacy Act and other
laws apply even if a federal web site does not post a privacy notice.
We can and should do a better job of communicating the protections
that the Privacy Act and other federal laws provide users on federal
web sites. But I believe we should continue to use existing federal law
as our guidance in this area, instead of FTC policies clearly intended
to achieve a different purpose.
In the past two years, we have made substantial progress in both the
quantity and quality of Privacy Policies posted on federal web
sites.
In 1999 the Secretary of Commerce called on private sector web site
operators to improve their privacy practices, placing special emphasis
on the need for (1) posting privacy policies and (2) policies include
the fair information practices of notice, choice, access, and security.
We quickly recognized that we, also, needed to make major improvements
in our own web site privacy policies, both at Commerce and throughout
the federal government. Working with OMB, we raised the profile of the
privacy issue with both agency and technical management, and made
substantial strides in both the quantity and quality of privacy
policies posted on federal web sites. A recent GAO report concluded
that 69 out of 70 agency main pages had privacy policies clearly
posted. Further, GAO identified 2692 major points of entry to six
federal agencies. Of the sites they reviewed, GAO found that only 9
lacked privacy policies. This, clearly, is a major improvement. And, as
is evidenced by the example from the Census Bureau, the overall quality
of these privacy policies has seen substantial improvement as well.
Closing
Mr. Chairman, in closing I would like to reiterate my main points.
Privacy is an important issue for agency CIOs and the Federal
CIO Council.
Our fundamental guidance on privacy inside the federal
government comes from the Privacy Act, other applicable federal
laws, and OMB guidance.
In the past two years, we have made substantial progress in
both the quantity and quality of Privacy Policies posted on
federal web sites.
Thank you for your time. I look forward to any questions you may
have.
Mr. Tauzin. Thank you, Mr. Baker. The Chair recognizes
himself for 5 minutes. There is another story on the web on
Yahoo News that is quite relevant, Ms. Katzen. It is entitled
``FTC to Apply Law to Web Sites,'' and it leads, ``Contrary to
Federal directive, major government web sites, including the
one operated by the White House, are not adhering to a law that
requires companies to obtain parental consent before soliciting
personal information from children. The web site invites
children to submit personal information along with e-mail
messages to the President and First Family, and there is no
warning that children first get parental consent before sharing
this information.''
Is the White House violating the Federal law?
Ms. Katzen. No, it is not. COPPA, the Children's Online
Privacy Protection Act, does not apply to the Federal
Government.
Mr. Tauzin. Isn't that wonderful?
Ms. Katzen. Excuse me, if I may explain the practices,
because this is a statement that has been made time and again
in the press.
By law we are not covered by COPPA. However, we have taken
every step that we can, consistent with our being a unique
place, to meet the spirit of COPPA. COPPA was to protect
children from marketers who would seek to exploit them----
Mr. Tauzin. I want to ask you: Does not the June memorandum
state that all Federal web sites and contractors when operating
on behalf of agencies shall comply with the standards set forth
in the Children's Online Privacy Protection Act?
Ms. Katzen. Yes, but one of the conditions of COPPA is if
you are going to get personal information for a one-time
contact, you must destroy the record. The Presidential Records
Act does not allow us to destroy records.
Mr. Tauzin. Does not COPPA require the advice to children
to get parental consent?
Ms. Katzen. Yes. And on five different----
Mr. Tauzin. And is the White House complying with COPPA
today?
Ms. Katzen. It is not required to comply with----
Mr. Tauzin. Does the memorandum require it to?
Ms. Katzen. The memorandum says do what we can, and we are
working on systems to enable us not to destroy records. The
Presidential Records Act, the security that attends the White
House, and other considerations make the White House very
different from what COPPA was designed to do.
Mr. Tauzin. I am going to run out of time. I want to go to
some other witnesses.
Mr. Cox. Mr. Chairman, if you would yield on this point.
Having served in the White House Counsel's Office, I am well
aware of the Presidential Records Act, which has not been
followed by this administration in any case. But why do you
need to collect the information from the kids in the first
place? Then you would not have a record to destroy.
Ms. Katzen. Children do not have to provide any information
to send a letter to the White House. If you want a response,
you need to provide an e-mail address or a regular address.
That is the information which COPPA says we would have to
destroy if we obtained it from the child in the first instance.
It is for that reason that on the White House Home Pages, which
are here, it says on at least five occasions, make sure that it
is okay with your parents. We cannot respond to your message
without your address, but you can write us and tell us what you
think without any information from you coming in.
Mr. Tauzin. Reclaiming my time, does EPA require that? Does
EPA advise----
Ms. Katzen. Yes, and the site you were talking about has
been taken down.
Mr. Tauzin. Taken down today?
Ms. Katzen. No, it was taken down on Friday.
Mr. Tauzin. Right before this hearing.
Ms. Katzen. It was taken down as soon as it was brought to
our attention that there was a violation. When we learned----
Mr. Tauzin. I have to control my time. Let me ask the other
witnesses, you keep referring to the fact that Federal agencies
don't need to post their privacy policies and say what they are
collecting and how they are collecting it and who they are
sharing it with because Federal agencies are covered by the
Privacy Act. We have information on the Privacy Act. The
Privacy Act provides 12 different exceptions, 12 exceptions
provided by law for information collected by the Federal
Government to be shared with other people. They include, for
example, for routine uses defined in the act, to other offices
and employees of the agency, to a recipient who has provided
the agency with an adequate advance written assurance that the
record will be used solely for statistical research. It allows
the sharing of private information to persons pursuant to
showing of compelling circumstances of health, to Members of
Congress, to the Controller General, by an order of court, to a
consumer reporting agency, 12 different exceptions by which
consumer information can be shared with other people, and
Federal agencies only say that we are complying with the
Privacy Act.
How do consumers know without getting a lawyer and getting
a lawyer to explain what is in fact happening to his private
information under this Privacy Act?
Mr. Baker. I certainly wouldn't want to imply that I don't
believe agencies should have privacy policies. I have worked
hard to get agencies to have privacy policies.
Mr. Tauzin. Shouldn't Federal agencies post their privacy
policies just like people in the commercial sector so consumers
know without getting a lawyer what is going to be shared with
whom?
Mr. Baker. Federal agencies should post a privacy policy
which should reflect the Federal law which applies to them, and
I certainly as Chief Information Officer would not advise
anyone working for me to not comply.
Mr. Tauzin. You are saying that it is our fault we wrote a
law that lets these agencies share information so consumers be
damned? Or should the Federal Government--let me pose a
question to you as clearly as I can.
If the FTC and, for that matter, Members of Congress are
harping on the private sector to do more about informing
consumers what information is being collected about them, how
it is being shared and to whom it is being sent, should not
Federal agencies live by the same standard, particularly where
information is being shared with Federal agencies in a
nonvoluntary situation?
Ms. Katzen. They are, and they should be.
Mr. Tauzin. I am asking Mr. Baker.
Mr. Baker. I'm sorry?
Mr. Tauzin. Let me ask it again as carefully as I can. If
the FTC is setting up standards by which it is going to judge
private sector web sites on the basis of whether or not they
adequately inform consumers what information is being gathered
and how it is being used and to whom it is being shared so that
consumers can be warned, should not the Federal agencies by
which consumers and constituents interact with information that
is not necessarily voluntarily presented to the government, in
many cases mandatorily provided to the government, shouldn't
the Federal agencies be under a higher standard to do that, to
inform consumers precisely about what information is being
gathered, what it is being used for and to whom it is going to
be shared with instead of hiding behind a law that has 12
exceptions that the consumer doesn't even know about?
Mr. Baker. I think Federal agencies should be as clear as
they can. Again the Census Bureau example, I believe it is
pretty clear about what the protections are. The Privacy Act is
there and that is what we have used as our guidance.
Mr. Tauzin. Ms. Koontz, did the IRS in fact have a cookie
on its web site?
Ms. Koontz. Using the FTC methodology, we identified a
third party cookie in use at the IRS. In fairness to everyone
here, the cookie that we identified was one that is placed on
the visitors' hard drive when they are in the process of
leaving the IRS site. The reason we picked this up----
Mr. Tauzin. Wait. I want to understand that. We have a
Federal policy discouraging--the memorandum discourages cookies
on Federal web sites. But there are exceptions and cookies are
allowed if the head of the agency allows a cookie on the
Federal web site. Are you telling me in your investigation, in
your survey, you did discover that the IRS had a cookie on its
web site that visitors could click onto and have information
shared with third parties?
Ms. Koontz. When you were clicking onto a link that led you
to another web site, the receiving web site was placing a
cookie on your hard drive as you were exiting.
Mr. Tauzin. Was that authorized by the head of the agency?
Ms. Koontz. I didn't ask them.
Mr. Tauzin. How many web sites had cookies?
Ms. Koontz. There were eight web sites that had cookies.
Mr. Tauzin. Out of the 65 that you surveyed, there were
eight Federal web sites that had cookies by which third parties
could gather information about citizens who visited those web
sites?
Ms. Koontz. Yes. I want to be clear. This is third party
cookies identified using FTC's methodology.
Mr. Tauzin. I understand. The gentleman from Virginia, Mr.
Boucher.
Mr. Boucher. Thank you. Let me ask our witnesses this
morning if there is any reason why we shouldn't simply extend
the protections of COPPA, which essentially require before any
information is collected from children, that the permission of
parents be obtained, to the Federal Government? Why should we
not do that?
Ms. Katzen. I don't have any problem with that. As the
chairman noted, we have a memorandum from OMB instructing the
agencies that they should comply, and if the law were expanded
to cover Federal sites, it would be fine.
It may mean that when children write to the White House and
ask for a picture of the President, they want a glossy picture,
we could not respond unless they wrote their request on paper
and provided a postal address for return mail. But aside from
the inhibition on incoming requests for pictures or papers from
the White House, there is no reason why the law should not be
expanded. We believe strongly in COPPA and have supported it.
Whenever we find that someone is not complying, we take down
that site.
Mr. Boucher. Do either of the other witnesses have anything
to add to that?
Ms. Katzen, you were attempting to provide an answer about
current White House web site practices with respect to the
Children's Online Privacy Protection Act. I think you did not
get a full opportunity to answer that question, and I would
like to afford that to you if you would like to do that.
Ms. Katzen. Thank you very much, Mr. Boucher. We had
originally had a White House kids page, which got a lot of
requests from children and we knew that it would be covered
within the spirit, if not the letter, of COPPA.
At the time we had asked for the child's name, the address,
the e-mail address, the school, what grade they were in, a lot
of different questions. Because of COPPA, we stripped that down
to the bare essentials, the minimization principle, which is so
prevalent in privacy discussions, and we only asked for that
information if they wanted us to respond to them, not if they
were simply communicating one way to us.
Also, we placed throughout the site in a number of places
warnings that children should be talking to their parents, that
they should be involving their parents in this. Finally, we
have been negotiating with NARA, the National Archives, to see
whether we could get an exception from the Presidential Records
Act, as we have for bulk mail, for example, or if we could put
these children's addresses, just to send them a picture of the
President or Socks or Buddy, if we could put those addresses in
a separate file or folder and/or destroy them so we don't
retain that kind of information. Our objection is to protect
children's privacy and to engage parents. We think COPPA is
good law.
Mr. Boucher. And you would not object to having it extended
to Federal Government sites generally?
Ms. Katzen. Correct.
Mr. Boucher. Good. Let me hear your response to suggestions
that I made earlier, that the time has now come for Congress to
accept the invitation of the FTC and legislate a set of minimum
guarantees for the privacy protection of visitors to web sites,
including the requirement that web sites post a notice of what
information they collect and how it is used, and then provide
an opt-out opportunity.
Is there any reason why we should not extend that set of
guarantees not only to the practices of commercial web sites
but also government web sites?
Ms. Katzen. For the most part the actual substance of what
you want to provide exists now in the law. In terms of
legislation, this administration has taken the position that
the most sensitive information should be protected first and
foremost, so we have worked on financial records, we have
worked on medical records. These are areas where we think that
it is essential to provide adequate protection because they are
so sensitive. If we could have those types of procedures in
place for the very sensitive information, we would very much
want to work toward the next step, which is to extend the scope
of protecting privacy.
There are difficult questions, as Mr. Goodlatte and you
have discussed--the balancing between giving out information
and restricting the use of that information. But we have
repeatedly called for more stringent protections, for
financial, for medical, for genetic information and for Social
Security numbers. There is a vast area that are specific
problems have occurred.
Mr. Boucher. I gather the answer to the question is you are
not sure and perhaps we need to consider further whether to
extend that minimum set of guarantees not only to commercial
web sites, but to government web sites as well?
Ms. Katzen. I think it is an important step, but I think
the other steps are more important and should take priority in
any legislative proposal.
Mr. Boucher. May I have unanimous consent to proceed for 1
additional minute?
Mr. Tauzin. Without objection, so ordered.
Mr. Boucher. Ms. Katzen, do you believe there are any
statutory provisions that need to be adopted beyond what we
have heard this morning? Do you have any recommendations for
additional statutory provisions which would aid privacy of
Internet users?
Ms. Katzen. Yes, sir. The administration has a proposal to
plug the loophole in Gramm-Leach-Bliley on financial records,
which would enable consumers to know when information is being
shared with affiliates of the organization. That bill in before
the Congress. Mr. Markey has been active on that issue as well,
I believe.
Medical health is another area. We have for 2 years
requested Congress to move forward on medical health records.
This is an area which is terribly important to people, whether
it be sensitive matters like mental health records or HIV
testing, or commonplace like mammograms. There is a story on
NPR this morning about a woman who was fired after information
about breast cancer became available.
The administration also has a Social Security bill to
protect the sale and profiteering from selling Social Security
numbers.
Genetic discrimination has been in committee for a long
time. Ms. Slaughter's bill has been one that we have been
supporting and hoping Congress would pass. These are things
that touch the lives of American people in a real way, not----
Mr. Boucher. Thank you.
Mr. Tauzin. The gentleman's time has expired.
Mr. Boucher. Thank you.
Mr. Tauzin. The Chair recognizes the gentleman from
Illinois.
Mr. Shimkus. Mr. Chairman, I yield my time to the gentleman
from California. My brother-in-law was testifying before
another committee, on the Government Reform Committee on
anthrax. I got a chance to introduce him, and because of that I
wasn't here to hear all of the testimony. In lieu of my being
able to fully listen, I am going to yield my time to the
gentleman from California.
Mr. Tauzin. Mr. Cox from California.
Mr. Cox. Thank you, and I will proceed out of order in that
case. We begin with the GAO report telling us that most of our
Federal agencies are not complying with the rules that we apply
throughout the private sector when it comes to privacy. In
fact, only 3 percent of agencies are implementing all or at
least part of all of the FTC's requirements; and in particular
the most disturbing, to me at least, finding is that so many
agencies are placing cookies on the computers of people who log
on.
I don't understand why the Office of Management and Budget
in its latest guidance continues to permit the use of cookies
by Federal agencies, continues to authorize the placement of
cookies on citizens' computers, and I wonder if from OMB's
perspective there is a good reason that we should have such
vague rules about cookies. OMB doesn't differentiate between
temporary and permanent cookies in its guidance. It is very,
very brief, just a few paragraphs. Director Lew says that
agency heads can approve putting cookies onsites. We have
agencies then who are quoted in this article from Wired News
saying that they are quite sure that their agency heads will
approve this and continue to use the cookies.
The National Endowment for the Humanities says that they
will continue to use cookies. The agency head was on vacation,
that is what they told the reporter, but they were sure that
the agency head would approve the gathering of information from
citizens who log onto that site.
The Federal Energy Regulatory Commission actually says we
generally do not use cookies; but according to Wired, anyone
who stops by the FERC home page will receive a cookie and it
will not expire until December of 2010.
The Department of Transportation has placed cookies on
citizens' computers logging onto it that will last 34 years,
and these are persistent cookies. They track your web activity
after you leave the site.
So from the standpoint of OMB, why shouldn't we just say no
cookies? Why are you putting cookies on people's computers? If
you are investigating, I understand it. If somebody is not
under investigation, why do we put a cookie on their computer,
and why would that cookie track their activity when they left
the site?
Ms. Katzen. I think you raise a very important question to
which my bottom line answer is that we shouldn't, and that is
why the OMB policy was written. I think it is important to note
that GAO did its study in July of 2000. We had issued the Lew
memorandum, no cookies on this--presumption of no cookies in
late June. So it has taken some time----
Mr. Cox. But the Lew memorandum doesn't say no cookies.
Ms. Katzen. It says there should be a presumption against
cookies. Incidentally, there is a clarification on the session
cookies point. There is a letter to Roger Baker from John
Spotilla, who is the Administrator of the Office of Information
and Regulatory Affairs, that says when you are logging on for a
single session and you want to make a purchase order at the
Mint, for example, and you have put in your name and address,
and because you can't remember which things you wanted to buy,
you want to open up another window and come back to the order
form, having the session cookie there means that you can
complete that one transaction. That cookie disappears when you
have finished the transaction and log off, and that is the
clarification of September 5 to Roger Baker.
There are other reasons, whether they be national
security----
Mr. Tauzin. Can we have a copy of that clarification for
the record, Mr. Baker?
Ms. Katzen. I have one here.
[The following was received for the record:]
Executive Office of the President
Office of Management and Budget
September 5, 2000
Roger Baker
Chief Information Officer
U.S. Department of Commerce
Room 5033
14th & Constitution Avenue, NW
Washington, DC 20230
Dear Roger: Thank you for your letter of July 28, 2000, regarding
OMB Memorandum 00-13 on ``Privacy Policies and Data Collection on
Federal Web Sites.'' We appreciate the CIO Council's strong support for
protecting the personal information of citizens who visit federal web
sites. We also stand ready to assist agencies as needed in implementing
this guidance.
The President and the Vice President are strongly committed to the
protection of privacy rights. They believe that the federal government
should serve as a model of good privacy practices. Agencies need to be
particularly careful before launching any effort to gather information
on the activities of citizens who visit federal web sites. As we work
to promote customer service, we must keep privacy concerns in mind.
In this spirit, OMB issued Memorandum 00-13, which aims
specifically at the tracking of ``the activities of users over time and
across different web sites.'' As you correctly point out, a principal
example of such is the use of persistent cookies. In accord with the
Memorandum, federal web sites should not use persistent cookies unless
four conditions are met:
The site gives clear and conspicuous notice;
There is a compelling need to gather the data on the site;
Appropriate and publicly disclosed privacy safeguards exist
for handling any information derived from the cookies; and
The agency head gives personal approval for the use.
We are concerned about persistent cookies even if they do not
themselves contain personally identifiable information. Such cookies
can often be linked to a person after the fact, even where that was not
the original intent of the web site operator. For instance, a person
using the computer later may give his or her name or e-mail address to
the agency. It may then be technically easy for the agency to learn the
complete history of the browsing previously done by users of that
computer, raising privacy concerns even when the agency did not
originally know the names of the users.
We recognize that agency web sites can also seek information from
visitors in ways that do not raise privacy concerns. Specifically, they
may retain the information only during the session or for the purpose
of completing a particular online transaction, without any capacity to
track users over time and across different web sites. When used only
for a single session or transaction, such information can assist web
users in their electronic interactions with government, without
threatening their privacy. One example of such an approach that
supports electronic government would be the use of a shopping cart to
purchase a number of items online from the U.S. Mint. Another example
would be the current technology that assists users in filling out
applications that require accessing multiple web pages on the
Department of Education's Direct Consolidation Loan site. We do not
regard such activities as falling within the scope of Memorandum 00-13.
In your letter, you also inquired whether we should extend the
policy guidance in Memorandum 00-13 to agency intranet sites as well as
agency external internet web sites. The guidance, of course, focuses on
internet traffic between the government and citizens. You raise an
important issue, however, and we look forward to working with the CIO
Council to review our policies regarding agency intranets.
Thank you again for sharing your insights and those of our CIO
Council colleagues. Your creativity and support are indispensable to
our electronic government efforts.
Sincerely,
John T. Spotila
Mr. Cox. What is the national security reason that we want
to track the usage of the web by American citizens?
Ms. Katzen. I cannot tell you that there is one.
Mr. Cox. You just did.
Ms. Katzen. I was interrupted when I was saying that if the
agency head is presented with a compelling case for why this is
crucial to the agency's mission or otherwise endangers some
facet of their operation, then the agency head is to consider
that information and make a decision. They are then to report
that to OMB, where we will have a chance to review that. We
will be getting information about this kind of situation and we
will be monitoring it. I don't know offhand the kinds of
situations that will be presented. We are talking about changes
in technology that are happening very rapidly and practices
that are changing very rapidly. And for us to try to set policy
that says no way, no how, never, never, never, I think is to
fly in the face of what we have seen.
Mr. Cox. We are so far away from that with the Lew
memorandum. The Lew memorandum, far from saying never, ever,
ever, puts it at the discretion of every agency head.
Ms. Katzen. It is not unbridled discretion because you have
to have privacy policies in place. You have to have other kinds
of----
Mr. Cox. As I just quoted from the Wired News article, the
agency heads or the people who work at these agencies have
concluded, for whatever reason, for statistical purposes,
collecting information about the use of their site, they can
continue to put cookies onto people's computers,
notwithstanding the Lew memorandum. That article was written
after the Lew memorandum went out. Obviously people are not
taking this as an instruction no longer to put cookies onto
people's sites.
Last, with respect to COPPA, this business about the
Presidential Records Act and now being able to respond to
someone is relevant only if you are trying to end run the law
because, as you know, the law, the basic provision of the law
that the whole rest of the country is complying with is that
you get parental consent. Verifiable parental consent is the
touchstone of the law. If the White House were willing to live
by the same rules as everyone else in America was living by,
they would get parental consent and respond to kids in that
way. The only reason that it becomes relevant that you destroy
the information is if you were trying to do an end run around
that requirement. There is an exception where consent is not
required in narrow circumstances and you are trying to exploit
that provision by importing the Presidential Records Act as the
reason that you can't get it done. Why can't you just comply
with the law?
Ms. Katzen. The exception that you note is the one-time
contact and that is the situation that I am talking about. If
you write in and say I want a picture of the President, it is
only a one time contact. We are not trying to build a track
record or a long-term relationship with the child. That is not
an end run around the statute. It is recognizing, as Congress
did, that if you are not going to build a long-term
relationship, you don't need verifiable consent. Verifiable
consent on a one-time contract only doesn't make a whole lot of
sense. To have a child say I want a picture of Socks, and we
respond: have your parent fill out a form and fax it in and
when we get that, we will send the picture is a little bizarre.
That is why that exception has that built in.
Mr. Tauzin. The Chair recognizes the gentlewoman from
Missouri, Ms. McCarthy.
Ms. McCarthy. I have no questions at this time.
Mr. Tauzin. The Chair recognizes the gentleman from Texas,
Mr. Green.
Mr. Green. Thank you, Mr. Chairman. Ms. Katzen, the
chairman outlined loopholes in the Privacy Act of 1974 and do
you believe that the Privacy Act of 1974 is outdated and may
allow the distribution of personal information cited by the
Federal Government?
Ms. Katzen. I think the Privacy Act has served us well for
the last quarter century. I am always open to relooking at it
to see whether in an age where we act faster with faxes and
Internet, instead of more leisurely types of communication,
some different language has to be included.
But if GAO asks us, or Congress in its oversight function
asks us, for information, we are going to provide it, and I
think citizens know that is the case. Those are the kinds of
exceptions that are in there.
Routine use--to establish a routine use that the chairman
mentioned, the agency has to publish a description of what it
is they want to do--for example, they are going to take your
information and share it with this bureau or that bureau for
this purpose or that purpose. It is written in the Federal
Register. Comments can be filed. It is a very public process.
So my instinct is that for the last quarter century we have
been well served, but I would not be opposed to looking again
at the language to see if it could be tightened. We believe in
privacy.
Mr. Green. Are Americans providing information to Federal
agencies vulnerable to having that information used in some
inappropriate way, whether the IRS, whether it be HUD or
somewhere else? Do you know of any examples where information
that someone provided was used inappropriately?
Ms. Katzen. I will not sit here and tell you that there is
no misuse of information.
I can tell you that we have taken all reasonable steps to
minimize that and to ensure that when we hear about something,
there is a remedy.
I thought the first GAO study that identified where privacy
policies could be more clearly stated, or better placed, was a
good thing because the agencies saw that and they want to
protect privacy, and they therefore have begun to take remedial
steps from these kinds of reports. We have worked very closely
with GAO to ensure that we know what is happening. I can't tell
you there has never been an instance, and I won't do that.
Mr. Green. I don't expect that. We have remedies, but
generally the American people ought to feel comfortable in
contacting or providing information that it is not going to be
shared.
Ms. Katzen. Absolutely.
Mr. Green. And there are punishments for inappropriate use
of that information.
Ms. Katzen. Absolutely. Under the Privacy Act, if you feel
that something has been done, you can bring suit.
Mr. Green. I want to make sure that there is an appropriate
response that the U.S. Government can do to someone that is
ilegally using this information.
Ms. Katzen. There are civil and criminal statutes involved.
Mr. Green. Let me ask you about the Federal web placement
of third party cookies, and the report that we have shows that
22 percent of all sites disclose that they may allow third
party cookies, 14 percent allowed their placement. What would
be the reason why we would allow placement of a third party
cookie on our web site?
Ms. Katzen. I don't know. I did not understand the GAO
statement that agencies ``may allow,'' and I did not understand
that they ``do allow'' other than as people are leaving the
site, the site to which they are going places the cookie. I
think the witness from GAO was trying to explain it.
I should add that cookies are used for site management.
They are very, very popular in the private sector. Everybody
uses them in the private sector.
Mr. Green. Fourteen percent of a third party, I don't know
if that is nongovernment. Mr. Baker, Ms. Koontz, do you know
why we would have a third party involved in placing cookies on
Federal web sites?
Ms. Koontz. In the survey that we did, we identified eight
web sites where we picked up the concept of a third party
cookie. In the vast majority of those, those were cases where a
visitor might be clicking on a link to go someplace else, and
the new site was placing the cookie before you left.
That is not something that is typically thought of as a
third party cookie, but it was a concern because there was no
clear warning that you were leaving, that you were subject to a
new privacy policy or that a cookie was being placed. In one
case, there was a Federal agency that did allow the placement
of a cookie by a third party who collects information. This was
done, I believe, as a way of the third party collecting usage
information about that particular Federal site.
Mr. Green. It seems like we would want to have some kind of
restrictions on third party cookies, whether it is inadvertent,
and maybe that is something that should be looked at.
Thank you.
Mr. Tauzin. I would like for the committee's edification,
Ms. Katzen, if you would submit to the committee clarification
of what conditions could an agency head permit the use of
either session or persistent cookies under OMB policy.
Ms. Katzen. Yes, sir.
[The following was received for the record:]
As discussed during the hearing, OMB Director Lew announced
in June that, as a matter of federal policy, cookies that can
track the ``activities of users over time and across different
web sites'' will not be used on agency sites, except in very
limited cases. When we issued this policy, we did not know and
could not have known what mission-related uses of cookies might
exist or be desired in the future. For this reason, we
specified a process whereby only the agency head could give
approval for the use of persistent cookies after balancing the
importance of the use of cookies to the agency with the
important privacy interests at stake. In addition, the agency
head may give approval only where there is clear and
conspicuous notice, a compelling need to gather the data, and
appropriate and publicly disclosed privacy safeguards for the
data gathered.
I am advised that there have been authorizations for the
use of persistent cookies in a number of circumstances that on
review I find appropriate and beneficial to the public. One
example is the Department of Interior's Alaska Fire Service.
Its site is targeted to fire managers around the state
(although the site is public and can be accessed by anyone). It
allows the managers to view time-critical weather data from
more than one hundred weather stations around the state. Fire
managers use cookies to create the right group of weather
stations for each geographic area, and optimize their ability
to determine local potential fire hazards. Other uses of
persistent cookies include allowing users to return to a set of
previously supplied transactional information. For instance,
individuals can check their reservations with the National Park
Service and purchasers can more conveniently purchase from a
General Services Administration wireless store (generally after
consent to the use of the cookie). We cannot anticipate at this
time what other types of uses of cookies may prove worthwhile,
and so leave the question open on a case-by-case basis.
Mr. Tauzin. The Chair recognizes the gentleman from
Maryland, Mr. Wynn, for a round of questions. I'm sorry, Mr.
Sawyer is first. Mr. Sawyer from Ohio.
Mr. Sawyer. Thank you, Mr. Chairman. The irony of this is
beyond belief. I have been going back and forth between
Congress and Census with regard to a question which goes
directly to this sort of thing. I am not going to go into that
here, but I would hope that we could look at the mirror image
of the concern that all of us up here share, and from what I am
hearing you all share, about the assurance of privacy.
Could you talk to us for a moment, each of the three of you
in turn, about how we make it possible for agencies of
government to share information that they need in order to
illuminate and inform sound policymaking here in a way that all
of us would support without compromising the privacy of the
information with which they have been entrusted?
Ms. Katzen. Mr. Sawyer, that is a subject that is near and
dear to my heart. That is something that I have worked on for
the last 5 or 6 years. GAO sometimes refers to this issue in
some of its studies. We have identified this as one of our
priority management objectives this year, and have been working
on it to do a number of things. One is to enable agencies to
share information--to test eligibility, to ensure that the
right person is getting the right benefit, the right amount of
the right benefit, and you do that by sometimes needing access
to tax information, sometimes needing access to information
that may be in somebody else's files.
That is one form of sharing. There is the act on computer
matching. There are procedures that are involved, and there are
very stiff restrictions. Section 6103 of the Tax Code, for
example, precludes this kind of sharing without a very detailed
process.
We have been working to see whether new technology will
help us protect the privacy of the information, because one of
our objectives in sharing data would be to ensure that, no
matter in whose hands it was, it was being protected and it was
being kept confidential.
Another area that we have been working on, which I think
has something to do with what you have been doing in the time
that you have not been here this morning, has to do with
statistical information. Right now, we ask American businesses
to supply all sorts of information over and over and over
again. If we could have the statistical agencies share more of
that information--BLS, BEA, Census--you would be able to reduce
the burden on respondents and therefore increase the likelihood
of complete and honest and accurate responses. That is an issue
which doesn't have personal information usually. It doesn't
have even identifiable information. But it has sufficient
protection and confidentiality that we need to work out the
process whereby sharing can happen.
Those are just two instances where, if we can establish
that we do protect the information, we could save the American
citizens and the American government a lot of time and effort.
Mr. Sawyer. Mr. Baker, from the point of view of the
committee that you have been working with, could you comment on
that?
Mr. Baker. It is interesting that the drive toward
electronic government, there are a lot of great ideas coming up
with Federal employees and their contractors for how to utilize
information. And on the other side, you have the Privacy Act,
Title 13 and other things that do I think to this point an
appropriate job of governing that enthusiasm and keeping us
from putting data bases together in ways that we know how to do
but, frankly, the laws I think appropriately keep us from
doing.
One of the things that I can't help but emphasize, and I am
sure you are well aware of this given the other thing that you
are working on, is the attention that Federal employees pay to
the privacy issue. When you go out to census and you are sworn
in as a Title 13 swearing-in person, they take that very
seriously. They are the defenders of the public's privacy as
Federal employees, and I don't think that we recognize that or
emphasize that enough in the government is that those people
view that as their life job, A, to do a good statistical job
but, B, to that protect that information.
So I think that the intersection of those two forces,
electronic government and what we can do, the Privacy Act,
Title 13 and others, on what they keep us from doing so far has
kept a balance in there. We have been able to move ahead but
not too quickly and not without doing a tremendous amount of
violating the people's privacy. I don't know how we change
that, to be frank. It is interesting to work in it right now,
and again it is a balancing act there.
Mr. Sawyer. Ms. Koontz, in preparing your analysis of all
of this, it is fair to say that you looked at it largely from
the perspective of protecting privacy rather than the
concomitant need to share information where appropriate.
Ms. Koontz. I don't think we took actually either
perspective. Our charge was, very simply, to use the same
criteria that FTC uses, use their identical methodology and to
evaluate Federal sites using that criteria and methodology. I
don't think there was a particular view associated with that
except to the extent that FTC may have a view on how they look
at sites.
Mr. Sawyer. In that sense, without having the two different
angles from which to view a complex problem, would it be fair
to say that--without using words like--I don't want to use--I
won't even use the word, but that it yields a less than fully
developed portrayal of the complexity of the problem that we
are trying to deal with here?
Ms. Koontz. I guess I look at this issue a little bit
differently. It is true that you can't hold Federal sites
accountable for not following the FTC methodology and the FTC
fair information principles. They are subject to other rules,
other laws, other regulations. But then, on the other hand, I
think it is useful to look at what Federal agencies are doing
in light of various standards as a way of, I think, continuing
a debate on whether we are happy with the status quo. Are we
happy with requirements that we have or do we need to take a
re-look at them?
Mr. Tauzin. Gentleman yield a second?
Mr. Sawyer. Please do.
Mr. Tauzin. Just to point out, I don't think private sites
are required to follow the FTC. There is no law following that.
Ms. Koontz. That is correct.
Mr. Sawyer. Thank you, Mr. Chairman.
Mr. Tauzin. Chair recognizes the Mr. Wynn from Maryland.
Mr. Wynn. Thank you, Mr. Chairman.
I guess I take a somewhat conservative view starting with
domain cookies, and I really would like to get a clear
understanding of the rationale for domain cookies with respect
to getting personal information and how that enables you to
manage--how the identification of the user enables you to,
quote, manage the site better.
Ms. Katzen. Let me start, and then Mr. Baker might be able
to add--will definitely be able to add something.
When we launched firstgov on September 22, everybody wanted
to know how many hits did we get? And the question is, is that
the same person coming back 12 times or is it 12 different
people? If you have a cookie, you can tell whether it is the
same person or not. Now that is how you use it for site
management.
Mr. Wynn. If I could jump in, is that the best rationale?
Mr. Baker. Sir, if I could, I think the best rationale is
the one the private sector utilizes, which is personalization
of a web experience is a real benefit to the consumer, if that
is all the information is used for is that personalization. So,
for example----
Mr. Wynn. But there is an assumption there that I am not
ready to accept and that is that personalization is in the
interest of the consumer. Says who?
Ms. Katzen. Some consumers choose it. Mr. Goodlatte sat
here and said he has no objection and indeed he sort of likes
the idea that when he goes to Amazon.com they say, you like
biographies. That is how they use it in the private sector.
Mr. Wynn. I want to go back to this. There is no opt-out so
your assumption that it is good for the consumer to be
personalized doesn't give the consumer the ability to say, no,
I don't want to be personalized.
Mr. Baker. I would agree with you. There needs to be opt-
out.
Mr. Wynn. That is one item that I think is important for
discussion. You agree there needs to be opt-out on domain
cookie, is that your position?
Mr. Baker. My personal position, it would be yes,
recognizing that that will have an impact on, if you will, the
value of the companies in the Internet who base a lot of what
they do on being able to personalize, that personalized
experience.
Mr. Wynn. That is fine. I am satisfied. I think we have got
at least one policy option on the table, and that is let
consumers out of this, and that is fine.
Now is there any other rationale for domain cookies that we
need to be aware of? Okay, with respect to third-party cookies,
shouldn't there be some probable cause standard or some
restriction conditioning, however you would phrase it, to
justify any imposition of third-party cookies. I think members
of the panel seem to be saying the same thing in a lot of ways.
I will be candid and say I have a very hard time of accepting
the notion of third-party cookies unless someone presents a
probable cause case for national security.
Ms. Katzen. Federal web sites are not to have third party
cookies.
Mr. Wynn. What is the penalty?
Ms. Katzen. The penalty would be to immediately take the
site down and hold the agency head responsible, as you would
with any other kinds of violations of Federal policy. The
assumption is that Federal employees will obey the policy as
Mr. Baker indicated.
Mr. Wynn. There are no statutory penalties against a
Federal employee that imposes a third-party cookie.
Ms. Katzen. Not that I am aware of. But I am also not aware
of any instances where they are, in fact, imposing them, as Ms.
Koontz was indicating they----
Mr. Wynn. I thought you said there were about eight out of
65, is that correct?
Ms. Katzen. That is where, as people are leaving the site--
--
Mr. Wynn. Please clarify that.
Ms. Koontz. We identified these using the methodology that
FTC used. We picked up eight instances that we called third-
party cookies.
Mr. Wynn. We can stop there. So there are instances--any
requirement in law that those eight instances be justified or
can we conclude that they are, per se, in violation of existing
law?
Ms. Koontz. I don't know the answer to that question. I
think that is----
Ms. Katzen. It is not law, but policy. If they were placed
by the agency, as opposed to the exiting link, which is what
you had said earlier--many of these were placed as people click
to go to someplace else. It is the someplace else that puts the
cookie on the person's machine. It is not the agency. But if
the agency is doing it, they shouldn't be doing it unless they
have gone through the materials that we have provided to them
in terms of the finding that they need to make, privacy
protections that need to be in place, and the other processes
in reporting to OMB on this kind of situation.
Mr. Wynn. So they can make a showing to OMB, and it is okay
to impose a third-party cookie?
Ms. Katzen. It may or may not be okay, depends on what they
show.
Mr. Wynn. What do they have to show to justify a third-
party cookie?
Ms. Katzen. That having the cookie is critical to obtaining
their mission, and I think that is a pretty high showing.
Mr. Wynn. Well, it depends on whether it is national
security or whether it is Department of Interior.
Mr. Tauzin. Would the gentleman yield? If the gentleman
will yield, I will quote from the memorandum for the gentleman.
It says that under this new Federal policy dated June 22nd
cookies should not be used in Federal web sites or by
contractors when opening web sites on behalf of agencies
unless, in addition to clear and conspicuous notice--first of
all, you have to at least give people the notice you are doing
it--the following conditions are met: the compelling need to
gather the data on the site--whatever that means--and
appropriately and publicly disclosed privacy safeguards for the
handling of the data on the site, appropriately and publicly
disclosed privacy safeguards for handling information derived
from the cookies, and personal approval by the head of the
agency.
Mr. Wynn. I thank the chairman. If I could have 30
seconds----
Mr. Tauzin. Gentleman is recognized for an additional 30
seconds.
Mr. Wynn. My concern is where is the oversight of the
agency decision that they have a need to collect this
information? I am perfectly willing to accept a national
security, a law enforcement rationale, maybe the Interior does
have a rationale, but where is the oversight that would enable
those of us in Congress to know that these agencies are acting
in fact within the scope of their authority?
Ms. Katzen. Well, this information would ultimately be
gathered together by OMB and OMB has very aggressive oversight
committees that are constantly asking for, legitimately, this
kind of information. I would also note this is a subject that
has gotten a lot of play in the press because this is not
something you can do in secret. The reason we are here is
because there is a whole cadre of people there who are
constantly testing us, the private sector, NGO's, they are
constantly trying to discover these activities.
Mr. Wynn. In other words, agencies that report to you, it
has a rationale--is there mandated reporting of that
information to Congress?
Ms. Katzen. No, sir.
Mr. Wynn. Thank you, Mr. Chairman.
Mr. Tauzin. I thank the gentleman.
For the record--you can submit this for the record. It was
raised by a number of members. When was the last criminal
prosecution of a Privacy Act violation? If you can submit that
for the record. We can't recall one. We can recall a lot of
stories about personal data being released to the press--
Kathleen Willey, Linda Tripp, all kinds of stories. Was there
any prosecutions of violations of their rights?
Ms. Katzen. We will be happy to do that.
[The following was received for the record:]
According to the Department of Justice, the last criminal
prosecution under the Privacy Act was U.S. v. Trabert (D. Colo.
1997)
Mr. Tauzin. Gentleman from California, Mr. Cox.
Mr. Cox. Thank you, Mr. Chairman.
I just want to underscore my complete agreement with the
concerns expressed by Representative Wynn; and I hope that also
for the record, Mr. Chairman, if you would permit, perhaps we
could see a list of those circumstances in which the collection
of cookies, not temporary cookies, not session cookies, would
be compelling for any agency under this memorandum.
Mr. Tauzin. If the gentleman would yield a second, I want
to make sure the request is specific.
GAO identified eight sites of the surveyed sites, and GAO
only surveyed at random a certain number of sites and the top
30-some high-volume sites. What the gentleman is asking for the
record is submission of all of the existing authorized cookies
on all Federal sites, if you can identify those along with the
compelling reasons for those cookies to be on those sites.
And I yield back to the gentleman.
Mr. Cox. I think in Representative Wynn's question he had
embedded the sense we all share that if a person is
legitimately under investigation that obviously tracking them
through their web usage is as legitimate as tapping their phone
or anything else. But, you know, if the national security
concern is that somebody might be hacking into our computers or
what have you, then we are all for doing whatever we can to try
to track that down. But putting that in a clear category of its
own, literally intentionally investigating people, what are the
reasons that OMB thinks the government ought to be placing
cookies on people's computers for that are not just session
cookies? And if you could answer that for the record, because I
know that----
Ms. Katzen. I would be happy to, although I should state
that we don't have a preexisting list of conditions. We don't
think persistent cookies should be on Federal websites, but
since we do not know everything and we don't know all the
different circumstances that could be presented, we established
this process. But I will supply the information that you
requested for record.
[The following was received for the record:]
Please refer to the response to Representative Tauzin's
earlier question.
Mr. Cox. All right, and I would just then conclude by
saying I hope to get rid of the cookies. I think a policy----
Ms. Katzen. So do I.
Mr. Cox. If the concern is, gee, the government is so big,
we can't get an answer to this question fast enough or we can't
get it done quickly enough, which is what the administration
expressed to wired news when they put the question, the best
way to get it done quickly is to have a clear policy.
Also, as you mentioned in your opening comments, if the
objective is to instill confidence in the public that they are
not in any way to be worried when they are going on to a
government site, the easiest way to do that is to have a rule
that the public can understand, which is no permanent cookies.
And you know the notion that we have got cookies on computers.
Some of the people on this committee, some of the staff have
tracked this where the expiration days are 2034 where our
government has been putting these cookies on lately. That is a
very bad thing.
I just logged on the White House web site and checked out
the privacy disclosure there with respect to the kid's site and
the regular site, and it states that the White House is
collecting IP addresses. Now, on IP addresses unique to a
specific computer, I need to know why that is important, but
that I would think you could answer now.
Ms. Katzen. If you would--I would rather provide it for the
record rather than now--and I will provide that for the record,
sir.
Mr. Cox. I thank the chairman.
[The following was received for the record:]
Unlike an e-mail address, which can serve as a personal
identifier, IP addresses are not personally identifiable tags.
They are assigned to each computer using the Internet or other
similar networks an are an integral component of network
communications. IP address are session based--every time a user
uses the Internet, he or she receives a different IP address.
The White House web site is not unique in ``collecting'' IP
address. Collecting IP addresses is an industry standard and
all commercial software automatically collects IP addresses and
compiles them into network activity logs. System administrators
use these activity logs primarily for two purposes: first, to
asses network and system performance and, second, as a standard
security procedure to detect unauthorized intruders (i.e.
hacking).
Mr. Tauzin. Let me make an announcement.
We have a vote on the floor, Mr. Markey has arrived and
wants to do a round of questions, and we want to recognize--
before I do that, let me announce that both Mr. Shaw and Mr.
Pitofsky have arrived, and we want to accommodate them as
quickly as we can when we get back. So we will not have time I
think, Mr. Shaw. So if you don't mind we will make this vote
and come right back. We will take you up immediately, Clay, if
that is all right with you. If you can just tell us briefly
what your scheduling problem is.
STATEMENT OF HON. E. CLAY SHAW, JR., A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Shaw. Well, the problem--I can dispose of this right
new and leave this statement. This is a question of privacy
issue having to do with Social Security. We are not--I know Mr.
Markey is interested in that as well as the chairman, and this
is something we should put high on our agenda next year when we
return.
Mr. Tauzin. I thank the gentleman. The statement will be
part of the record. Thank you, Mr. Shaw.
[The prepared statement of Hon. E. Clay Shaw, Jr. follows:]
Prepared Statement of Hon. E. Clay Shaw, a Representative in Congress
from the State of Florida
Mr. Chairman and members of the Subcommittee, I commend you for
holding this very important hearing, and I appreciate the opportunity
to testify before you today.
As Chairman of the Ways and Means Subcommittee on Social Security,
my particular interest lies in the area of protecting the privacy of
Social Security numbers (SSNs). This summer, my Subcommittee held three
hearings on SSN use and misuse. We learned about the tragedy of
identity theft from retired Colonel and Mrs. Stevens of Maryland who
have seen their SSNs used to open 33 fraudulent accounts and to rack up
$113,000 of bad debt. We also heard from Mr. Bob Horowitz, a single
father and small business owner from my district, who saw his number
used to open five fraudulent credit accounts. Months and years later,
they are still spending time, money, and energy to clear their names
and in the Steven's case, bring their perpetrators to justice.
SSN misuse is a growing problem that needs to be addressed. In
fiscal year 1999 alone, Social Security's Office of Inspector General
received 62,000 allegations of SSN fraud, and the average number of
monthly allegations has been increasing. This growth in SSN crimes has
raised serious concerns over privacy and has emphasized the need to
better protect SSNs in the law.
When SSNs were created 65 years ago, their only purpose was to
track a worker's earnings so that Social Security benefits could be
calculated. But today, use of the SSN is rampant.
We have literally developed a culture of dependence on the SSN.
Businesses and governments use the SSN as the primary way of
identifying individuals. It is integral to their business operations,
program administration, record-keeping systems, and data-sharing
systems. All of us know how difficult it is to conduct even the most
frivolous transaction without having to cough up our Social Security
numbers first. And once we provide this information for one purpose, it
is often sold without our knowledge or used for other purposes without
our consent.
Although SSNs are used for many legitimate purposes, their
prevalent use has made them very valuable. For example, counterfeiting
Social Security cards for illegal aliens and using false SSN
information to obtain federal benefits illegally have become quite
profitable.
Moreover, as we learned from Colonel Stevens and Mr. Horowitz, SSNs
are so valuable, that someone who steals your SSN can literally steal
your identity. Identity theft is now considered the fastest growing
financial crime in the country, affecting more than 750,000 people
every year and creating more than $745 million of monetary losses
annually.
Despite the pervasive use of SSNs and the potential for fraud, SSNs
receive very little protection under the law. Clearly, there is a need
for a comprehensive law that will better protect this very personal
information and protect the American public from being victimized.
Earlier this year, I introduced H.R. 4857, the Social Security
Number Privacy and Identity Theft Prevention Act of 2000 along with
several members of the Ways and Means Committee. This bill was drafted
on a bipartisan basis, and it passed unanimously out of the
Subcommittee and the Full Ways and Means Committee.
H.R. 4857 takes a comprehensive approach to SSN privacy by
targeting the treatment of Social Security numbers in both the public
and private sectors. A summary of the bill is provided below.
Restrictions on the Sale and Public Display of SSNs by Government
Agencies
Prohibits Federal, State and local governments from:
selling SSNs (limited exceptions are made to facilitate
law enforcement and national security, to ensure the
accuracy of credit and insurance underwriting information,
and to allow for the effective administration of programs
authorized under the Social Security Act),
displaying SSNs on Internet sites and public documents
(limited exceptions are made to facilitate law enforcement
and national security and to ensure the accuracy of credit
information),
displaying SSNs on checks, employee identification cards,
military tags, and identification documents issued by State
Departments of Motor Vehicles, such as drivers' licenses
and motor vehicle registrations, and
employing prisoners in jobs that provide them with access
to SSNs.
Strengthens verification requirements for birth records when
someone applies for a SSN card.
Requires the U.S. General Accounting Office to conduct a
comprehensive study regarding how use of the SSN can be
minimized at all levels and branches of government.
Restrictions on Sale, Purchase, and Use of SSNs in the Private Sector
Authorizes the Federal Trade Commission to issue regulations
restricting the sale and purchase of SSNs in the private
sector.
Discourages businesses from denying services to individuals
who refuse to provide their SSNs by subjecting them to
penalties under Federal law.
Includes the SSN in the definition of ``credit report'' under
the Fair Credit Reporting Act so that the SSN receives the same
privacy protections as other consumer credit information.
The first two provisions are within the jurisdiction of the
Commerce Committee, and the third provision is within the jurisdiction
of the Banking Committee.
Enforcement, Fines, and Penalties
Creates new criminal and civil penalties for violations of the
law relating to sale, purchase, or misuse of the SSN.
Allows Federal courts to order defendants to make restitution
to the Social Security Trust Funds or the General Fund of the
Treasury for violations of the law.
Enhances law enforcement authority for the Social Security
Administration Office of Inspector General.
In addition to these provisions, H.R. 4857 strengthens protections
for Social Security and Supplemental Security Income beneficiaries
whose monthly benefits are managed by representative payees. The bill
also includes several technical amendments that were submitted by the
Social Security Administration.
The Ways and Means Committee did not consider any of the private-
sector provisions because they are not within the Committee's
jurisdiction. However, we have received many comments about these
provisions, which were forwarded to the appropriate Committee. In
general, the comments we received emphasized the role of the SSN as a
unique identifier which enhances the efficiency of commercial
transactions, ensures the accuracy of consumer records, facilitates
fraud prevention efforts, and helps enforce the law. I urge the
Commerce and Banking Committees to consider the provisions that have
been referred to them as soon as possible.
H.R. 4857 is a responsible and sensible bill. It balances concerns
over privacy with concerns over efficiency. At the same time, it will
effectively protect Social Security numbers and protect citizens from
identity theft and other SSN crimes. Businesses and governments will
need to re-think the way they do businesses so that customers are put
first. Only through this type of re-tooling can we change the culture
of dependence on Social Security numbers. Americans' right to privacy
must be protected. I urge your Subcommittee to work with us so that
together we can put the security back into Social Security numbers.
Mr. Tauzin. The Chair now recognizes the gentleman from
Massachusetts.
Mr. Markey. Thank you, Mr. Chairman.
Congressman Shaw and I have been working on this issue of
privacy inside this Social Security context, and it just shows
this is not a liberal or conservative or Democrat or Republican
issue at all. It is an issue where the liberal left meets the
libertarian right, isolates the pragmatic middle, okay, who
just don't like to tell industry or their government employees
that they can't do this. So there is kind of a pragmatist
middle here that we just have to isolate and ultimately
eliminate. That is the bottom line on this. That is the
pragmatists, they are the problem here, because everybody else
agrees on the issue.
The issue isn't really Big Brother. The issue is Big
Browser. They give it to anybody, public sector or private
sector. They can't control themselves. They just have to get
this information. It is almost like a compulsion. It is an
obsession. Because it is there, the technology controls the
ethos. Because you can do it, you do it. Technology makes it
possible. So it is the browser itself, it is this capacity to
data mine, you know, to know all this information.
So, yeah, in a private sector, government context, you all
call it security. You know, we need better security. From an
individual's perspective, they say we need better privacy. It
is all the same issue, though. Security, privacy, it all just
means is the information secret or not.
Well, the industry says, we want stronger encryption
technology so we can move this information from the consumer to
us, but after we get it, we don't have any rules, we can do
whatever we want with it. The government says, we want
security, but that is just so we can keep our information
private. But if we can gather information about private
citizens that help us do our business, it is good. But from a
consumer's perspective, it is all their privacies, their
individual family's identity. So that is why self-regulation
doesn't work. You can't allow the government to self-regulate;
you can't allow the private sector to self-regulate.
You have got to have a certain minimal set of protections
that every individual is entitled to, whether it be a big
government agency or a big corporation or a small government
player in your hometown or a small company in your hometown.
Regardless of who it is, you have got to have this minimal set
of rights that every American is entitled to, and so----
We have a roll call on the floor.
I thank all of our witnesses for helping us. I apologize
for arriving late, but I thank you, Mr. Chairman.
Mr. Tauzin. I thank the gentleman, and the Chair thanks the
witnesses for their attendance and their participation. What we
will do is declare a 15-minute recess, give everybody a break.
Chairman Pitofsky, we will be back. As soon as we come
back, we will take you up first, as soon as we get back.
The committee stands in recess.
[Brief recess.]
Mr. Tauzin. The subcommittee will please come back to
order.
We are pleased to welcome the Honorable Robert Pitofsky,
the Chairman of the Federal Trade Commission, who is elated
today because the Senate just passed his reauthorization bill.
He would love to see the House take it up before we leave.
Mr. Pitofsky, we have often had this conversation in
private and public. We are at it again. Today we welcome you.
Your statement, of course, is part of the record; and we
welcome you to summarize your report to us today on privacy,
both in the private and public sector.
STATEMENT OF HON. ROBERT PITOFSKY, CHAIRMAN, FEDERAL TRADE
COMMISSION
Mr. Pitofsky. Thank you very much, Mr. Chairman, members of
the committee. As always, I appreciate this opportunity to
discuss with you and the members these important issues
relating to privacy.
As this committee knows very well, the Commission has
acquired considerable expertise and experience in addressing
privacy issues on-line and off-line in recent years. Our
activities in this area are based on our statutory authority to
challenge marketing practices that are deceptive or unfair. Let
me start with some basics.
Protection of privacy is important to consumers. All
surveys demonstrate consumer concern, and on-line commerce will
not reach its full potential until and unless these privacy
issues are adequately addressed.
Incidentally, I saw just yesterday a Harris survey that
reported that among Internet users, they were more concerned
with their privacy on the Internet than they were with health
care, crime and taxes. A really remarkable set of findings.
Second, basic protections include notice of what
information is collected and how it will be used, consent to
use by consumers of their personal information, reasonable
access to a data base to correct errors, and reasonable
security arrangements as to how information is used.
Even if all these fair information practices are adopted,
that is not enough. There must be effective monitoring and
enforcement to ensure that privacy guarantees are really
respected, and it is interesting that many in the business
community have pretty much adopted the four fair information
practices that I described.
The policy dispute in this area has turned on whether fair
information practices can be best achieved through self-
regulation or legislation. My own view is that neither approach
should be exclusive. Self-regulation is essential, but it will
be most effective if it is backed by a rule of law.
Also, Mr. Chairman, addressing an issue that I know you
have raised with me, any policy choice must be flexible in the
sense that it takes into account the possibilities that new
technology may ease or modify the need for legislation.
The FTC has conducted or reported on three surveys. Our
first, in 1998, found of all sites surveyed only 14 percent
published a privacy notice. The second, in 1999, showed 64
percent. According to our 2000 survey, the figure had reached
88 percent. That is the good news.
But these numbers must be placed in context. Only 20
percent of the sites reviewed in the 2000 survey satisfied all
four fair information practices. Of the 88 percent that did
include a privacy disclosure, many offered a kind of notice
that was inadequate, misleading or obscure. Most important to
me, only 41 percent provided notice and consent, in my view the
two essential fair information practices.
I should add that if you didn't look at these numbers from
the point of view of all sites but only the hundred most
visited, the numbers would be much better. For example, notice
and consent are provided on 60 percent of the most-visited
sites.
Beyond statistics, there is a policy question of what to do
about firms that provide inadequate notice or no notice at all.
Those advocating an exclusively self-regulatory approach argue
that firms should be denied a seal of approval and consumers
observing the absence of the seal will choose to do business
with other on-line sites. There are quite a few flaws with that
approach.
First, even in our 2000 survey, our most recent survey,
only 8 percent of web sites posted a seal of approval; 92
percent did not. More important, I do not see that denial of a
seal of approval will really influence the outliers, the
relatively few unprincipled firms, that are collecting and
selling private data and will ignore industry standards
designed to change their ways.
The fact of the matter is that the best self-regulatory
programs among advertisers, funeral directors and others are
effective because they are backed by a rule of law.
Beyond this fundamental question of legislation versus
self-regulation, the Commission has been active in other areas.
We commended the self-regulatory practices by the Network
Advertising Initiative, an organization comprised of leading
Internet advertisers, to develop a framework for self-
regulation in the profiling area, although we said there, too,
that legislation to back them up would be appropriate.
We issued rules interpreting Congress' statute entitled the
Children's On-line Privacy Protection Act designed to protect
young people from exploitation.
We issued rules under Gramm-Leach-Bliley designed to
protect consumers' privacy when dealing with financial
institutions.
Finally, the Commission has brought three cases in the past
year challenging deceptive or unfair conduct in connection with
web sites, and with additional support from Congress on our
budget we will be more active in the future.
To conclude, my hope is that in the next Congress,
government, consumer advocates and the business community can
join forces in finding their way to a moderate, balanced,
forward-looking and sensible form of privacy protection.
I would be glad to answer your questions; and, if I may, I
would like to invite our Bureau Director, Jodie Bernstein, to
join me for some of detailed questions that we may run into.
Director Bernstein.
[The prepared statement of Hon. Robert Pitofsky follows:]
Prepared Statement of Robert Pitofsky, Chairman, Federal Trade
Commission
Mr. Chairman and members of the Subcommittee, I am Robert Pitofsky,
Chairman of the Federal Trade Commission (``FTC'' or ``Commission''). I
appreciate this opportunity to present an overview of the Commission's
work over the past year in protecting consumers' privacy.1
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\1\ My oral testimony and responses to questions you may have
reflect my own views and are not necessarily the views of the
Commission or any other Commissioner.
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I. INTRODUCTION AND BACKGROUND
As you know, the Federal Trade Commission is the federal
government's primary consumer protection agency and our
responsibilities are far-reaching. The Commission's legislative mandate
is to enforce the Federal Trade Commission Act (``FTCA''), which
prohibits unfair methods of competition and unfair or deceptive acts or
practices in or affecting commerce.2 With the exception of
certain industries, the FTCA provides the Commission with broad law
enforcement authority over entities engaged in or whose business
affects commerce.3 Pursuant to these responsibilities, the
Commission has acquired considerable experience in addressing privacy
issues in both the online and offline worlds, 4 and has long
had particular interest in, and gained extensive experience dealing
with, privacy and consumer protection issues.5
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\2\ 15 U.S.C. Sec. 45(a).
\3\ The Commission does not have criminal law enforcement
authority. Further, certain entities, such as banks, savings and loan
associations, and common carriers, as well as the business of
insurance, are wholly or partially exempt from Commission jurisdiction.
See Section 5(a)(2) of the FTC Act, 15 U.S.C. Sec. 45(a)(2), and the
McCarran-Ferguson Act, 15 U.S.C. Sec. 1012(b).
\4\ The FTC Act and most other statutes enforced by the Commission
apply equally in the offline and online worlds. See, e.g., FTC v.
ReverseAuction.com, Inc., No. 00-0032 (D.D.C. Jan. 6, 2000) (discussed
infra); In re Trans Union, Docket No. 9255 (Feb. 10, 2000), appeal
docketed, No. 00-1141 (D.C. Cir. Apr. 4, 2000) (holding that
defendants' sale of individual credit information to target marketers
violated the Fair Credit Reporting Act).
\5\ In particular, the Commission has law enforcement
responsibilities under the Fair Credit Reporting Act, which, among
other things, limits disclosure of ``consumer reports'' by consumer
reporting agencies, 15 U.S.C. Sec. Sec. 1681 et seq., and under the
Gramm-Leach-Bliley Act, which restricts the disclosure of consumers'
personal financial information by certain financial institutions, 15
U.S.C. Sec. Sec. 6801-6809 (Subtitle A).
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The Commission's interest and involvement in online privacy dates
back to 1995. From that time forward, the Commission has held a series
of public workshops on online privacy and related matters designed to
educate itself and the public on the many issues involved. In addition,
the Commission has been active on a number of privacy fronts. We have
examined web site practices in the collection, use, and transfer of
consumers' personal information; encouraged and evaluated self-
regulatory efforts and technological developments to enhance consumer
privacy; developed consumer and business education materials; and have
studied the role of government in protecting online information
privacy, including in particular, the online collection and use of
information from and about children.6 The Commission also
has issued a series of reports to Congress regarding privacy online,
including the topics of online profiling and the global aspects of
Internet privacy.
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\6\ See, e.g., Online Profiling: A Report to Congress, Part 2
Recommendations (July 2000); Online Profiling: A Report to Congress
(June 2000); Privacy Online: Fair Information Practices in the
Electronic Marketplace (May 2000) (``2000 Report''); Self-Regulation
and Privacy Online: A Report to Congress (July 1999); Privacy Online: A
Report to Congress (June 1998); Individual Reference Services: A
Federal Trade Commission Report to Congress (Dec. 1997); FTC Staff
Report: Public Workshop on Consumer Privacy on the Global Information
Infrastructure (Dec. 1996); FTC Staff Report: Anticipating the 21st
Century: Consumer Protection Policy in the New High-Tech, Global
Marketplace (May 1996).
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II. COMMISSION INITIATIVES IN THE LAST YEAR
The past year has been a very busy one for the FTC in the area of
consumer privacy.
Our efforts have included the following:
surveying Web sites to examine their information practices and
privacy statements;
convening the Advisory Committee on Online Access and Security
to study and provide recommendations pertaining to (a)
consumers' access to their personal information; and (b)
appropriate measures to protect the security of that
information;
issuing a report to Congress on online privacy;
issuing a series of reports to Congress on third-party online
profiling;
issuing Rules implementing the Children's Online Privacy
Protection Act (COPPA) and the Gramm-Leach-Bliley Act (GLBA);
providing comments to other government agencies examining
privacy issues; and
bringing law enforcement actions against Web sites that
violate the FTC Act.
What follows is a brief summary of our work in each of these areas.
2000 Online Privacy Survey and Report to Congress
In its most recent report to Congress on online privacy, a majority
of the Commission recommended legislation requiring consumer-oriented
commercial Web sites that collect personal identifying information from
or about consumers online to comply with the four fair information
practices: Notice, Choice, Access, and Security.7 The Report
analyzed the results of the Commission's survey of commercial Web
sites' information practices, conducted in February and March 2000, and
discussed the work of the Advisory Committee on Online Access and
Security, which the Commission convened in December 1999.
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\7\ The Commission vote to issue the Report was 3-2, with
Commissioner Swindle dissenting and Commissioner Leary concurring in
part and dissenting in part.
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The Advisory Committee on Online Access and Security, a group
comprised of 40 e-commerce experts, industry representatives, security
specialists, and consumer and privacy advocates, provided advice and
recommendations to the Commission regarding the implementation of the
fair information practice principles of Access and Security online. In
a series of public meetings, the Advisory Committee discussed options,
and the costs and benefits of each option, for implementation of these
principles. The Advisory Committee submitted a final report to the
Commission in May 2000 which highlighted the complexities of
implementing Access and Security and, in light of the differing views
of Committee members, developed several different options for providing
Access and Security.8
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\8\ Available at http://www.ftc.gov/acoas/papers/finalreport.htm.
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The Commission's survey included two groups of sites drawn from a
list of the busiest U.S. commercial sites on the World Wide Web: a
census of 91 of the 100 busiest sites (the ``Most Popular Group''), and
a random sample of 335 sites that had at least 39,000 unique visitors
per month (the ``Random Sample'').9 The survey results
showed that 88% of sites in the Random Sample and 100% of the sites in
the Most Popular Group posted at least one privacy disclosure, and that
20% of Web sites in the Random Sample that collected personal
identifying information, and 42% in the Most Popular Group,
implemented, at least in part, all four fair information practice
principles. The Commission also examined the data to determine whether
Web sites were implementing Notice and Choice only. The data showed
that 41% of sites in the Random Sample and 60% of sites in the Most
Popular Group met the basic Notice and Choice standards.
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\9\ 2000 Report at Appendix A.
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Based on these results, as well as on the lack of a widely-adopted
self-regulatory enforcement mechanism, a majority of the Commission
recommended that Congress enact legislation to protect consumer privacy
online. The proposed legislation would require Web sites to implement:
(1) notice (providing clear and conspicuous notice of their information
practices); (2) choice (offering consumers choices as to how their
personal identifying information is used beyond the use for which the
information was provided, including choice for both internal and
external secondary uses of the information); (3) access (offering
consumers reasonable access to the information a Web site has collected
about them, including a reasonable opportunity to review information
and to correct inaccuracies or delete information); and (4) security
(taking reasonable steps to protect the security of the information
collected from consumers).10
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\10\ 2000 Report at 36-38. The proposed legislation would govern
U.S. commercial Web sites to the extent not already covered by the
Children's Online Privacy Protection Act, 15 U.S.C.Sec. 6501 et seq.
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Online Profiling Workshop and Reports to Congress
In November 1999, the Commission, together with the Department of
Commerce, held a public workshop on ``online profiling'' 11
by third-party network advertisers, firms that place advertisements on
Web sites. The workshop was designed to educate the public about this
practice, as well as its privacy implications, and to examine current
efforts by network advertisers to implement fair information practices.
At the workshop, industry leaders announced the formation of the
Network Advertising Initiative (NAI), an organization comprised of the
leading Internet network advertisers, to develop a framework for self-
regulation of the online profiling industry. Following the workshop,
the NAI companies submitted drafts of self-regulatory principles for
consideration by FTC and Department of Commerce staff. After lengthy
discussions, a set of principles emerged that a majority of the
Commission found to be a reasonable implementation of the fair
information practice principles. The Commission discussed the NAI
Principles in Part 2 of its Report to Congress in July,
2000.12
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\11\ Online profiling is the practice of aggregating information
about consumers' interests, gathered primarily by tracking their
movements online, and using the resulting consumer profiles to deliver
targeted advertisements on Web sites. The transcript of the workshop,
as well as public comments filed in connection with the workshop, are
available at .
\12\ See Online Profiling: A Report to Congress, Part 2 (July
2000). The Commission vote to issue Part 2 of the Report was 4-1, with
Commissioner Swindle dissenting and Commissioner Leary concurring in
part and dissenting in part. Both Commissioner Swindle and Commissioner
Leary commended NAI's self-regulatory program. A copy of the NAI
principles is attached as an appendix to that report. The report is
available at and
the NAI principles are available at . Among other things, the NAI Principles provide
that consumers will receive notice of network advertisers' profiling
activities on the Web site they are visiting (the so-called ``host'' or
``publisher'' Web site) as well as notice of their ability to choose
not to participate in profiling. Where personally identifiable
information is collected for profiling, a heightened level of notice,
``robust'' notice, will be required at the time and place such
information is collected and before the personal data is entered. In
addition, material changes in the information practices of a network
advertising company cannot be applied to information collected prior to
the changes, and previously collected non-personally identifiable data
(``clickstream'') cannot be linked to personally identifiable
information without the affirmative (opt-in) consent of the consumer.
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Despite the NAI companies' commendable self-regulatory initiative,
however, a majority of the Commission found that backstop legislation
was still required to fully ensure that consumers' privacy is protected
online. The majority reasoned that while NAI's current membership
constitutes over 90% of the network advertising industry in terms of
revenue and ads served, only legislation can compel the remaining 10%
of the industry to comply with fair information practice principles.
The majority believed that self-regulation also cannot address
recalcitrant and bad actors, new entrants to the market, and drop-outs
from the self-regulatory program. In addition, the majority found that
there are unavoidable gaps in the network advertising companies'
ability to require host Web sites to post notices about profiling,
including Web sites that do not directly contract with the network
advertisers, and stated that only legislation can guarantee that notice
and choice are always provided in the place and at the time consumers
need them. Accordingly, a majority of the Commission recommended
legislation that would set forth a basic level of privacy protection
for all visitors to consumer-oriented commercial Web sites with respect
to online profiling.
The Children's Online Privacy Protection Act
In its 1998 Report to Congress on online privacy, the Commission
documented the widespread collection on the Internet of personal
information from young children, and recommended that Congress enact
legislation to protect this vulnerable group. In October 1998, Congress
passed the Children's Online Privacy Protection Act of 1998
(``COPPA'').13 As required by the Act, on October 20, 1999,
the Commission issued the Children's Online Privacy Protection Rule,
which implements the Act's fair information practice standards for
commercial Web sites directed to children under 13, or commercial sites
that knowingly collect personal information from children under
13.14 Violators of COPPA are subject to FTC law enforcement
action, including civil penalties of $11,000 per violation.
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\13\ 15 U.S.C. Sec. Sec. 6501 et seq. The Act requires that
operators of Web sites directed to children under 13 or who knowingly
collect personal information from children under 13 on the Internet:
(1) provide parents notice of their information practices; (2) obtain
prior, verifiable parental consent for the collection, use, and/or
disclosure of personal information from children (with certain limited
exceptions); (3) upon request, provide a parent with the ability to
review the personal information collected from his/her child; (4)
provide a parent with the opportunity to prevent the further use of
personal information that has already been collected, or the future
collection of personal information from that child; (5) limit
collection of personal information for a child's online participation
in a game, prize offer, or other activity to information that is
reasonably necessary for the activity; and (6) establish and maintain
reasonable procedures to protect the confidentiality, security, and
integrity of the personal information collected.
\14\ The rule became effective on April 21, 2000, 16 C.F.R. Part
312, and is available at .
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There have been several press reports indicating that some Web
sites directed to children have experienced difficulty in complying
with COPPA, particularly in the context of children's chat rooms
(online discussion groups). Staff believes that, to some extent, these
concerns may have been caused by misunderstanding of the Rule's
requirements or unfamiliarity with the exceptions built into the Rule.
FTC staff is working hard to educate Web site operators on these
issues; staff hosted a well-attended ``compliance clinic'' for
operators in August, and has scheduled a second clinic on the West
Coast in November.15
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\15\ The FTC's August compliance clinic was held at FTC
headquarters and included presentations on privacy policies and
parental notices, how to obtain verifiable parental consent, and safe
harbor programs under the Rule. FTC staff focused in particular on how
Web sites can take advantage of the Rule's exceptions for collection of
an e-mail address to provide interactive content to children. The
program also demonstrated ways in which sites can identify their
younger visitors by asking age in a manner that minimizes their
incentive to provide false information to gain entry to the site.
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Some Web sites also have decided to discontinue children's chat
rooms rather than to meet COPPA's requirements of either obtaining
parental consent or monitoring chat rooms to prevent the disclosure of
children's personal information. The operation of unmonitored
children's chat rooms, which provide the opportunity for children to
disclose personal information to third parties, has raised serious
concerns about children's safety online. Those concerns contributed to
the Commission's decision to recommend that Congress enact legislation
to protect children's privacy online.
In addition to the compliance clinic, the FTC has undertaken a
number of initiatives designed to enhance compliance with the Rule.
First, we have been active in monitoring compliance. FTC staff recently
``surfed'' a number of children's sites, and sent an email to those
sites that seemed to have substantial compliance problems, alerting
them to COPPA's requirements. Second, the Commission has begun a
program of law enforcement against Rule violators. To date, we have
filed suit against one Web site for COPPA violations, and we have a
number of other investigations ongoing.16
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\16\ On July 21, 2000, the Commission filed an amended complaint
with the U.S. District Court in Massachusetts alleging that
Toysmart.com, an online toy retailer, collected personal information
from children in violation of COPPA, and had offered to sell its
customer list to the highest bidder notwithstanding statements made in
its privacy policy that it would never share customer information with
a third party. As evidence of the COPPA violation, the Commission
alleged that the site collected names, e-mail addresses, and ages of
children under 13 through its Dinosaur Trivia Contest without notifying
parents or obtaining parental consent. FTC v. Toysmart.com, 00-CV-
11341-RGS (D. Mass. filed July 21, 2000).
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Further, the FTC has undertaken a number of important and
widespread educational initiatives to encourage compliance with COPPA's
provisions. The Commission launched a special Web page at www.ftc.gov/
kidzprivacy to help children, parents, and site operators understand
COPPA and how it will affect them. Resources available on the Web site
include guides for businesses and parents and ``safe surfing'' tips for
kids. Staff has handled several hundred telephone and e-mail compliance
inquiries since the Rule was issued in October of 1999, and has
prepared a publication, entitled COPPA FAQs, to answer more than 50 of
the most frequently asked questions about COPPA and the new Rule. FTC
staff also is working with staff of the Department of Education to
develop educational materials for schools about COPPA and online safety
and has partnered with the private sector to help with outreach
efforts.
The Gramm-Leach-Bliley Act
On November 12, 1999, President Clinton signed the Gramm-Leach-
Bliley Act (``GLBA'') into law.17 Subtitle A of Title V of
the GLBA (``Disclosure of Nonpublic Personal Information'') requires a
financial institution to disclose to all of its customers the
institution's privacy policies and practices with respect to
information it shares with both affiliates and nonaffiliated third
parties and limits the instances in which a financial institution may
disclose nonpublic personal information about a consumer to
nonaffiliated third parties. Specifically, it prohibits a financial
institution from disclosing nonpublic personal information about
consumers to nonaffiliated third parties unless the institution
satisfies various disclosure and opt-out requirements and the consumer
has not elected to opt out of the disclosure.
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\17\ Public Law 106-102, codified in part at 15 U.S.C. 6801 et seq.
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The GLBA's financial privacy provisions require the Commission,
along with the federal banking agencies 18 and other federal
regulatory authorities, 19 to prescribe such regulations as
may be necessary to carry out the purposes of the financial privacy
provisions of the GLBA. On May 24, 2000, the Commission published its
GLBA Final Rule.20 The Rule takes effect on November 13,
2000. In recognition of the range of financial institutions covered by
the Rule and the extent of system-wide changes necessary for
compliance, as well as concerns about consumer confusion, the
Commission extended the deadline for full compliance by financial
institutions and other persons under the Commission's jurisdiction from
November 13, 2000, to July 1, 2001.21
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\18\ Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (FRB), Federal Deposit
Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), and
Secretary of the Treasury.
\19\ National Credit Union Administration (NCUA) and Securities and
Exchange Commission (SEC).
\20\ 56 Fed. Reg. 33646. The Rule is codified at 16 CFR Part 313.
The Federal banking agencies jointly published final regulations
implementing the GLBA privacy provisions on June 1, 2000 (65 Fed. Reg.
35162). The NCUA and SEC published similar rules on May 18, 2000 (65
Fed. Reg. 31722) and June 29, 2000 (65 Fed. Reg. 40334), respectively.
\21\ Section 505(a)(7) of the GLBA provides that the Commission has
jurisdiction over financial institutions not subject to regulation by
either other federal agencies listed in footnotes 17 and 18 above or
state insurance authorities. It also assigns the Commission authority
to enforce the GLBA against ``other persons'' who receive protected
consumer financial information covered by the GLBA. The broad scope of
the Commission's jurisdiction is discussed in detail at the outset of
the Federal Register notice (65 Fed. Reg 33646, 33647), which analyzes
16 CFR 313.1, the ``Purpose and Scope'' section of the Commission's
rule.
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The GLBA also obligates the Commission to promulgate a rule
requiring financial institutions to safeguard their customer records
and information. On September 7, 2000, the Commission issued a notice
and request for comment pertaining to development of its Safeguards
Rule in the Federal Register, 22 to garner public input
concerning the safeguarding of consumer information by the wide range
of financial institutions subject to the Commission's jurisdiction.
After comments are received, the Commission will publish a Notice of
Proposed Rulemaking, review comments received in response to that
Notice, and issue a Final Rule.
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\22\ 65 Fed. Reg. 54186. The comment period is now scheduled to
close on October 24, 2000.
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Comments
The Commission has also shared its expertise in consumer privacy
with other government agencies dealing with privacy issues through the
submission of public comments. Recently, Commission staff submitted
comments in response to the request for public comment by the
Department of Justice, the Department of Treasury, and the Office of
Management and Budget regarding their study of how a consumer's filing
for bankruptcy relief affects the privacy of individual consumer
information that becomes part of a bankruptcy case.23 The
staff comment focused on the privacy and identity theft 24
concerns raised by the collection and use of personal financial and
other information in personal bankruptcy cases. The staff comment
suggested that the agencies may wish to (a) consider the extent to
which highly sensitive information must be included in public record
data; (b) prohibit the commercial use by trustees of debtors' nonpublic
data for purposes other than those for which the information was
collected; and (c) evaluate the interplay between consumers' privacy
interests and the Bankruptcy Code.25
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\23\ See Federal Register Notice Requesting Public Comment on
Financial Privacy and Bankruptcy, 65 Fed. Reg. 46735 (July 31, 2000).
\24\ Identity theft is another privacy-related area in which the
Commission has expertise. The Commission has implemented the Identity
Theft and Assumption Deterrence Act of 1998, which directed the FTC to
establish the federal government's centralized repository for identity
theft complaints and victim assistance. For a description of the FTC's
identity theft activities, see Statement of the Federal Trade
Commission on Identity Theft, United States House of Representatives,
Committee on Banking and Financial Services (Sept. 13, 2000) .
\25\ The staff comment is available at .
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Earlier this year, at the request of the Department of Health and
Human Services (``HHS''), the Commission submitted comments on HHS'
proposed Standards for Privacy of Individually Identifiable Health
Information 26 (required by the Health Insurance Portability
and Accountability Act of 1996).27 The Commission strongly
supported HHS' proposed ``individual authorization'' or ``opt-in''
approach to health providers' ancillary use of personally identifiable
health information for purposes other than those for which the
information was collected. The Commission also offered HHS suggestions
it may wish to consider to improve disclosure requirements in two
proposed forms that would be required by the regulations.28
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\26\ 64 Fed. Reg. 59918 (November 3, 1999).
\27\ Pub. L. No. 104-191, 110 Stat. 1936 (August 21, 1996).
\28\ The Commission's comments are available at .
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Enforcement
The Commission has also brought three cases in the past year
challenging deceptive or unfair conduct in connection with Web sites'
posted privacy policies. In FTC v. ReverseAuction.com, Inc., No. 00-
0032 (D.D.C. Jan. 6, 2000), the Commission settled charges that an
online auction site allegedly obtained consumers' personal identifying
information from a competitor site and then sent deceptive, unsolicited
e-mail messages to those consumers seeking their business. In FTC v.
Sandra Rennert, et al., No. CV-S-00-0861-JBR (D. Nev. July 6, 2000), a
group of individuals and Web sites involved in providing prescription
drugs online collected consumers' personal medical information through
an online consultation form in addition to billing and shipping
information. The Commission's complaint alleged that defendants
misrepresented the security and encryption used to protect consumers'
information and claimed that the defendants used the information in a
manner contrary to their stated purpose.
In another recent matter, as noted earlier in note 15 supra, the
Commission challenged a Web site's attempts to sell personal customer
information gathered pursuant to a privacy policy that promised that
such information would never be disclosed to a third party. FTC v.
Toysmart.com, 00-CV-11341-RGS (D. Mass. filed July 10,
2000).29
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\29\ These cases follow in the footsteps of two the Commission
brought in 1999. In Liberty Financial Companies, Inc., FTC Dkt. No. C-
3891 (Aug. 12, 1999) the Commission challenged the allegedly false
representations by the operator of a ``Young Investors'' Web site that
information collected from children in an online survey would remain
anonymous. In GeoCities, FTC Dkt. No. C-3849 (Feb. 12, 1999), the FTC
settled charges that the Web site misrepresented the purpose for which
it was collecting personal identifying information from children and
adults.
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In addition to these public enforcement actions, the Commission is
currently conducting numerous nonpublic investigations of Web sites to
determine if their privacy policies are deceptive or unfair.
iii. conclusion
The Commission is committed to the goal of ensuring privacy for
consumers and will continue working to address the variety of privacy
issues raised by our increasingly information-driven society. I would
be pleased to answer any questions you may have.
Mr. Tauzin. Thank you, Mr. Chairman, and welcome.
Mr. Tauzin. Obviously, the first question you know I am
going to ask you is you gave the industry a grade in 1998 with
only 14 percent posting privacy policy, and the grade you gave
them was incomplete. In 1999, after 64 percent had complied
with posting privacy policy, you gave the industry a B-plus for
effort and a C overall. In 2000, 88 percent in your survey and
now posting some privacy policy--good, bad or adequate but a
privacy policy--what grade are you giving the industry today on
effort and what do you give them overall?
Mr. Pitofsky. I want to give the private sector some credit
here because I truly believe that they recognize that invasion
of privacy is a problem and they have worked hard to solve it.
So on effort I would give them A-minus. I would say they are
doing better.
Mr. Tauzin. You are moving it up.
Mr. Pitofsky. I am moving it up.
On overall performance, I would move that up from C to C-
plus, but C-plus is not good enough to protect consumers or the
Internet. But they have certainly committed financially and in
terms of energy to try to improve the situation, and they
deserve credit for that.
Mr. Tauzin. When it comes to grading, let me first thank
the FTC for training the GAO officials who conducted the
Federal web site survey that Mr. Armey and I requested.
As you know we asked that it be done using your criteria
because we felt that we wanted some sort of comparison whether
it was a good one or not that it was on an equal basis between
Federal sites and commercial sites do you know what grade the
FTC got?
Mr. Pitofsky. The FTC was found wanting in that report.
Mr. Tauzin. So you were not part of the 3 percent that
passed all of your own criteria?
Mr. Pitofsky. We were not.
Mr. Tauzin. Where were you found wanting?
Mr. Pitofsky. Let me explain that because I think this is
important.
Mr. Tauzin. Yes, it is.
Mr. Pitofsky. The FTC satisfies anybody's standards in
terms of notice, access, and security. The problem was with
choice. Let me explain why that happens.
Mr. Tauzin. Why did the FTC not make the grade on choice?
Your own standard?
Mr. Pitofsky. Let me give you an illustration.
Mr. Tauzin. Okay.
Mr. Pitofsky. Congress has generously supported something
we run called Consumer Sentinel, in which we gather complaints
from consumers, we analyze them, we marshall them and then we
share that information with other law enforcement agencies.
That was the whole point of Congress giving us the money--that
we would share it with law enforcers, FBI, State AGs and so
forth. I think it has been quite successful.
Now we tell people in our notice statement, if you give us
the information we are going to share it with the FBI and the
State AGs. We do not give them the option of saying we want to
give you the information but do not share it.
Mr. Tauzin. So you do not give them an opt out?
Mr. Pitofsky. We do not give them an opt out. And of course
we shouldn't. It would undermine the whole point of the
program.
Mr. Tauzin. You shouldn't give your web site users an opt
out. Suppose I want to give the information about a complaint
that I make but I do not want you sharing that. I do not want
to have repercussions from someone else because I complained to
you. Shouldn't I have the right to do that, Mr. Chairman,
without your sharing it with people without my consent?
Mr. Pitofsky. Remember, it is all in the notice.
Mr. Tauzin. But you are telling me that I can't complain to
you without you sharing that complaint with other people.
Shouldn't constituents have a right? I give them that right in
my office they can use my web site and complain to me about a
Federal agency or they can complain to me about a third party
business in my district, and I give them an assurance on my web
site that I will not share that information with anyone else.
But shouldn't we at least give them the choice that you
wouldn't share it with someone else if that is what they
wanted?
Mr. Pitofsky. I take your point, but I do think that since
the whole point of gathering the information is to share it,
that to allow them, to give them that choice, does not make any
sense.
Mr. Tauzin. But isn't part of your business as an FTC
agency to in fact collect complaints from consumers and is that
not also a good thing to do without necessarily sharing that
worthy people pursuant to this act?
Mr. Pitofsky. Let me make a more general point. Our fair
information practices are designed to control the marketing
sector of the economy. We are not selling anything to these
folks. The FTC is not selling them books or records.
Mr. Tauzin. I understand.
Mr. Pitofsky. So it seems to me when you talk about choice
in that context it is really a little different.
Mr. Tauzin. I understand that Mr. Chairman, but I think you
are making my point which is that in your own analysis, your
own review of other commercial web sites, we hear the same
complaint. That your own, if you will, methodology for
examining and grading these web sites does not often make room
for those kind of distinctions as to what it is being used for
and whether the site for example may have a security but it
does not say it has security. And therefore it gets graded down
under your criteria. One of the problems that Mr. Armey and I
wanted this GAO study done was exactly that. Was to I guess
amplify the fact that the methodology itself is not necessarily
perfect, that it has flaws and that therefore the reports that
are issued by the agency are not necessarily as reliable as
they perhaps should be.
I think you would say that the FTC, as an agency that is
examining other sites, would want to be as good about privacy
as any agency of the Federal Government, and yet under your own
methodology you fell short.
I think that makes our case about how this methodology
perhaps needs to get further fine-tuned so that it does not
reflect bad onsites that are really trying, that deserve the A
minus for effort and perhaps even better than a C plus for
performance.
Mr. Pitofsky. Let me take your comments to heart and think
about them. We did say in our response to GAO that to transpose
our four fair information practices exactly intact away from
the commercial area to the government area might lead to
misleading conclusions. But I hear what you are saying and I
would like to think about it.
Mr. Tauzin. Yes, what we are also saying is to use that
methodology on commercial sites without making room for those
kind of distinctions that you make for your own site may be
misleading and that is my point, but I thank you for at least
considering it because obviously what you say publicly about
the performance of the private sector has some real weight in
the Congress and with the American public. And obviously it is
important that whatever assessment you make be as clear and as
precise as you can make it.
I want to first of all, finally, rather, thank you for
continuing this effort. You and I have had this private
discussion. I think that the FTC constantly monitoring and
reporting on the progress of the industry and making cases
where fraud and deceptive practices are appearing on the
Internet is very good. How come only three cases if it is
really that bad out there, why have you brought only three
cases?
Mr. Pitofsky. First of all, it is three cases in just this
past year in which we continued this kind of program.
What we try to do is bring cases against the most egregious
misconduct--we do not want to hit people for technical
violations.
Mr. Tauzin. You go after the really bad players. But again
does that say something about the overall effort in the private
sector that you found three egregious case not 10, 12, 20, 100
last year?
Mr. Pitofsky. Well, I don't know, Jodie?
Ms. Bernstein. If I could add something to that Mr.
Chairman, among the techniques that we have tried to use,
because this is a whole new area we conduct something we call
``surf days'' where we look at the sites all at one time, and
in many of those instances instead of bringing cases against
all of them we will send out a notice saying this is a new kind
of inquiry on our part, do you know that you may be violating
these----
Mr. Tauzin. You are giving them fair warning sort of like a
traffic policeman who gives me a warning and says you are going
through a school zone, you better slow down.
Ms. Bernstein. Exactly right. And then we go back maybe
after 30 days and we have found a lot of them have dropped out
or have corrected.
Mr. Tauzin. So you do not have to take action.
Ms. Bernstein. I think it is one way, it is a fair way and
helps us get to the ones where we think we can make a
difference.
Mr. Tauzin. The gentleman from Ohio.
Mr. Sawyer. Thank you, Mr. Chairman. Let me thank our
witnesses for being here. You heard my question earlier about
the way in which we assure the ability of agencies to share
information with one another while preserving their mutual
guarantees of privacy in the information that they gather. Do
you have any inside guidance that you could offer us this
morning or would you prefer to answer that later?
Mr. Pitofsky. Well, I think it is the right question. When
you are talking about the government and not a commercial
marketer, you want to ensure that the collection of information
can serve government purposes, including the sharing of
information where that is appropriate.
Mr. Sawyer. Where it is appropriate.
Mr. Pitofsky. Yes, where it is appropriate.
Mr. Sawyer. While guaranteeing the confidentiality of
information that is being shared.
Mr. Pitofsky. Yes, and on the other hand you do not want to
unnecessarily invade people's privacy. It has got to be
designed to serve your mission purpose and that is what we have
tried to do.
Mr. Sawyer. Do you have policies and principles which guide
you in making that judgment in terms of where it is
appropriate? Largely a subjective decision but one that you try
to squeeze as much subjectivity out of.
Mr. Pitofsky. Within my own agency we certainly do.
Mr. Sawyer. Can you describe those for us?
Mr. Pitofsky. I will be glad to submit that to the
committee. We probably have the most--one of the most clear and
conspicuous non-obscure notice provisions that you are ever
going to see.
Mr. Sawyer. It is not just notice. It is the protocols for
sharing.
Mr. Pitofsky. But nobody could misapprehend what we are
going to do with this information. We also provide reasonable
access and reasonable security. It is only on this question of
choice which the chairman has raised with me. The tradeoff is
whether we can share this information the whole program is
designed to collect and share, or should we give people an
opportunity to say, look, I want to complain to you, but I
don't want this information going to the FBI and some States?
We have cut in the direction of giving them notice as to what
we are going to do with it but sharing the information for law
enforcement purposes.
Mr. Sawyer. Thank you, Mr. Chairman.
Mr. Tauzin. I thank the gentleman. Again, Mr. Chairman, let
me thank you and let me for the record indicate again that you
actually, your office actually trained the GAO in the survey
that they collected; is that correct?
Mr. Pitofsky. I believe that is right.
Mr. Tauzin. And they did use your methodology in examining
your agency and other agencies.
Mr. Pitofsky. They did.
Mr. Tauzin. And they did find that under your methodology,
only 3 percent of the Federal sites surveyed met all of the
criteria that your office uses to judge private sites; is that
correct?
Mr. Pitofsky. I understand that is correct.
Mr. Tauzin. As compared to 20 percent of the private sector
that met all five of those criteria; is that correct?
Mr. Pitofsky. Yes.
Mr. Tauzin. Is it fair to conclude that the private sector
is doing better than the government sites?
Mr. Pitofsky. No, I don't think that is fair.
Mr. Tauzin. Tell me why.
Mr. Pitofsky. I don't know why other government agencies
have failed to satisfy fair information practices.
Mr. Tauzin. We have got a list and it is pretty
interesting.
Mr. Pitofsky. I suspect it is often this issue of sharing
the information with other agencies and not giving people the
opportunity to say count me out. They say: I want to complain,
I want to submit information but I don't want to share----
Mr. Tauzin. But you know a lot of them failed because they
just did not post a privacy policy. A lot of them failed
because they did not give notice to consumers that they were
gathering information. Some of them failed because they said
they were not gathering person information and they were. Some
of them failed because they had cookies. By the way what is a
cookie? Not everybody knows what a cookie is. We are talking
about a new cookie monster here in effect.
Mr. Pitofsky. People have learned what it is about. It is a
device that is placed on the hard drive of the computer of the
person who is surfing which allows the collector of information
to trace where you have been and what you are doing. I
described it as like a technology that would allow your TV set
to keep track of what programs you watch, what ads----
Mr. Tauzin. Worse than that it is like having a camera
follow you around for the rest of your travels all day long,
all week long, perhaps for 35 years. Pretty bad stuff.
Mr. Pitofsky. I think that is a fair analogy of what we are
talking about here.
Mr. Tauzin. And some of these--14 percent failed because
they did have cookie on their site and in some cases without
advising consumers.
Mr. Pitofsky. I heard Sally Katzen say that she does not
intend to defend cookies on government web sites and I am not
going to step in to do it.
Mr. Tauzin. The only point I want to make is that when you
compare--we have a comparison sheet of the Federal sites, and
the private sites, on every standard that you use to judge
private sites, Federal sites fared worse on every standard. On
the question of frequency of disclosure, 100 percent of
commercial sites compared to 85 percent of the government
sites. On all four principles, 42 percent of the Federal sites
and only 6 percent of the high impact sites, 20 percent at
random and only 3 percent of the at random Federal sites. In
fact, there was only one category at all that was comparable
between the Federal and the public sites--I mean the Federal
and the private sites.
We have a copy of this I want to make sure that you get it.
But it basically says that when your criteria was applied to
the public sites where we have to share information in many
cases, that privacy was less protected than in the commercial
sites of America. That is not a good finding. Mr. Armey and I
have asked a simple thing of our government: Maybe we need to
clean up our own house as we go by grading and commenting on
someone else's house.
But again, I thank you for both cooperating with our effort
to examine the Federal sites and second, for continuing your
monitoring of the private sites and invite you and your staff
to stay in close touch with us because I think we have all come
to the conclusion that next year we are going to have to move
legislatively in some of these areas.
Mr. Pitofsky. I am glad to hear that and I do want to
continue working with you and this committee.
Mr. Tauzin. Thank you, Mr. Chairman, and we will stand in
recess for another 10 or 15 minutes.
[Brief recess.]
Mr. Tauzin. We are going to get started and anybody who
misses this is just going to miss a lot of good time. The
committee will please come back to order.
Let me welcome our final panel. Mr. Larry Chiang, Chief
Executive Officer of MoneyForMail.com; Ms. Glee Harrah Cady,
Vice President for Global Public Policy, Privada, in Sunnyvale,
California; Ms. Parry Aftab, Special Counsel for Darby and
Darby in New York; and Mr. Mike Griffiths, Chief Technology
Officer of Match Logic Inc., and Mr. Andrew Shen, Policy
Analyst for Electronic Privacy Information Center.
I apologize for the long day, but I suspect we are going to
have a lot of long days thinking this business through. Part of
what we are doing is building a record, so all of your written
statements are part of that record. And trust me on this,
members and staff actually read those statements and get into
them because we are desperate for understanding here. And what
you will provide for us on this panel is a little more depth of
understanding about what is happening in the marketplace of
privacy and the technology and the private sector.
So let me please welcome you, and we will begin with Larry
Chiang, MoneyForMail.com. Welcome.
STATEMENTS OF LARRY CHIANG, CHIEF EXECUTIVE OFFICER,
MONEYFORMAIL.COM; GLEE HARRAH CADY, VICE PRESIDENT FOR GLOBAL
PUBLIC POLICY, PRIVADA; PARRY AFTAB, SPECIAL COUNSEL, DARBY AND
DARBY, P.C.; MIKE GRIFFITHS, CHIEF TECHNOLOGY OFFICER, MATCH
LOGIC INC.; AND ANDREW SHEN, POLICY ANALYST, ELECTRONIC PRIVACY
INFORMATION CENTER
Mr. Chiang. Thank you, Mr. Chairman. Thank you, members of
the subcommittee. I come to you as a person who is on his
second business. I am an entrepreneur. My background is in
engineering, so I am fortunate to head up a very popular
company called MoneyForMail. This is my second company. My
first company was one that sold credit cards to college
students. And my efforts in starting new businesses is to
empower consumers to control and empower them both on two
fronts, both on credit understanding and an understanding on
privacy.
And what MoneyForMail does basically in a little nutshell
is it empowers consumers to opt in their information so that
they control their own information so that the people that
previously compiled and sold information to companies such as
Trans Union, Equifax, Experian profited by selling this data.
Mr. Tauzin. Give me an example of how that works.
Mr. Chiang. For example, let's say you are a car leasing
company and you want to sell cars to people in their middle
20's that have a good job with good credit. So you can send a
prequalified lease to those people using credit data. Now, a
consumer today and up until the past 20 or so years has not
been able to control their own data. So if a car leasing
company wants to buy that information and extract that
information from the three credit bureaus, they are able to do
so without knowledge and consent of a consumer.
Where you are now bringing forth a number of these privacy
issues also then starts to question previous legislation on the
Fair Credit Reporting Act with who exactly owns and controls
pieces of credit data.
So what MoneyForMail tries to do and does successfully is
it compiles credit data along with demographic data so the
demographic data is information that gets collected on
different surfers and their preferences, their gender, what
State they live in, maybe even some detailed information as to
what sports they like to watch or participate in.
What we do with that demographic data is we add in credit
data so that advertisers now have more pieces of the
information to then collect this information and then send out
advertising messages that are geared toward it.
To backtrack a little bit, the reason all of this is such a
large issue is simply because advertisers know that when they
spend money, 50 percent of that money is simply wasted. Now the
question is what 50 percent did I waste? With the Internet you
are allowed to target specifically demographics of your
advertising, let's say men's suits from a previous example,
target men's suits, advertising solely to men that are prepared
to buy a suit, whereas previously you are just shotgunning that
advertising message to everyone. So the Internet as a medium
allows that.
That is why this issue is going to balloon further because
how many billions of dollars are spent on advertising and how
many of those billions of dollars could potentially not be
wasted should there be a better methodology in sending out
these types of messages.
It not only permeates the Internet, where, yes, it is
personalized content, but in the future you will talk about
cable TV advertising. Right now everybody in certain markets
gets the exact same advertisement. What if you opted in your
demographic data and were able to control your own demographic
data and then the cable TV companies can send you specific ads
based on your needs, your usages, your preferences?
So the situation that I come to you today with is, No. 1,
the parallel nature of how credit data previously was compiled
without regulation, and how the Fair Credit Reporting Act
obviously is legislating and regulating the three bureaus in
compiling this data to also then translate that where the FTC
regulates that data. I see a parallel where the FTC also
similarly will further regulate privacy issues in a simple,
easy to use, easy to understand principle. Whereas right now if
you visit a lot of these web sites you are faced with pages,
literally pages where you have to scroll down, and how many
users actually read and understand the privacy statement?
What I think in the future is you are going to be allowed
to go to something similar to a Schumer box where some of these
ideas that I bring forth are not really necessarily my own
ideas but based on historical regulatory ideas. How the Schumer
box then translates to privacy is maybe in five major points,
similar, an annual fee, interest rates, terms, and junk fees, a
privacy policy box or someone's name box then can therefore
disclose the five major points or six major points for how it
is that you as an Internet web surfer can then be assured of
some type of standardized policy.
[The prepared statement of Larry Chiang follows:]
Prepared Statement of Larry Chiang, CEO, MoneyForMail.com Inc.
I. INTRODUCTION
Mr. Chairman and Members of the Subcommittee:
Good morning. I am Larry Chiang, CEO of MoneyForMail.com in Palo
Alto California. I welcome this opportunity to comment on the current
state of Internet privacy and the impact of compiling consumer data for
consumers and businesses.
I am here to testify on what I believe are reasonable standards for
promoting consumer safety for those who use the Internet, and to report
to you the efforts my company has taken to help consumers ``take back''
their personal information.
The comments and views expressed in this Statement are offered in
my capacity as CEO of MoneyForMail.com, and my experience in dealing
with privacy and credit issues since 1989. I will discuss:
Economic benefit of matching surfing data with ``real world
data''
How these combined data files may be abused
Potential discrimination using today's technology
How privacy issues tie into Fair Credit Reporting Act
Future trends of consumer demographic collection
Pending privacy scandals
I believe strongly that you, the members of Congress, will play a
critical role in shaping legislation that will enhance privacy by
expanding and strengthening the consumer's right to control his or her
own own personal information. I appreciate the opportunity to share my
views on that topic.
II. ECONOMIC BENEFIT IN MATCHING SURF DATA WITH ``REAL WORLD DATA''
Advertisers are willing to pay for advertising that better targets
an audience. The medium of the Internet naturally lends itself to
specifically targeted ad messages for users groups as small as one
person.
Internet advertising agencies can earn a premium by matching online
demographic data and ``surf pattern'' data with ``real world'' data.
Surf data is the tracking of user movements from web site to web site.
Real world data is purchasing history, club memberships, newspaper and
magazine subscriptions and credit-related data.
By ``spooling up'' banner ads to a person visiting particular web
sites, the real world data serves as a qualifier of purchasing power
and offline interests.
III. HOW THESE COMBINED DATA FILES COULD BE ABUSED
Two particular industries have definite potentials for abuse:
credit and insurance.
Say a web surfer visits a Las Vegas Hotel site and his combined
profile dictates that he visits Vegas three times a year. An insurance
company underwriter may find that behavior tends to increase the
likelihood of filing a fire insurance claim. Therefore, the insurance
applicant may be rejected for fire insurance because of the Las Vegas
visits. Now take this example and apply it to breast cancer sites,
Bible study sites, scuba diving sites--and the potential to abuse
privacy is very likely.
While this may sound far-fetched, is it unreasonable to assume it
could not happen? I don't believe so. After all, who would have guessed
ten years ago that your credit record--a report of how you've managed
your bills--would be a better predictor of how many insurance claims
you would file than your driving record? Yet today a number of
insurance companies rely on credit records when evaluating insurance
applications.
Combined data files put more information into everyone's hands.
While it may seem innocuous for a web site that sells BBQ grills to
sell surf information to Midwestern beef houses, the consumer needs to
control and know what data files are being used and distributed.
IV. POTENTIAL DISCRIMINATION USING TODAY'S TECHNOLOGY
Since web sites can be made dynamic to each and every particular
web user, certain collected data files could be used to discriminate
against consumers.
For example: access to low-cost mortgage rates could be kept from
those individuals that have an online surf pattern of perpetually
visiting job listing boards. The mere act of visiting a job listing
board could signify job instability. Or, an insurance company could
determine that people that purchase adventure gear (ski equipment, sky
diving supplies or mountain climbing ropes) are not a good risk. These
are the types of discrimination that are made possible using technology
available today.
V. HOW PRIVACY TIES INTO THE FAIR CREDIT REPORTING ACT
Nearly thirty years ago, Congress enacted the Fair Credit Reporting
Act to protect consumers' credit reports. Your predecessors realized
that this information played an important role in consumers' lives, and
that people should have the right to review their reports and challenge
their accuracy. In addition, Congress acknowledged that this sensitive
information should be available for limited purposes.
Today we are beginning to see interesting overlaps between
companies that collect credit data and companies that collect other
data about consumers. Experian, one of the major credit reporting
agencies, owns 19.9% of MyPoints.com and 6.4% of AdForce. Both are
companies that derive the majority of their income from Internet
advertising.
Is it such a stretch, then, to ask Congress to consider regulating
Internet data collection just as it did credit data? Or is it
unreasonable to ask the FTC to oversee these practices as it does the
credit reporting agencies?
VI. FUTURE TRENDS OF CONSUMER DEMOGRAPHIC COLLECTION
The holy grail of advertising has always been getting the right
message to the right person. The complaint of advertisers has been, ``I
know I am wasting 50% of my advertising dollars, I just don't know
which 50%.'' Collecting Internet demographic data and marrying it with
real world data will only increase as advertisers try to narrow their
targets.
VII. PENDING PRIVACY SCANDAL
Right now the pieces are in place for a number of privacy scandals.
In Silicon Valley, you have (1) young CEOs--some in their 20's--(2)
heading up cash-strapped companies, (3) oblivious to privacy concerns,
and (4) controlling private information worth a great deal of money.
These ingredients up the likelihood of a privacy scandal which will
negatively impact e-commerce.
VIII. CONCLUSION
It is my opinion that Congress should act now to establish
guidelines for the collection and use of personal data on the Internet.
At a minimum, consumers should be told what information will be
collected when they visit web sites, what it will be used for, and
steps they can take to ensure their privacy. The Federal Trade
Commission should be given regulatory authority to ensure privacy, and
to protect consumers' rights.
Mr. Chairman and members of the Committee, I hope this overview has
been helpful for you. If you have any questions, I will try to answer
them.
Mr. Tauzin. Thank you very much, Mr. Chiang. Now we welcome
Mrs. Glee Harrah Cady, the Vice President for Global Public
Policy of Privada.
STATEMENT OF GLEE HARRAH CADY
Ms. Cady. Thank you, Mr. Chairman. It is a pleasure for me
to be here today to talk to you, not only about what my own
company does in privacy enhancing technologies but what our
industry is doing as a whole.
Privada itself is based in Sunnyvale, California, and we
build privacy infrastructure systems for financial service
companies, for network service providers and for other people
who, in turn, would like to offer privacy services to their
customers. You may have seen a recent series of advertisements
on the television by a large credit card company that is going
to be partnering with us in future products, and we expect to
have further announcements like that.
Generally, technology is quicker than legislation. I know
this point has been made to you a number of times. And we can
today provide help to your constituents and the people who are
genuinely concerned about a genuine problem with technologies
that will assist them to protect their privacy while the debate
goes on here in the Congress.
Since early this year, I think there has been something
like 700 different announcements made about privacy enhancing
technologies, and of course we are all terrific. Mr. Boucher
and Mr. Goodlatte mentioned today the Internet Caucus and
earlier this year, in fact just 3 weeks ago, we were privileged
to be part of a privacy technology fair. And I know that this
little booklet has been added into the record so that people
can see who demonstrated there at that time.
Finally, we have this lovely poster that we have also
provided you that was developed by the privacy leadership
initiative. There are more of these in the back of the room for
those in the room who would like to have that. It is a
description of some people and their technologies that are in
the market today.
Today, not next Congress, not tomorrow, not next week. So
these technologies range from companies who provide complete
anonymity all the time to people who are occasionally called
infomediaries who will broker information on your behalf.
Choosing among them might be complex at this point, but they
are all there. I have tried to provide links to lists of these
technologies in my written testimony, and I would urge you to
encourage your constituents to look at these pieces of
information, and if anybody has any questions about specific
technologies or what any of the companies can do to help them,
I would be happy to answer them.
Thank you.
[The prepared statement of Glee Harrah Cady follows:]
Prepared Statement of Glee Harrah Cady, Privada
Mr. Chairman and members of the committee, thank you for the
opportunity to discuss the progress that technology companies have been
making in the development of privacy enhancing technologies to protect
consumers.
My name is Glee Harrah Cady and I work for Privada, Inc,\1\ a
Sunnyvale, CA based company that builds comprehensive privacy
solutions. We deliver those solutions through Network Service
Providers, financial institutions and other digital enterprises. By
building a virtual ``curtain'' between the user and the Internet,
Privada gives users control over the dissemination of information about
themselves. Our services make it possible for businesses to offer
privacy-based services to their customers.
---------------------------------------------------------------------------
\1\ The Privada website may be found at http://www.privada.com
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Our current partners (which include American Express, Cisco, and
Portal) will integrate Privada's privacy protection into products that
meet their customers' need for digital privacy. Our joint commitment to
providing sound and robust digital privacy will ensure that individuals
maintain choice and control over their personal information.
Privada works with other technology and consumer product and
service companies in trade associations and coalitions to inform and
educate policy makers, press, and individuals about digital privacy. We
are members of the Commercial Internet eXchange Association, the
Internet Alliance, the Information Technology Association of America,
the Online Privacy Alliance,\2\ the Software and Information Industry
Association, the United States Council for International Business, and
TechNet. We support the efforts of the Privacy Leadership Initiative.
And we were pleased to be selected to participate in the recent Privacy
Technology Fair sponsored by the Internet Caucus.
---------------------------------------------------------------------------
\2\ The Online Privacy Alliance is on the web at http://
www.privacyalliance.org
---------------------------------------------------------------------------
Today's privacy debate has been fueled by two very opposing views--
one side advocates exploitation of personal information for any and all
purposes, and the other wishes to prohibit the use of personal
information for any and all purposes. As the debate acknowledges, we
fear intrusion into our private lives by both government and business.
We all want the benefits of personal services but fear the possibly
unpleasant surprise of someone we don't know knowing too much about us.
This is why digital privacy is so important to us. With Internet access
we have grand opportunities to gain knowledge, improve communication,
and have products and services delivered to us wherever we are,
whenever we want them. But we know we are being watched and we don't
like it
Each day, too, individuals become more aware that they need to
think about the business behind the website. Who are these people and
what are they doing? We hope that the Platform for Privacy Preferences
(P3P) will be a language used by all to make finding and understanding
a privacy policy easier, so that the ``who'' and ``what'' questions are
answered. Rick Jackson, Privada's CEO, frequently says that as
consumers we also should look to see how a company is making its money.
A company's revenue source most often tells us what is important to the
company and its investors. With that information, we can determine how
the company values us as consumers and customers--whether we are
customers or information assets.
The polls illustrate that increased sales and larger numbers of
repeat customers are a likely consequence of strong privacy policies
and more individual control over personal information. A sponsored
survey by research firm IDC (released on Monday of this week) found
that consumers are concerned about the sharing or selling of personal
information collected during online purchases. Almost 60% of the
respondents were concerned that Web sites will share or sell
information about them. The press release announcing the survey also
reported that 91% of the respondents value privacy management tools and
services that assure protection of personal information when making
online purchases. This survey echoes the words of SIIA's 2000 Report on
Trends Shaping the Digital Economy.\3\ The chapter on ``Customer
Empowerment'' shows that the customer, who has always ``been right'',
now has new ways to interact with the vendor and those ways are
increasingly automated and increasingly personalized. SIIA recommends
that retailers planning to use technology to advance remember to
combine airtight privacy policies with business models that defer to
customer empowerment. Those businesses that do not place customer
service above all else will fail. The report also notes that, on the
Internet, it is very, very easy for an unhappy consumer to find another
store selling the same or similar products almost instantaneously--and
tell all their friends when they do.
---------------------------------------------------------------------------
\3\ The Software and Information Industry Association Report on
Trends Shaping the Digital Economy is at http://www.trendsreport.net/
customer/1.html
---------------------------------------------------------------------------
Companies like Privada are happy to hear that individuals want to
control the distribution of their personal information and that people
want to receive the marketing advantages that accrue from smarter
business marketing. American consumers want great deals without junk
mail and personalized service without telemarketing calls. Privada
provides a privacy infrastructure where building such services is
possible: you can get what you need without unknowingly releasing
personal information. Privada systems support reasonable uses of
personal information by providing online identities that are separate
from your real world identity. Your online identity, not your real one,
will be the recipient of any personalized services you choose. And you
don't need to give up any information that you don't wish to release.
Privada-based services support the points of both sides of the privacy
debate by allowing the enjoyment of the benefits of the information
economy--keeping it moving and expanding to benefit even more people--
with no compromise of personal data.
Privacy is an intensely individual matter. The choices I make about
my personal information will not necessarily match yours. For example,
I don't mind if you know that I am a proud parent--if you give me a
chance I will certainly boast about my wonderful children. But in fear
of predators, some people don't want others to know they have children.
I don't mind if you know what kind of car I drive--certain of my
friends say that I sound like a car commercial. Others don't want you
that information available unless you are the car manufacturer and
there is a product recall. I don't want you to have access to my
financial information unless I give you that permission so you can help
me with a financial transaction. I don't want intimate details of my
medical records in the public domain. Unless I know you well, I am
unlikely to share a list of the email addresses of my fellow Privada
employees. Email addresses of public employees, however, are frequently
readily obtainable.
Because we don't yet have concensus about privacy among
individuals, businesses, and government, and because the technology is
changing almost daily, governmental solutions necessarily lag behind.
Laws take an even longer time than computer programs to define,
construct, test, and implement. Here is where technologies play a
significant role. While committees like this one strive to determine
the best way to provide legal protection, technology can provide tools
for individuals to use to protect themselves. With each of us in
control of our individual information, the rewards of the digital
economy can reach more people. This is a win for individuals; for
business, with more consumer confidence; and for government, with one
less area to track. Privacy enhancing technologies can benefit
everyone.
Today there are many and varied technologies designed to provide
differing types of digital privacy protections to individuals. The
available products and services range from complete digital anonymity
services to products that broker your information on your behalf. The
recent Internet Caucus Privacy Technology Fair \4\ in the Capitol
invited 19 different companies to show their technologies. The Privacy
Leadership Initiative has listed 27 technological tools on a poster
entitled ``Privacy Technology in the Digital Age, Version 1.0''. The
Information Technology Industry Council's Digital Frontier \5\ site
mentions 29 different privacy enhancing technologies (not including
ours, so I guess I am going to have to call them up and tell them about
us). ``Know the Rules, Use the Tools,'' \6\ is a 31-page handbook
developed by Majority Staff of the Senate Judiciary Committee at the
request of Senator Orrin Hatch and first released at the Internet
Caucus event.
---------------------------------------------------------------------------
\4\ The listing of companies demonstrating technologies at the
Internet Caucus Privacy Technology Fair is at http://www.netcaucus.org/
events/privacyfair.shtm
\5\ The Information Technology Industry Council Digital Frontier
paper on Personal Privacy Solutions may be found at http://
www.itic.org/digital--frontier/consumer/intro.html
\6\ The Senate Judiciary Committee booklet may be found at http://
judiciary.senate.gov/privacy.htm
---------------------------------------------------------------------------
Some products help other businesses construct understandable, and
machine-readable, privacy policies. Some services allow individuals to
purchase items over the Internet as anonymously as if they were using
cash. Some are tools to install on an individuals own computer (client-
based tools); others are tools that individuals access through the
Internet (server-based tools); and still others are combination tools
that use a client program to initiate the protected transmissions. Some
technologies provide for web-browsing without leaving tracks that are
individually-identifiable. Some provide anonymous communication. Some
manage your many account passwords and release only the information the
individual has specified. Since the Internet Caucus Technology Fair
just three weeks ago, several new privacy technology companies have
launched and respected technology companies have released new privacy
products. We at Privada can see that the privacy business is becoming
more competitive each day.
On the Internet there are so many different ways to gain access, to
present items for sale, and/or to search for information: supported by
advertising, bid for in auctions, pay-per-use, subscriptions. Many
companies are searching for the right business model to provide
services just as individuals are searching for the right mixture of
tools, effort, time, and money to use those services. Here in
Washington, legislative and administrative policy makers are seeking
the right mixture of consumer protection and business encouragement,
one that doesn't encourage irresponsible businesses nor penalize those
who are striving to find new ways to deliver their products. Sometimes
the discussion has centered on legislating a particular method of
consumer choice (opt-out versus opt-in). Sometimes the discussion has
focused on a particular delivery vehicle (the World Wide Web). Someone
usually points out that not all Internet sites are in the United States
(nor do we want them to be) so that laws would not reach all potential
sites. And clear and conspicuous notice isn't as easy as it sounds.
Privacy enhancing technologies can be used for protection while the
discussions continue. This means that protection need not wait until we
all agree on what constitutes legal protection.
What you on the committee can do today is to help us spread the
word. When your constituents voice their fears in your town hall
discussions, tell them how to find help. If they are already on the
net, you can point them to one of the links I've included here. If they
are not on the net, I'd be happy to help them find a service that meets
their needs. Have them call me. Let's not leave anyone out.
Thank you.
Mr. Tauzin. Many of these are free; right?
Ms. Cady. Yes, sir, many of them are free.
Mr. Tauzin. Now we will hear from Ms. Parry Aftab, Special
Counsel for Darby and Darby, New York.
STATEMENT OF PARRY AFTAB
Ms. Aftab. Thank you, Mr. Chairman, and thank you for
inviting me to testify here today. I am a privacy lawyer. I
specialize in the children's industry, and I am often called
the kid's Internet lawyer. But about half of my time is also
spent running nonprofits. I run Cyber Angels, the largest
Internet safety and health group in the world, and Wired Kids.
I am also the author of the parents' guide to protecting your
children in cyberspace. And my testimony will be a blend of
both my expertise as a privacy lawyer and my advocacy for
children.
Mr. Tauzin. This is the book that you are talking about?
Ms. Aftab. It is, Mr. Chairman. Thank you very much.
There are roughly 25 million children online in the United
States. These are children under the age of 18, and there are
web sites that are very valuable to children that can help them
with education, give them games. They can be very entertaining.
Children can have web sites where terminally and seriously ill
children can communicate with each other and talk to children
around the world.
We are here to talk about problems, but I would like all of
us to remember that the Internet is a wonderful place,
especially for children, and the greatest risk our children
face in connection with the Internet is being denied access.
And no one cares more about children than the children's
Internet industry, except perhaps the FTC, who I would like to
compliment during my testimony here today for being always
available, always listening and always trying to help the
Internet industry as a whole. They are willing to speak at all
of the conferences. They are willing to do many things, and in
fact today I bear an invitation from the government of
Singapore for the FTC to come and teach them about regulating
privacy in the area of children.
But there are serious problems that the children's Internet
industry is facing. This morning on Good Morning, America they
talked about ``dot gone,'' and problems with the Internet
industry generally. The children's Internet industry is facing
even greater problems because they have no generally accepted
viable business model. Advertising is not working because
children are not directly engaging in e-commerce. There are
lots of problems in this area and one of the things we need is
more flexibility on the part of the FTC to have greater
discretion and exception under COPPA.
Today there has been a lot of discussions about parental
consent. One of the biggest problems that we face is that
parents, although they want their children to do these things,
are not taking the time to actually give the consent to the web
sites. And the choice is then locking children out of these
interactive tools. It is not merely a matter of children
sharing personally identifiable information; it is a matter of
whether they can send e-postcards or whether or not they can
get a picture from Elmo. And it is important that we get
parents involved in finding compelling reasons for them to be
using the Internet.
We need several things that Congress, especially this
subcommittee and your expertise, can help us with. No. 1, we
need research on how children are actually using the Internet.
We need research on what parents really want and what it will
take to get them to be active in the kid space. We also need
educational programs teaching children how to surf the Internet
safely, how to use the best filter that exists, which is the
one between their ears, Mr. Chairman, and teaching them how to
use critical judgment when they are communicating with
strangers online.
We also need to give flexibility and discretion to the FTC
in carving out exceptions or special rules under COPPA for
companies that put children's safety and privacy first forward
innovation rather than putting extra strain on the industry.
What we need to do is work together to make sure that the
expertise that each of us brings to the table is used to help
children, to help the Internet industry and to help everyone
preserve their privacy and keep children safe at the same time.
We are also creating the children's Internet industry trade
association. It is called KITA, the Kids Internet Trade
Association, to help members of the kids Internet industry to
come up with solutions and work together and work together with
regulators and legislators on coming up with solutions that
work. The greatest problem we have in the area of privacy is
unexpected consequences when legislation has not been as
thoroughly thought out as the chairman has been looking at
here.
So I welcome the ability to help in any way that I can at
any time, and thank you very much.
[The prepared statement of Parry Aftab follows:]
Prepared Statement of Parry Aftab, Special Counsel, Darby & Darby, P.C.
SNAPSHOT OF THE CHILDREN'S INTERNET INDUSTRY
There is no more exciting or rewarding industry than the children's
Internet industry. Where else can you have fun, help children and
change the world at the same time? When you deal with children, safety,
quality content and privacy are good business. Parents are partners in
this. But, as exciting and potentially rewarding as it is, the
children's Internet industry is facing many challenges, these days, and
they need help from both within the industry and from regulators, in
order to face those challenges and make sure that what's best for
children is always foremost.
Who are the players? The children's Internet industry is largely
dominated by U.S. sites. They typically fall into three categories, (i)
large, well-recognized leaders in children's entertainment and media,
such as Disney (disney.com), Viacom (Nickelodeon, nick.com, and
nickjr.com, and MTV, mtv.com), Fox, PBS (pbs.org/kids), Sesame Workshop
(the new name for Children's Television Workshop--Sesame Street,
sesamestreet.org), Sports Illustrated (sikids.com), Nintendo
(nintendo.com), and Cartoon Network (cartoonnetwork.com), (ii) new
players to children's media, which came from the Internet, as opposed
to traditional entertainment media, such as Surfmonkey
(surfmonkey.com), MaMaMedia (mamamedia.com), Freezone (freezone.com)),
Bonus (bonus.com), Alfy (alfy.com and cleverisland.com), Zeeks
(zeeks.com), Lycoszone (Lycos's kids site, lycoszone.com), Yahooligans
(Yahoo's kids site, yahooligans.com) and, until recently, Headbone
(headbone.com), and (iii) sites that are linked to educational
services, media and products, such as Chancery Software
(k12planet.com), Discovery Channel (discoverykids.com), Scholastic
(scholastic.com), Weekly Reader (weeklyreader.com), National Geographic
(nationalgeographic.com/kids), Princeton Review (homeroom.com), Big
Chalk (bigchalk.com and homeworkcentral.com) and ePALS (epals.com, a
penpal service for schools using e-mail rather than traditional postal
mail).
How do they operate? Generally the children's Internet industry
operates on a B to C business model. That means they are businesses
delivering services to consumers. Essentially they offer kids content,
games and interactivity to children. Most sites are free. Some sites
require that children register to be able to access certain content and
services. That registration may require personally identifiable
information and therefore parental consent under the new children's
online privacy law, The Children's Online Privacy Protection Act
(``COPPA,'' described later in this testimony and the appendix), but
many only require that a child inputs a user name (using anything they
want) and password. Some sites operate on a subscription model,
charging parents, sponsors and in some cases even parents' employers
(see Kids Online America, kola.net), for subscriptions to special
services and content for children.
But B to C models have fallen into disfavor with the venture
capitalists, recently. Therefore, some children's Internet industry
members have recently changed their model (or gone back to their
original models) to a B to B model, offering their services to other
businesses, even within the children's Internet industry itself. Most
notable among these is, perhaps, Surfmonkey (surfmonkey.com) which
started out as a technology company, specializing in browser technology
and content management. When the market (and venture capitalists) cried
out for portals, it repositioned itself as a children's portal,
providing content, branded media and interactive features to children.
It's now designing a special browser that provides content management
to preapproved content, allowing parents to select content filters, and
manage their children's access to chatrooms, instant messaging, e-mail
and other interactive tools and even their time online. This is being
offered to other children's sites to allow them to have interactive
communities, without having to jump through the regulatory hoops.
THE CHILDREN'S INTERNET INDUSTRY IS FACING DIFFICULT TIMES.
Last month, there was an industry-wide conference for members of
the children's Internet industry. A representative of one well-known
children's site commented to a panel (that included me) on COPPA
compliance in the kids Internet industry. This woman stated that if you
are involved in the kids space, your primary obligation is safety and
privacy. She said that all children's sites need to be obsessed with
safety and privacy of their site visitors. A representative of another
well-known children's site stood up, and said although they cared
deeply about online safety and privacy for children, they were
``obsessed'' with the bottom line.
I have never heard a comment repeated within the industry as often
as this response. That's because it spoke to the hearts of all members
of the children's Internet industry. While most of the industry is
focused on online safety and privacy and doing what's right for
children, many have forgotten to stay focused on staying in business.
There are several solutions for this, and no one area to blame. One
essential solution is to educate sites on business models and help them
work with others to stay successful. In response to this, we are
forming the first children's Internet industry trade association, to
operate in alliance with an existing umbrella non-profit dedicated to
children's equitable access, education online resources and safety and
privacy issues, WiredKids.org. This organization is creating KITA, the
Kids Internet Trade Association, to help sites address these issues,
learn what they need to know to keep their businesses operating and
help them network with others within the industry and government on
these issues. It will include filtering companies, ISPs, technology
companies, educational services, content providers, media providers and
others involved either directly or indirectly with this industry. But
although a help to the sites, this will not address all of the issues
faced by the industry.
Problems faced by the Children's Internet Industry: While children
are online more and more (roughly 25 million in the U.S. alone under
the age of 18), few children's sites have been able to find a single
business and revenue model that works in the kids space. (Children's
sites for the purposes hereof are directed at children and preteens.)
While children may be loyal site visitors, parents aren't supporting
the industry in sufficient numbers. The key to success of the
children's Internet industry is to get parents to understand the value
of their children's online activities, and support them.
Most sites in the kids space are using a combination of several
revenue models that are helping them stay afloat until parents find a
compelling reason to support the children's Internet industry. (This
will come over the next few years with the delivery of educational
services, games, videos, online music delivery and new media and
programmable toys that can only be programmed online.) When we can find
the model that parents find compelling, the kids space will be very
successful. But during this interim period, between the earlier
excitement over the children's Internet industry and finding the right
revenue model and what parents find compelling, the industry is facing
hard and lean times.
This makes the industry particularly vulnerable to other factors
and outside influences. Prime among outside factors are: tech and
Internet stocks are down, the IPO market for the Internet industry has
slowed, and the venture capitalist money in the Internet space has been
drying up or directed at currently profitable e-ventures, generally,
Many sites that were planning on rounds of financing after February,
2000, found themselves without funding because of the market downturn
last Spring. Several proposed mergers and combinations that involved
some of the kids space leaders fell through, causing these sites to
waste months and even years in discussions. Time that would have been
better spent, in hindsight, developing revenue models and maintaining
their dominance in the space.
In addition, being involved in kids content development and
delivery is very costly and particularly time intensive for sites other
than Disney, Fox, Nickelodeon and the like, whose business is the
development of content online and offline for children. Couple this
with the high cost of maintaining a safe site for children (with
moderators in chatrooms and oversight of what the children are doing
and posting at the site), confusion over the years as to what the
market needed (largely driven by the venture capitalists) and the
speedbumps caused by regulations make it very difficult and costly to
operate a children's site and it's no wonder many are struggling to
stay afloat. Some wonderful sites have already lost and are losing that
battle.
While many are now blaming the FTC and COPPA, however, this isn't
fair and isn't a true reflection of the situation. It is a complicated
combination of factors that is making the life of a children's Internet
site precarious. Since many of these factors came to bear after the
March downturn in the market, and COPPA came into effect in April,
COPPA is an easy target for blame. But there is no one culprit here.
And if there is, it isn't COPPA. COPPA plays a role in the problem, but
more as a result of parental lassitude and in the lack of flexibility
and discretion given to the FTC to administer COPPA and provide
carveouts for other safe models.
There are seven issues that are creating special challenges for the
industry: (i) no clear revenue model has been generally identified as
working for the kids Internet industry, (ii) parents say they care
about children's online safety and privacy, but aren't taking the time
and effort to do anything about it and are unwilling to pay for most
online content, (iii) the venture capitalists, angel funding and public
security markets have become more cautious since the Spring 2000
downturn of the Internet markets, (iv) content development is very
costly and time-consuming, (v) children are not candidates at this time
for viable e-commerce and direct purchasing online, (vi) parents are
often unwilling to use credit cards and other adult verifiers online,
without a compelling reason to do so, and (vii) regulations pose
difficulties when preteen-interactivity is involved, which decreases
traffic, which further decreases the likelihood of obtaining financing.
Each of these points, either individually or in combination with one or
more of the other points, is examined below.
No generally identified business and revenue model exists yet for
the children's Internet industry: Currently the children's Internet
industry is struggling to discover a viable generally-applicable
business model for supporting children's content and features online.
At this time, most are using a combination of revenue models to support
the high cost of maintaining entertaining and fresh content for
children and preteens. Some good sites, which children enjoyed and
parents approved of, have been unable to survive during this difficult
time for the children's Internet industry. Even the ones that have
survived the downturn on e-commerce and Internet investments, the
falloff of the IPO markets, the high costs of safety and privacy
safeguards and legal compliance, and the lack of parental enthusiasm
and support, are struggling to find a viable and consistent business
and revenue model.
Advertising: Advertising, while a portion of most site's business
models, isn't able to support the costs of maintaining children's
online content. Advertisers are currently seeking a new interactive
model for Internet-based advertising that may be more effective with
children, but the advertising typically used (click-thru banners) isn't
producing the results advertisers are seeking. This will, hopefully
change. Children, while capable of influencing offline and online
purchases, are not yet participating in e-commerce. This both affects
the advertising rates and the ways in which advertisers are willing to
work with children's sites.
E-Commerce: Children, for the most part, don't purchase products
online. They research products and services, but are not purchasing
them online. Teens are starting to become an e-commerce force online,
but this has not extended to children and preteens. Children and
preteens influence offline spending of their parents in large amounts,
however. While a few kids e-commerce sites exist (relying largely on
the gift registry and gift certificate concept, such as iCanBuy.com,
RocketCash.com and doughNET.com), this isn't generally a standalone
viable business model at this time for the children's Internet
industry, either. E-commerce for children isn't compelling enough yet
for parents to support in large enough numbers. This will change over
the next few years when services and products that children want most
are only available online (such as programmable toys, computer games
and, to serve the desires of parents, educational services; for an
example, see Homeroom.com, offered by Princeton Review).
Sponsorship: Sponsorship is a business model used by many
children's websites during the last few years. Some use it to handle
the costs of a particular feature or section of their own site. Others
use it to design sites for other companies. Some large brick and
mortar, offline corporations have paid for the development of special
sites directed at children. Fleet Kids (designed by Headbone, one of
the saddest casualties of the children's Internet industry) is a
notable example of how the offline industry can join forces with the
children's Internet industry to develop educational and entertaining
resources for children. But, the revenues raised through sponsorships
are generally insufficient to defray the costs of running an entire
children's site. Some notable specialists in the area of kids website
designs for other companies are Media Jelly, which designed the Magic
School Bus site for Scholastic and Goosebumps, among other award
winning sites (www.mediajelly.com), and Zeeks (formerly a popular child
portal and now using their expertise to create sites for others).
Marketing and Collecting Data: One model many general audience
sites use is collecting marketing and demographic information about
site users. They may have site registrants provide personal
information, such as income, occupation, educational levels, addresses,
telephone numbers and e-mail addresses and pair this with their surfing
practices, marketing preferences and buying practices. Many members of
the children's Internet industry had been collecting personally
identifiable information from children at their site. When parents
learned about this, they reacted strongly. This is one of the abuses
COPPA was designed to prevent.
But marketing and demographic aggregate information not tied to a
specific child could be a partial business model for popular sites.
While children's sites could easy collect and aggregate non-personally
identifiable information and still be in compliance with the law, most
either don't know how to do this, or haven't discovered the value of
sharing their expertise about children's preferences with marketers, in
aggregate demographic mode. For example, Nike wouldn't need to know
that Billy Smith from 100 Main Street in Englewood, N.J. who attends
fourth grade at the Englewood Grammar School likes blue sneakers more
than black ones. They need to know that fourth grade boys in the NY
metropolitan area prefer blue sneakers to black ones. This lets them
market to all fourth grade boys, rather than directing ads to Billy via
his e-mail or by directing special ads to him when he surfs online.
This isn't as valuable to advertisers that may be seeking direct
marketing opportunities, but it may help increase revenues. And here,
COPPA levels the playing field between those sites willing to collect
and mine personally identifiable data from children, and those that
refuse to use their young site visitors in that way. With advertisers
limited in what can be collected and shared without verifiable parental
consent, the sites find it easier to direct them to aggregate
demographic information options.
Subscription-Based Models: The subscription model hasn't been
successful to date. Parents are unwilling, generally, to pay for
children's online content. Some new sites will be offering special
features and content, which may hopefully change this. Alfy, one of the
leading kids content Internet sites is launching its new subscription-
based model, cleverisland.com. Disney is focusing again on its Disney
Club Blast! (disneyblast.com) subscription site (the site has been in
existence for several years and is now entirely made-over). This has
the additional parental attraction (and therefore, potential for
success) of being Disney content. Juniornet (juniornet.com) has been a
subscription-based service since its launch in 1997, and was the first
of the new types of closed access services, which provide selected
Internet content within a ``walled garden'' rather than from the
Internet itself.
The experts see the subscription model as one of the most hopeful
for the children's Internet industry, at least until software, games
and educational services are regularly delivered online (about two to
three years down the road) and parents are forced through market
pressure to pay attention to their children's online activities.
Parental Involvement: Parents care about privacy and online safety,
but they aren't interacting with the sites or supporting the sites that
protect their children's safety and privacy. It may be that they are
intimidated, or just plain too busy. But the children's online laws
depend on obtaining parental consent, and if parents aren't bothering
to provide consent, sites are running into problems.
Bonus's experience is a case in point. It found that out of the
parents who were asked for their consent for Bonus to use children's
information internally, 51% never replied, 31% provided consent and 5%
said ``no.'' (13% are still pending from this sample group.) This was a
six to one ratio of parents allowing their children to use those
services, over those who wouldn't allow them to share the information.
But the 51% of parents not bothering to respond is frightening.
Bonus is losing more than half of the children who want to
participate. And Bonus doesn't have chat, e-mail, e-commerce, on
instant messaging. Bonus is a site that has games for children, and
sends newsletters to their site visitors. This is a typical situation
faced by many children's sites.
The solution is two-fold. One we need to teach parents how
important they are to their children's safe and private online
experience. They often feel that since their children understand the
technology, they don't have to get involved. But they need to recognize
that, although their children's technological skills may exceed their
own, their children haven't yet developed the requisite judgment for
handling communications with strangers online safely, at a younger age.
Kids have better tech skills, but parents have better judgment.
We need them to understand the real risks children face online.
Parents need to see the Internet as the telephone, rather than the
television. While they may be concerned about too much sex and violence
on television, parents are rarely compelled to take action in
connection with what their children see on TV. Yet, all parents feel
compelled to make sure our children do not talk to strangers. None of
us would allow our child to talk on the phone with an adult stranger
for two hours. Yet, their children often do just that, online in
chatrooms and using instant messaging. Once we can get parents to see
their children's safety and privacy in terms they understand, such as
the telephone calls with stranger, they can use common sense to help
their children learn how to surf safely. (Detailed information on all
aspects of online safety for children can be found in my new book, The
Parent's Guide to Protecting Your Children in Cyberspace, McGraw-Hill,
2000 (retail price $12.95), copies of which will be provided to the
Subcommittee.)
Two, we need to make it easy for parents. If they need to provide
consent to ten sites their children visit, separately, they just won't
do it. We have worked on this issue as well, by developing a central
site registry where parents can make a donation to Wired Kids via
credit card, and register at one time for as many member sites as they
want. A second service for parents is being developed with Wired Kids,
where parents give noted online safety experts the right to approve
sites for their children, based on certain criteria set by the parents,
such as moderated chatrooms.
But these are a drop in the bucket, and more intensive parental
consent mechanisms need to be developed. Offline consent, obtained at
certain store locations from parents may be one possible solution.
Parents who are shopping at a store may be able to use an offline
consent gathered there to give the level of consent for their
children's online interactivity. Schools are another place to collect
consents.
Schools are being used by large sites for parental collection
systems already. Big Chalk works with more than 26 million children in
more than 42,000 schools. Chancery Software (k12planet.com) works with
20 million children in US schools. Under existing regulations and
guidelines, sites are permitted to rely on the school's representation
that the parents have consented to the student providing the personally
identifiable information or using interactive features at the site. If
schools make this representation, the site has millions of registered
children and has complied with COPPA without having to deal directly
with the parent. This is creating a risk management issue for schools,
however, which may or may not have actually obtained the parents'
verifiable consent.
Sources of Funding and Financing: Venture capitalists have pulled
back from the children's Internet industry. A couple years ago, venture
capitalists first became interested in the children's Internet
industry. Until then, their main focus had been in e-commerce, but as
more and more children got online (with a growth from 6 million in 1996
to more than 25 million today in the United States alone), the
children's portion of the industry became more attractive. But the
venture capitalists were looking for potential IPOs, and the IPO market
has been dry for most of the Internet industry. Without IPO potential,
and with no presently viable generally-recognized business model,
venture capital dried up, and the chance for many children's sites to
survive largely dried up with it.
Many sites had periodic financing schedules. Those that managed to
raise their financing prior to the market correction this past spring
are sitting pretty in the kids space. Others have international
investment and business and revenue models. This too gives them more
flexibility. But many found their expectations of being able to raise
the financing they needed, as they always had raised them, unrealistic.
Depending on how long they had waited in the financing cycle, many
found themselves unable to keep their doors open. Most cut staff,
changed operations and looked to other avenues for revenue. Licensing
content and strategic alliances were seen as potential new revenue
models, and have helped several sites survive and have brought others a
higher profile outside of the traditional kids space. Brick and mortar
children's industry players became more important and educational
resources, which had additional value to bring to the mix, became more
prominent.
KIDS ONLINE PRIVACY, THE FTC AND COPPA:
While there is a substantial focus on COPPA today, and the costs of
compliance and to the industry, it is also important that we remember
why COPPA was passed in the first place, and the serious risks to
children is was intended to address.
COPPA was intended to address two separate concerns, (i) over-
marketing to children and collection of personally identifiable
information from children that is shared with advertisers and
marketers, and (ii) children sharing information with online predators
who could use it to find them offline. Both are valid concerns and need
to be addressed.
Children's Online Marketing Practices: The FTC has conducted
several surveys of websites, both sites directed at children and
general audience sites. In each survey they learned that sites were
collecting personal information from children, not informing the site
visitors about their information collection practices and what they did
with the information collected, and in many cases sharing this
information with marketers and advertisers. While the bulk of the
credible online community took this issue very seriously and drafted
clear privacy policies and instituted ethical collection practices when
children were involved, far too many sites ignored the FTC's warnings
and plea for self-regulation from the children's Internet industry
itself.
Interestingly enough, the practice of collecting and sharing
personally identifiable information about children has been almost
entirely eradicated. No credible children's site is currently
collecting personal information from children for outside marketing,
and none are knowingly sharing information collected with third
parties. So COPPA works in this respect. It has changed an industry
practice--one that parents wanted changed.
A sunset provision has been adopted and is in effect until April,
2002, that allows sites to collect personally identifiable information
from children (this includes e-mail addresses, as well as what we would
normally consider personally identifiable information) for internal use
only with less than full-fledged ``verifiable parental consent'' (which
is currently, typically, via telephone, credit card or debit card
verifiers, regular postal mail or fax). During the sunset period,
parents can provide their consent via e-mail, provided that the e-mail
requesting this consent is delivered in such a way as to make it more
likely that the parent and not the child will receive the e-mail and
provide consent, and providing that the email consent is confirmed in
some way. This is an ``opt in'' model that only permits the child's
information to remain on file and be used if the parents affirmatively
consent to it, by replying to the notice. As discussed in more detail
later, we describe the actual statistics obtained from a leading
children's site, Bonus. Bonus reports that more than 51% of the parents
don't bother to respond to this e-mail. Of those who do respond, there
is a six to one ratio of those providing consent, as opposed to
refusing it.
Protecting Children from Online Predators: The second concern
intended to be addressed by COPPA was children being lured and stalked
by online predators who gather information about them from chatrooms,
instant messaging, e-mails, websites and the like.
This is a very real risk, and one that should be addressed. Last
year the FBI's Innocent Images Unit (charged with investigating crimes
against children online) opened 1500 new cases of suspects who were
attempting to lure a child into an offline meeting for the purposes of
sex. Based upon my experience, about the same number of cases were
opened by state and local law enforcement agencies last year for the
same crime. Out of 25 million underage Internet users from the U.S.,
3,000 cases may not seem like very much (especially when often it is a
law enforcement agent posing as a child who is being lured, not a real
child victim), but one if too much and all of these cases are currently
avoidable. Also, most child molesters have a history of abusing
children, so each case represents harm done to more than one child. Our
children go willingly to offline meetings with these people. They may
think they are meeting a cute fourteen year old boy, but find that they
are meeting a 47-year old child molester instead. Teen People has an
article I worked on with them, on this very issue, in its new November
issue, now out on the stands.
Law enforcement is not aware of anyone who is using the information
children provide online to seek them out offline, by hiding behind a
bush or grabbing them on their way home from school. But it's only a
matter of time before this happens, since universal access to the
Internet means that even violent sexual offenders who are online can
use it for their own horrible purposes.
COPPA in Practice
Parents have told me that having to provide verifiable consent is a
burden, although they are grateful that someone is notifying them of
their children's online activities. They are also complaining that
their children cannot use the interactive tools immediately upon
obtaining their consent, given the current process which is largely
offline. They object to using their credit card information, and credit
card companies are unhappy that their verification systems are being
used for this purpose. The charge to a site for credit card
verification, for these purposes, is $.10 to $.20 per verification
(generally per child). Sites are also being pressured not to use the
merchant account systems for this purpose.
Obviously, the issues that COPPA was designed to address are still
of great importance. But many of the problems cited in connection with
COPPA could be handled easily if the FTC had more discretion in
approving exceptions to full verifiable parental consent for safe
applications and site practices. The law, as finally adopted, gave the
FTC little or no discretion in this regard. It is the lack of
flexibility, rather than the law itself, which presents the greatest
problem.
While COPPA has received much criticism from members of the
children's Internet industry, whether or not it is warranted, the FTC
deserves only praise. The FTC has been outstanding in trying to inform
the industry of what COPPA provides and how to comply with COPPA. They
have been available for private meetings with site operators, have held
a clinic on COPPA and how to comply, and have been active speaking at
industry conferences on the law and how it affects the children's
industry and general audience sites.
Cost of COPPA-compliance: We have polled most of the mid-sized
children's websites for the cost of COPPA-compliance, in hard dollars,
not as to any lost revenue or loss in traffic. This can run from more
than $115,000 per year to $290,000 per year, depending on whether the
site is fully interactive, with chatrooms, etc. and what level of
consent they collect. Here's what they told us:
$10,000-15,000 for legal, including audits and construction of
privacy practices and policy
Cost of toll-free telephone and dedicated fax service
$35,000 in engineering costs to make the site complaint
$2,500-$10,000 monthly for professional chat moderators (price
differs depending on training, hours of operation and
organization)
$35-60,000 per year for one person to oversee offline consent,
respond to parents questions, review phone consents, and review
permission forms.
$35-60,000 per year for person to oversee compliance, database
security, respond to verification and access requests.
One specific example of a site and how it is dealing with COPPA is
ePALS.
ePALS Classroom Exchange' is the world's largest online classroom
community and the leading provider of collaborative classroom
technology. ePALS pioneered the collaborative classroom concept in 1996
and now connects more than 2.5 million students and teachers in 182
countries worldwide.
ePALS Community members use a set of free, collaborative tools to
meet and correspond online, combine professional expertise, join
interactive projects, and develop international friendships. This tool
set includes extensive profile creation and search functions, monitored
email with profanity filters, moderated discussion boards, private
chat, and soon, photo sharing technology. ePALS works to balance
participation in the global community and learning through
collaboration against the safety concerns of our educational community.
Educators turn to ePALS for a safe, creative way to integrate
technology into the curriculum and to introduce students to the skills
they'll need to participate in the global community. The ePALS
commitment to safety is an ongoing success story.
ePALS has developed a simple COPPA consent package for American
teachers who are already registered with ePALS. Teachers download this
package directly from www.epals.com, print it and distribute consent
forms to their students to take home to their parents. Only when all
the consent forms have been received is the teacher free to carry on
with ePALS activities. For all new teacher registrations, ePALS
requires teachers to collect consent forms before they can set up
monitored email accounts for their students.
All individuals registering with ePALS must now submit their birth
date and citizenship. If the individual is under 13 and from the United
States, the registration process requests the parent's email address to
complete the sign-up. Without the email address, the registration
cannot be completed. If the child does provide his/her parent's email
address, ePALS sends the parent a copy of the ePALS privacy policy
(http://www.epals.com/privacy/index--en.html) and a consent form, which
must be signed and returned via fax or post. Parents may also use a
special toll-free number to provide their consent. ePALS will not
activate a child's account without verifiable parental consent.
Beyond securing parental consent, the ePALS site offers three
additional layers of security:
1) All profiles submitted to ePALS must be read and approved by a
trained Site Support Coordinator before they are added to the
site. Suspicious profiles are refused immediately.
2) The profile creator, the teacher or parent, is the first point of
contact for anyone interested in a class/group profile. The
teacher or parent can decide to refuse any communication.
The teacher or parent has comprehensive access to ongoing
communications for his/her group of children. He/She can read every
incoming and outgoing piece of email before it is received or sent, or
simply choose to read specified pieces--ones with attachments,
profanity, etc. The choice is up to the teacher or parent.
An example of what had to be undertaken to make ePALS COPPA-
compliant:
Massive revision of registration system to capture age,
nationality, and parent/guardian information, send data to
parent/guardian, and restrict access to appropriate users
Revisions of Privacy Policy
Creation of COPPA consent forms
Installation of dedicated phone and fax system
Hiring and training of Site Support staff to administer COPPA
consent process
Ongoing legal counsel
Teachers cannot use ePALS in their classrooms until parental
consent is received
Potential Solutions in Connection with COPPA: As discussed in more
detail at the end of this section, solutions will come from three
areas.
First is from Congress itself:
We need studies conducted about how children use the Internet,
and what help parents want and need.
We also need funding for Internet safety education in schools
and community groups.
We need governmental support of leading Internet safety
advocates t help them do their job in educating parents and
children, and providing helplines for those who run into
trouble online.
We need more funding for law enforcement, to fight crimes
against children online.
We need more training of state and local law enforcement
agencies to help fight crimes against children online.
We need more discretion given to the FTC, and practical and
reasonable carevouts from COPPA, or reduced consent levels, for
sites that can demonstrate that they care about children's
privacy and online safety.
The FTC needs more funding to hire and retain quality staff
experienced in this field. (The FTC staff is stretched too
thin, and its staff members are too often recruited and hired
by Internet industry members who need experienced advisors.)
Second is from the FTC itself, many of which are already
implemented:
We need more education of the industry in how COPPA works, and
how sites can comply. (The FTC held an unprecedented clinic on
compliance in August, and has been outstandingly proactive in
this area.)
We need a close interaction between the industry and the FTC
in the area of online safety and privacy, and new technologies.
(Here, too, the FTC deserves praise for its accessibility to
the industry and its willingness to keep open dialogue with
members of the children's Internet industry, large and small.)
We need more FTC staff in the area of privacy and Internet
consumer protection issues.
Once more discretion is given to the FTC, we need it to
address other methods of protecting children's safety and
privacy under COPPA, which may allow sites to avoid the offline
consent mechanisms.
We need help in educating parents and children about online
safety and privacy.
Third is from the industry:
We need to work together to form solutions, such a central
registries, and joint consent mechanisms, and consent
mechanisms where parents set the standards and allow a trusted
third party to select the sites which satisfy the guidelines
approved by the parents.
We need to educate the children's Internet industry on
business and revenue models and provide them with skills they
need to run their businesses profitably. (The new trade
association will help address that.)
We need to educate parents about online safety and privacy,
and educate children on safe surfing practices and how to
exercise critical thinking online.
We need to develop new technologies that make Internet safety
and privacy as seamless as offline safety and privacy.
We need to share our concerns and recognize that, as an
industry, we survive or fall together.
We need to share our expertise with Congress and the FTC. No
one knows kids better than members of the children's Internet
industry. The more we share our knowledge and expertise, the
better Congress can legislate in this area, and the better the
FTC can administer those regulations and advise Congress.
An analysis of COPPA, how it works and why it was adopted is
included in the appendix. I divide the issues addressed into two areas:
data collection and interactivity.
Sites should have to jump through many hoops before they are
permitted to collect and share personally identifiable information from
children. They don't need to collect personally identifiable
information, other than e-mail addresses. And sites should have a very
good reason before being allowed to collect more. Parents agree
wholeheartedly.
But it would be very helpful for Congress to enable a study on what
information is being collected, how it is being used and what parents
really want. Most of what exists is more anecdotal than scientific.
Parents send me about 600 e-mails a day, in my role as author of the
leading book for parents on children's Internet safety and privacy, The
Parent's Guide to Protecting Your Children in Cyberspace (McGraw-Hill,
2000), and in my position as Executive Director of Cyberangels (the
world's largest Internet safety, help and education group), and
President of WiredKids.org (which includes UNESCO's online safety
project for the U.S.). They care about finding reliable and safe sites
for their children to enjoy online. They care about spam (unsolicited
junk e-mail, often linking to adult content sites), more than any other
single issue. They care very much about their own and their children's
privacy. I am not sure that they care about providing offline consent,
or online credit card or similar identifiers for their children to be
able to chat or use interactive community tools at sites that have
adopted safety guidelines and procedures.
With respect to interactivity, requiring the highest level of
consent from parents before children can use chat, e-mail, instant
messaging, and the like was designed to address the danger posed by
pedophiles and other bad actors. But there are two things that can
address it even more effectively.
One is educating our children on smart surfing practices. We, at
WiredKids.org, working with Cyberangels, are designing a curriculum for
teachers to use in the classroom to teach safe chatting and online
communication skills. Congress can be very effective in helping promote
online safety education, especially for children. Our Teenangels
program educates teens to teach other teens and children about safe
surfing. This can be expanded nationally, with support from schools and
community groups. Our new online safety video for children and teens
will teach practical safe surfing tips. But we need more programs like
this and funding for these programs, in order to be effective.
Two is getting sites to use safe surfing practices, such as
moderated chat, and parental approved e-mail and instant messaging
correspondent lists. Closed list of permitted correspondents, like the
Buddy list used by AOL and the Cyberfriends list used by Surfmonkey are
good examples of how parents can pre-clear certain real life friends
for communication, while locking out strangers. These kinds of
interactivity, when designed with children's safety in mind, should be
permitted without having to get parental consent. Not, in my opinion,
that parent's won't give the consent if they took the time to focus and
respond, but because parents aren't bothering to respond. This is an
issue that providing the FTC with more discretion can resolve.
Perhaps, by providing the FTC with more discretion in this area,
the sunset provision for ``email plus'' consent may be extended, and
certain types of activities at safe sites can be permitted with a
reduced level of consent or notification. Sites could submit their
practices to either the FTC or a safe harbor entity for approval. This
would allow sites the flexibility they need and provide incentives for
adopting safe surfing and ethical privacy practices.
For example, the FTC should have been permitted to allow sites
which have designed a safe chatting setting, such as clear site rules,
trained chatroom moderators and use of technology to filter out certain
prohibited terms, to avoid the onerous task of getting prior parental
consent. Sites should have been permitted the option of presenting a
package safety and privacy solution and approach to the FTC for
approval, and for exceptions to the prior verifiable parental consent
rule.
The way it currently operates, a site can get parental consent to
any interactivity, no matter whether it is designed with the child's
safety in mind. This actually provides a disincentive for safety and
privacy practices at the site. And given the cost of moderating
children's chatrooms, it is a choice many sites are making.
If the FTC had more discretion, it could approve these systems and
permit the sites that use them to avoid the full-fledged verifiable
consent mechanisms. It would encourage more innovation in this area,
and keep our children safer at the same time. Sites which were approved
could boost traffic by providing chat and interactive features children
enjoy, which would in turn improve their financial position. This would
provide further incentive for developing safe programs for children.
Offline consent mechanisms, digital signature development, school-
related programs, and central registries are essential to helping the
children's Internet industry navigate the current challenges it faces.
But giving the FTC more discretion to provide exceptions to the
verifiable consent requirement is one of the most important changes
that could occur, and one of the most important things that this
Subcommittee can recommend.
Our children are worth it, and so is the Internet. Too often blamed
for everything from the Black Plague to the sinking of the Titanic, the
Internet is a wonderful tool for learning, communication and
entertainment. It levels the playing field between the haves and the
have-nots. All children look alike online. No one is classified by
their race, ethnic origin, religion, accent or physical ability. Online
they are all just children. And like it or not, the Internet is here to
stay.
We're all in this together. Let's work together to make the
Internet fun, safe, private and educational for children. And let's
work together to make sure that the children's Internet industry, which
has so much to offer our children, flourishes!
For the children.
I remain willing to help, and provide input and expertise in any
way this Subcommittee can use my help and expertise.
I wish to thank the Subcommittee, its chairman and all its members
for inviting me to present this testimony on such an important subject.
Appendix--COPPA Development and Analysis
The Children's Online Privacy Protection Act (``COPPA''), and the
regulations thereunder which took effect on April 21, 2000, require all
commercial sites to take special measures when they collect personal
information from children or allow children to use interactive
features, such as e-mail, instant messaging and chat (if they could
share personal information with others using those tools). Many sites
are confused about what the law provides, since it uses the word
``collection'' and they see that as something affirmative they are
doing. But ``collection'' includes letting children use e-mail accounts
or post messages publicly through a chat room or discussion board, as
well as fill out forms. And it has nothing to do with adult content
children may see online.
While the regulations are aimed principally at the children's
Internet industry, they are fully effective against general interest
sites with actual knowledge that a child is using their services. Few
lawyers, even among experienced cyberspace practitioners, understand
the children's Internet industry and the regulations and safety
concerns that apply to it. But failing to understand what information
can be collected from children, how it can be used, and what must be
accurately disclosed to parents has cost many companies dearly.
There are two issues dealt with by COPPA and the existing consumer
protection authority of the FTC. One is privacy, the other is safety.
Both are regulated by the FTC, although states are permitted to enforce
consistent local laws. In brief, privacy relates to the collection,
maintenance, or use of personally identifiable information from
children 12 years old and under. Safety is impacted, legally, when a
child under the age of 13 is able to share personally identifiable
information with others online.
The safety concern is that someone such as a pedophile may be able
to contact the child either online or offline because the child has
shared such contact information, whether intentionally or not. Last
October, the FTC promulgated its final regulations implementing the
Children's Online Privacy Protection Act of 1998 (COPPA). Yet few were
aware that the FTC already had the ability to enforce the privacy and
safety concerns noted above, and has expressly set forth the parameters
of that authority since mid-1997.
The salient document is the ``Kids-Com Letter.'' Online since
February 1995, KidsCom was one of the first children-only sites on the
Internet. It did not use ``cookies''--which glean data about site
visitors--to gather information, but collected data through
registration forms, contests, and pen pal programs. It was directed at
children from ages four to 15 and came under criticism for its
collection practices. (As a result of the FTC investigation, KidsCom
revamped its site and is very popular among parents and children.)
In May 1996, the Center for Media Education, a consumer watchdog
group, filed a petition with the FTC requesting that the agency
investigate KidsCom and bring an enforcement action against it. CME
asserted that KidsCom's data collection practices violated Section5 of
the FTC Act's ``anti-deception'' laws in two ways. First, KidsCom
collected information from children without accurately disclosing the
purpose, and second, KidsCom failed to disclose that it was paid to
endorse certain products. In July 1997, the FTC issued its findings in
a letter. The FTC determined that KidsCom's disclosure was ``likely''
inadequate and misleading, but declined to take any punitive action
against KidsCom since the company had already changed its data
collection practices and cooperated in the FTC investigation. The FTC
discovered that KidsCom was sharing information collected from children
with third parties, though this information was provided only in an
aggregate form (e.g., 10-year-old boys from New York preferred baseball
over football).
In issuing this ruling, the FTC for the first time publicly
announced its guidelines for data collection from children on the
Internet. Relying on '5 of the FTC Act, which prohibits unfair and
deceptive practices in or affecting commerce, the FTC stated: ``It is a
deceptive practice to represent that a Web site is collecting
personally identifiable information from a child for a particular
purpose (e.g., to earn points to redeem a premium), when the
information will also be used for another purpose which parents would
find material, in the absence of a clear and prominent disclosure to
that effect.''
Second, the FTC stated, when collecting personally identifiable
information, ``adequate notice'' of such practices must be given to a
parent because of a child's limited ability to understand the
disclosure. ``Adequate notice'' requires disclosure of: (1) who is
collecting the personally identifiable information; (2) what
information is being used and for what purpose it is being used; (3)
whether it will be disclosed to third parties, and if so, to whom and
in what form; and (4) how parents can prevent the ``retention, use or
disclosure'' of that information.
Third, the FTC articulated its ``unfairness'' test for Internet
child safety, noting that the disclosure of children's personal
information to third parties is of particular concern, and that parents
must be given adequate notice of such use and the opportunity to deny
their consent to it. The FTC has had broad regulatory powers when
dealing with safety issues, under its unfairness authority in section
5. Under that section, a practice is unfair if it causes or is likely
to cause substantial injury to consumers that is not reasonably
avoidable and not outweighed by countervailing benefits to consumers or
competition.
In its fourth and final principle, the FTC criticized KidsCom's
endorsement practices as misleading and deceptive. KidsCom had ``New
Product'' areas, where products were reviewed and endorsed. What it had
not disclosed was the fact that, in exchange for an endorsement,
product manufacturers had to contribute at least $ 1,000 worth of
product, which was used for premiums and prize redemptions. The passing
off of an advertisement as an independent review or endorsement is a
deceptive practice under '5 of the FTC Act. KidsCom failed to clearly
and conspicuously disclose that the product information was solicited
from manufacturers and printed in exchange for in-kind payment.
Following the issuance of the KidsCom Letter, the FTC broadened its
principles to include offline consent for children 12 and younger
anytime their personal information may be shared online in chat rooms
or similar third-party communications, and before any site collects and
stores their personal information, even an e-mail address.
The adoption of COPPA was in direct response to the lack of
industry compliance with the law as articulated by the FTC in the
KidsCom Letter.
In June 1998, the FTC presented its Privacy Online Report to
Congress, documenting the online collection of personal information
from children. The FTC rearticulated its prior concerns that collection
of personal information from a child under the age of 13 without
informed parental consent would be a deceptive trade practice. The FTC
reported to Congress that even in chat rooms, children innocently and
without request may reveal where they live or go to school or their
real e-mail addresses. The FTC informed Congress that parents need to
understand the risks and consent to any such collection and disclosure
of personal information. Congress apparently agreed, and wasted no time
in acting on the FTC's report. Within months, COPPA was law.
COPPA requires that commercial Web sites obtain verifiable parental
consent before collecting personal information from a child under the
age of 13. Failure to obtain such consent is an unfair and deceptive
trade practice and can result in fines of up to $11,000 per occurrence.
COPPA applies to commercial Web sites, online services ``targeted
at children,'' and any online service operators with actual knowledge
that they collect personal information from a child. (Actual knowledge
can be as simple as a child's sharing her grade or age in a monitored
general audience chat room on a site, or can be supplied by an e-mail
or phone call from concerned parents who object to the collection
practices on behalf of their child.) Personal information includes such
items as full name, home address, e-mail address, telephone number,
Social Security number, or any other information that the FTC
determines ``permits the physical or online contacting of a specific
individual.''
The regulations require covered operators to:
1. Provide notice on the Web site of what information is collected from
children, how information is used, and the Web site operator's
disclosure practices for such information (notice this applies
to all information, not just ``personal information'');
2. Obtain verifiable parental consent (which requires more than a mere
e-mail consent from the parent) to collect, use, or disclose
children's personal information before it is collected from the
child, with certain exceptions and special rules for
newsletters and internally used information;
3. Upon request, provide parents with a description of the types of
information collected from their child, or the actual
information obtained from their child, and the opportunity to
refuse to permit the further use, maintenance, or future
collection of the child's personal information. Thus, in
addition to having to obtain initial consent from the parents,
if a parent withdraws consent at any time, the operator must
remove that child's personal information from the system;
4. Cease conditioning the child's participation in games, contests, or
any other activity upon the disclosure of more information than
is reasonably necessary to participate, including permitting
parents to allow the site to collect personal information but
refusing to let the site share the information with third
parties;
5. Maintain reasonable procedures ``to protect the confidentiality,
security, and integrity of personal information collected from
children.''
The law also details three different levels of consent, as well as
the various types of notices required under the statute, which cover
everything from the content of those rules to the look and placement of
the link to the privacy policy displayed at the site, as well as the
technical requirements for obtaining ``verifiable'' parental consent.
All websites need to look hard and thoroughly at their collection
practices. Even if COPPA doesn't apply to the site, they may still run
afoul of the FTC Act if their privacy policy does not accurately and
completely disclose what personal information they collect from their
users and what they do with that information. If they collect personal
information that includes a person's age or grade or similar
information, they may then have actual knowledge that they are
collecting personal information from a ``child'' and need to comply
with the full panoply of COPPA regulations. Even if they don't overtly
request that information, if they have monitored chat rooms or
discussion boards at which a user may disclose information from which
the site should know they are under 13, that may provide the requisite
knowledge under COPPA.
If the site collects any personally identifiable information from
its users or provides any means of public disclosure of such
information (such as through an e-mail service, chat room, discussion
boards or instant messenger service), and the site is alerted that a
particular user is a statutory ``child,'' then the site must also
comply with COPPA.
Banner advertisers and network advertising companies are covered by
COPPA and its regulation if they advertise at children's sites and
collect personal information from children who click through from such
sites. They are also covered if they have ownership or control over
such information collected directly at the children's sites.
Advertisers at general audience sites may also be covered by COPPA if
they collect personal information from people who click through, and
that information discloses that the visitor is a child.
We have learned that many companies are collecting data from their
Web site visitors without knowing why they are collecting it or if they
are using it properly. Unless companies are under investigation or have
heard of another company under investigation, their legal departments
rarely communicate with Webmasters. With this new law on the books, all
commercial Web sites must be vigilant in ensuring that the rights of
parents to notice and consent are honored. If such companies ignore
parents' concerns regarding privacy and advertising, they will have to
face more than the FTC they will be facing the even tougher scrutiny of
a disgruntled parent.
Mr. Tauzin. Thank you.
Mr. Mike Griffiths, the Chief Technology Officer of Match
Logic Inc. Welcome.
STATEMENT OF MIKE GRIFFITHS
Mr. Griffiths. Mr. Chairman and members of the committee, I
want to thank you for inviting me to testify. My name is Mike
Griffiths. I am the Chief Technology Officer and one of the
founders of Match Logic, an Internet marketing and advertising
services company that provides strategic marketing solutions to
Fortune 500 companies. We were founded in 1996 and currently
operate as a subsidiary of a leading broadband Internet service
provider, Excite at Home.
I am here representing the Network Advertiser Initiative,
an industry group comprised of the leading Internet advertising
companies. The NAI was formed at the behest of the Federal
Trade Commission and the Department of Commerce to address
consumer privacy concerns by developing self-regulatory
guidelines on the practice of online preference marketing or
profiling. The NAI companies represent more than 90 percent of
the Internet advertising industry in terms of revenue and
numbers of ads served.
Mr. Chairman, as you know, the NAI announced its self-
regulatory principles in July of this year after months of
intensive consultations with the Federal Trade Commission and
with the Clinton administration. The Internet advertising
industry needed to adopt rules of the road for its information
practices in order to satisfy legitimate user concerns about
privacy.
For the industry to write these rules in a manner that
would garner public confidence, the NAI needed the guiding hand
of public officials. The talks between the NAI and the Federal
Government were tough but fair in that the industry had to make
a number of important concessions. Ultimately, we were pleased
that the NAI could develop industry self-regulatory guidelines
that are meaningful and real and which the FTC, Clinton
administration and Members of Congress on both sides of the
aisle unanimously applauded.
The NAI principles dealt with the practice of online
preference marketing. We define this as data collected over
time and across web sites which is used to determine or predict
consumer characteristics or preferences for use in ads delivery
on the web.
In other words, we try to figure out which is the best ad
to play to the consumer at a given point in time. We believe
that OPM, if done responsibly, benefits both consumers and
businesses. Consumers benefit because they receive banner ads
targeted to their interests. If you are interested in golf, for
example, you will see more advertisements for the latest golf
equipment. If you buy a lot of women's clothing, you will see
more women's clothing ads. Advertisers benefit because targeted
advertising is more effective and they get a better return on
their investments. Finally, web sites benefit because the more
effective the advertising, the more they can charge.
This brings us back to the consumer. Without targeted
advertising, advertisers will pay less, web sites will earn
less and consumers will suffer. Currently a vast majority of
web sites are free. If Internet advertising does not work,
these web sites will not be able to survive or they will have
to move to a subscription model that charges users for
services.
Our companies allowed tens of thousands of small and medium
sized web sites to compete with bigger players for advertising
dollars. We give them the economy of scale that they would
otherwise lack. So in summary, our job is to make the Internet
a more efficient and competitive advertising medium that will
further stimulate the growth and viability of the Internet as a
source for free content.
We at Match Logic and at the NAI understand that consumers
are very concerned about Internet privacy. We share these
concerns. If consumers are not comfortable that their privacy
is protected, then the Internet will suffer. That is why the
NAI companies came together with the Federal Government to
develop landmark principles on data collection and the level of
notice and choice that we must give to consumers. These
principles lay the ground rules and safeguards for the
collection and use of nonpersonally identifiable or unanimous
information, the collection and use of personally identifiable
information, and the merger of PII with non-PII.
In summary, here are the guidelines: First of all, NAI
companies have agreed that we will not use personally
identifiable sensitive health information, sensitive financial
information, or information of a sexual nature for the purposes
of profiling. We do not believe that these categories of data
should be used, and we will not use them. For non-PII, we
require notice and choice. NAI members must disclose their OPM
practices through their web sites and through the NAI gateway
web site. In addition, where possible they must contractually
require their web site partners to disclose the collection of
non-PII for OPM. NAI members will provide mechanisms for
consumers to opt out from the use of PII for OPM.
For personally identifiable information, or PII, we require
that NAI members follow the online privacy alliance guidelines
for online privacy policies. These policies require the
adoption and implementation of a privacy policy and that notice
and choice be afforded.
Importantly, for the merger of non-PII with PII, we have
two scenarios. The first case is where PII is linked with
previously collected non-PII. In this case, members will not
without prior affirmative consent or opt in, merge PII with
previously collected non-PII.
The second case is where PII will be merged with non-PII
for OPM purposes on a going forward basis. In this case NAI
members will provide consumers with robust notice and choice.
The NAI principles include several examples of what would be
considered robust notice for each of these scenarios.
The NAI members have also agreed to establish a third party
enforcement program that will include random audits by the
third party enforcer, the ability to file and handle consumer
complaints and the ability to redress lack of compliance though
sanctions such as revocation of the seal or through a
designated public or government forum such as the Federal Trade
Commission.
Finally, the NAI members strongly believe that industry,
government, consumer, and advertiser pressures to set and
maintain high standards for privacy will render participation
in the NAI all but mandatory for network advertisers. Moreover,
because of the contractual reach of these NAI companies across
literally thousands of web sites, the NAI principles will have
a tremendously broad impact on web privacy.
In conclusion, and to summarize, the NAI self-regulatory
principles are designed primarily to accomplish two things:
first, to make sure that advertisers and web sites post notice
that are strong and clear where OPM occurs, and second, to make
it easy for users to opt out. Under these principles NAI
companies agree to afford consumers with important notice
disclosures and appropriate methods of choice for
participation, while at the same time one of the main engines
behind this Nation's booming new economy, the Internet, can
continue its remarkable growth and improve as a provider of
free and reduced price content.
Mr. Chairman, on behalf of the NAI, I want to pledge that
we will continue to work with the FTC, the Commerce Department
and you and your members and staff to ensure that these self-
regulatory principles live up to their promise. Thank you.
[The prepared statement of Mike Griffiths follows:]
Prepared Statement of Mike Griffiths, Chief Technology Officer,
MatchLogic
Mr. Chairman and Members of the Committee, I want to thank you for
inviting me to testify. My name is Mike Griffiths, and I am the Chief
Technology Officer and one of the founders of MatchLogic. MatchLogic is
an Internet marketing and advertising services company that provides
strategic marketing solutions to Fortune 500 companies. We were founded
in 1996 and currently operate as a subsidiary of the leading broadband
Internet service provider Excite@Home.
Before I begin I would like to thank Chairman Tauzin for holding
this hearing and taking an active role on the important issue of
Internet privacy. We have consulted with Chairman Tauzin and his staff
during the development of the self-regulatory principles that I am here
to discuss and his leadership helped us put forward guidelines that
both protect user privacy in an unprecedented manner while, at the same
time, allowing internet advertising to thrive. So, again, thank you Mr.
Chairman and Congressman Markey for your hard work and for holding this
hearing.
I'm here today representing the Network Advertising Initiative, an
industry group comprised of the leading Internet advertising companies.
The NAI was formed at the behest of the Federal Trade Commission and
the Department of Commerce to address consumer privacy concerns by
developing self-regulatory guidelines on the practice of online
preference marketing, or ``profiling''. The NAI companies represent
more than 90 percent of the Internet advertising industry in terms of
revenue and numbers of ads served
Mr. Chairman, as you know, the NAI announced its self-regulatory
principles in July of this year after months of intensive consultations
with the Federal Trade Commission and the Clinton Administration. The
Internet advertising industry needed to adopt ``rules of the road'' for
its information practices in order to satisfy legitimate user concerns
about privacy. For the industry to write these rules in a manner that
would garner public confidence, the NAI needed the guiding hand of
public officials. The talks between the NAI and the federal government
were tough but fair, in that the industry had to make a number of
important concessions. Ultimately, we were pleased that NAI could
develop industry self-regulatory guidelines that are meaningful and
real and which the FTC, Clinton Administration and members of Congress
on both sides of the aisle unanimously applauded
The NAI principles deal with the practice of Online Preference
Marketing. We define this as ``data collected over time and across web-
sites, which is used to determine or predict consumer characteristics
or preferences for use in ad delivery on the Web.'' In other words, we
try to figure out which is the best ad to play to a consumer at a given
point in time.
We believe that OPM, if done responsibly, benefits both consumers
and businesses. Consumers benefit, because they receive banner ads
targeted to their interests. If you are interested in golf, for
example, you will see more advertisements for the latest golf
equipment; if you buy a lot of women's clothing, you will see more
women's clothing ads. Advertisers benefit because targeted advertising
is more effective and they get a better return on investment. Finally,
web sites benefit because the more effective the advertising, the more
they can charge.
This brings us back to the consumer. Without targeted advertising,
advertisers will pay less, web sites will earn less and consumers will
suffer. Currently, a vast majority of web sites are free. If Internet
advertising does not work, these web sites will not be able to survive,
or they will have to move to a subscription model that charges users
for their services. Our companies allow tens-of-thousands of small and
medium size web-sites to compete with the biggest players for
advertising dollars. We give them the economy of scale that they
otherwise would lack. So, in summary, our job is to make the Internet a
more efficient and competitive advertising medium that will further
stimulate the growth and viability of the Internet as a source for free
content.
We at Matchlogic and at the NAI understand that consumers are very
concerned about Internet privacy. We share these concerns. If consumers
are not comfortable that their privacy is protected then the Internet
will suffer. That is why the NAI companies came together with the
Federal government to develop landmark principles on data collection
and the level of notice and choice that must we must give to
consumers.. These principles lay out the ground rules and safeguards
for the collection and use of Non-Personally Identifiable (or
anonymous) information, the collection and use of Personally
identifiable information, and the merger of PII with Non-PII.
In summary, here are the guidelines:
First, all of the NAI companies have agreed that we will not use
personally identifiable sensitive health information, sensitive
financial information, or information of a sexual nature for the
purpose of profiling. We do not believe that these categories of data
should be used, and we will not use them.
For Non-PII, we require notice and choice. NAI members must
disclose their OPM practices through their web-sites and through the
NAI gateway web-site, and in addition, where possible, they must
contractually require their web-sites partners to disclose the
collection of Non-PII for OPM. NAI members will provide mechanisms for
consumers to opt-out from the use of Non-PII for OPM.
For PII, we require that NAI members follow the Online Privacy
Alliance (OPA) guidelines for Online Privacy Policies. These policies
require the adoption and implementation of a privacy policy, and that
notice and choice be afforded.
For the merger of non-PII with PII, we have two scenarios. The
first case is where PII is linked with previously collected Non-PII. In
this case NAI members will not, without prior affirmative consent
(``opt-in'') merge PII with previously collected Non-PII. The second
case is where PII will be merged with Non-PII for OPM purposes on a
going forward basis. In this case NAI members will provide consumers
with robust notice and choice.
The NAI principles include several examples of what would be
considered robust notice for each of these scenarios.
The NAI members have also agreed to establish a third-party
enforcement program that will include: random audits by the third party
enforcer, the ability to file and handle consumer complaints, and the
ability to redress lack of compliance through sanctions such as
revocation of the seal, or through a designated public or government
forum such as the Federal Trade Commission.
Finally, the NAI members strongly believe that industry,
government, consumer, and advertiser pressures to set and maintain high
standards for privacy will render participation in the NAI all-but-
mandatory for all network advertisers. Moreover, because of the
contractual reach of these NAI companies across literally thousands of
Web sites, the NAI Principles will have a tremendously broad impact on
Web privacy.
In conclusion and to summarize, the NAI self-regulatory principles
are designed primarily to accomplish two things: first, to make sure
that advertisers and web-sites post notices that are strong and clear
where OPM occurs, and second, to make it easy for users to opt-out.
Under these principles, NAI companies agree to afford consumers with
important notice disclosures and appropriate methods of choice for
participation, while at the same time one of the main engines behind
this nation's booming new economy, the Internet, can continue its
remarkable growth and improve as a provider of free and reduced-price
content.
Mr. Chairman, on behalf of the NAI, I want to pledge that we will
continue to work with the FTC, the Commerce Department and you and
members of your staff to ensure that these self-regulatory principles
live up to their promise.
Thank you, and I look forward to any questions you may have.
Mr. Tauzin. Thank you.
Finally, Mr. Andrew Shen, Policy Analyst for the Electronic
Privacy Information Center here in Washington.
STATEMENT OF ANDREW SHEN
Mr. Shen. Thank you, Mr. Chairman. Thanks for inviting me
to speak on a very important issue to the American public and,
obviously, also to members of this committee.
I will try to keep my remarks very short since I am the
very last speaker of what has been a very long morning. My name
is Andrew Shen, and I am a Policy Analyst at the Electronic
Privacy Information Center. EPIC is a public interest research
center located here in Washington, DC. Today while I am here
formally on behalf of EPIC, I am really speaking here to
represent the views and interests of American consumers.
EPIC believes that privacy has and will be one of the
defining consumer protection issues for Internet, and what we
have seen in these early years of electronic commerce is that
the Internet has resulted in a vast amount of information
collection that I think is unprecedented, and that information
collection has resulted in corresponding concerns about
personal privacy.
Now, when I speak in public at events like these, I do my
best to address the concerns of American consumers and those
that really just want to ask a very simple question, and their
question usually goes something like this: How do I protect my
privacy? How do I keep my personal information within my
control?
To some extent, fellow members of my panel have tried to
address that problem. Some have proposed self-regulatory
guidelines, some have proposed technologies. Some have proposed
a mix of both. But I think it is important to sort of analyze
what a typical consumer experience of these approaches are.
Some suggest to a lot of consumers that they should change
the settings in their browsers or use privacy tools or
subscribe to anonymizing services. But this will not be
sufficient for the protection of most American consumers. Many
information collection technologies use jargon and terms that a
lot of people are not familiar with. Terms like cookies, online
profiling, online preference markets, opt in, opt out. This
tends to confuse a lot of people. And here as evidence I want
to cite a recent study by Pew Internet American Life Project.
They found that 43 percent of Internet users--only 43 percent,
less than half--know what a cookie is.
Even more astonishing than that are the results that of
Internet users that have 3 or more years of experience online,
that number only rises to 60 percent. That is for people who
have been online for a very long time still do not know what a
cookie is, let alone what a company like Match Logic can do
when they combine cookie technology with banner ads and huge
networks.
Others may suggest that people can just read privacy
policies and try to parse out what tend to be long, complex,
and vague statements about what companies will do with their
personal information. These privacy policies, as I already
said, tend to be confusing. Larry spoke to this a minute ago.
But I think a more important, more recent phenomenon is that
these privacy policies are constantly changing. Many privacy
policies will explicitly say: Our terms may change at any time.
Please check back later. And that is just not good enough for
the American consumers.
More recently than that, many consumers are simply being
told that if the company fails or goes bankrupt or mismanages
the resources they have at their disposal, their customers'
personal information can be sold just like the computer sitting
on their desk in the office as if it was their information to
sell.
Now, do I have an answer for these people. I do not want to
tell them they can't do anything. What I usually tell them to
do is talk to lawmakers and legislators like yourself, tell
them to say to you that they want their privacy protected, and
tell them to tell you that you do have it within your power to
protect their personal information. And Congress has done this
before.
You listed off many bills earlier this morning, listing all
the various sectors that have information that protect the
personal information of consumers. These include information
contained in credit reports, student records, e-mail messages,
telephone toll records, video rental records, cable subscriber
records. And they have succeeded in protecting American
consumer privacy. And you can do the same for the Internet. You
can protect the personal information that is submitted online.
But beyond that, because I realize that several members of
your committee have introduced legislation. Congressman Luther
spoke about it briefly this morning and so did Congressman
Boucher. Sort of what is the law that we want to see? What is
the ideal approach to the situation? And I would like to make a
couple of points.
Chairman Pitofsky said that he believes that notice and
consent were the most important parts of fair information
practices. But in addition we need to think about access, a
principle that has not been discussed a lot today. It is an
important one. Access ensures that consumers can see the
information that has already been collected on them, make sure
it is accurate and up-to-date. And moreover, which I think is a
very important point, it builds an ongoing relationship. I am
providing my information to you and when I want to see my
information you show it back to me. That sort of trust and
confidence is something that e-commerce will definitely need
going forward in the future, and I hope that you will include
that as the protections that you choose to provide to American
consumers.
[The prepared statement of Andrew Shen follows:]
Prepared Statement of Andrew Shen, Policy Analyst, Electronic Privacy
Information Center
My name is Andrew Shen. I am a Policy Analyst at the Electronic
Privacy Information Center (EPIC) 1. At EPIC, I work largely
on consumer privacy issues. Earlier this year, I served as a member of
the Federal Trade Commission (FTC) Advisory Committee on Online Access
and Security 2. I have been a panelist at FTC and Department
of Commerce workshops on online profiling and more recently, online
privacy technologies.
---------------------------------------------------------------------------
\1\ EPIC is a public interest research center in Washington, D.C.
It was established in 1994 to focus public attention on emerging civil
liberties issues and to protect privacy, the First Amendment, and
constitutional values. More information about EPIC is available at the
EPIC website, http://www.epic.org
\2\ http://www.ftc.gov/acoas/
---------------------------------------------------------------------------
EPIC works with consumer organizations on a wide range of privacy
issues. We also work on the international level within coalitions such
as the Trans Atlantic Consumer Dialogue (TACD) that brings together
consumer advocates from the U.S. and Europe 3.
---------------------------------------------------------------------------
\3\ http://www.tacd.org
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I want to thank the Committee for inviting me to testify today on
an issue that is of growing importance to the American public.
SURFER BEWARE REPORTS
Since 1997, EPIC conducted annual ``Surfer Beware'' surveys on the
state of Internet privacy. EPIC's survey of Internet privacy policies
``Surfer Beware: Personal Privacy and the Internet''--the first survey
of online privacy ever conducted--found that only 17 of the 100 most
frequently visited websites posted privacy policies and that none met
basic standards for privacy protection 4. That report
recommended that Internet websites make privacy policies easy to find,
clearly state how and when information is collected, provide access to
data already collected, make cookie transactions more transparent, and
continue to support anonymity.
---------------------------------------------------------------------------
\4\ http://www.epic.org/reports/surfer-beware.html
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``Surfer Beware II: Notice Is Not Enough'' assessed the online
privacy practices of members of the Direct Marketing Association (DMA)
5. The DMA was and is a leading proponent of industry self-
regulation with regards to personal information. The report found that
only 8 of the 40 new DMA members with websites had privacy policies and
only 3 complied with the DMA's own guidelines published nine months
earlier.
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\5\ http://www.epic.org/reports/surfer-beware2.html
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Our most recent report ``Surfer Beware III: Privacy Policies
without Privacy Protection'' was conducted shortly before last year's
holiday shopping season 6. Looking at the top 100 e-commerce
sites, we found that not a single one had a privacy policy that
complied with the benchmark of Fair Information Practices. For example,
many websites posted privacy policies but did not provide access to
personal data already collected.
---------------------------------------------------------------------------
\6\ http://www.epic.org/reports/surfer-beware3.html
---------------------------------------------------------------------------
We also found that many of the privacy policies were confusing and
inconsistent. While over 80% of the websites that we surveyed did post
a privacy policy, our survey proved that posting a privacy policy has
no significant correlation with a high level of protection.
In the years between our first and last reports, we have documented
the lack of protections for consumer privacy in these crucial early
years of e-commerce. It is no secret that consumer concerns about
privacy on the Internet have not dissipated in this time. If anything,
recent developments such as online profiling indicate that the current
approach of self-regulation may be putting consumer privacy at
increasing risk.
ONLINE PROFILING
Online profiling caught the attention of consumers earlier this
year when online advertiser, DoubleClick, proposed to created detailed
profiles on Internet users. The company came under fire for linking
personal information such as a name and address to online profiles,
records of what Internet consumers were doing online. In doing so, it
reneged on earlier statements made in its privacy policy that all
information it collected would remain anonymous 7. In
testimony before the Senate Commerce Committee in July of 1999, EPIC
was one of the first organizations to publicly discuss the change in
DoubleClick's business model 8.
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\7\ For more information, see http://www.epic.org/doubletrouble/
\8\ http://www.epic.org/privacy/internet/EPIC--testimony--799.pdf
---------------------------------------------------------------------------
In early February, EPIC filed a complaint with the Federal Trade
Commission (FTC) that DoubleClick had unfairly and deceptively misled
consumers about its information collection practices. At the end of
July, the FTC approved a set of self-regulatory guidelines that permits
wholesale tracking of Internet consumers and linking of those profiles
to personal information without the knowledge or permission of the
consumer. The guidelines were negotiated with the Network Advertising
Initiative (NAI), a group of online profiling companies.
In response, EPIC along with 13 other consumer privacy
organizations signed a letter pointing out that ``the NAI Principles
recently endorsed by the Federal Trade Commission fail to provide an
adequate level of privacy protection'' 9. The letter said
that
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\9\ http://www.epic.org/privacy/internet/NAI--group--letter.html
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The Principles will allow online profilers to combine previously
declared anonymous data with personally identifiable data, like home
addresses and telephone numbers. In the future, online profilers will
be allowed to link information about online behavior with personally
identifiable data on a burdensome opt-out basis. The persons profiled
by these companies will have no guaranteed level of access to view what
data has been collected on them. Personally identified profiles may
also be distributed to any third party--for completely unrelated
purposes--on an opt-out basis. All of these provisions, and others,
will erode consumer control over the collection and use of highly
detailed profiles 10.
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\10\ ibid.
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Furthermore, the letter faults the FTC for failing to involve the
consumer advocacy community in negotiations with the Network
Advertising Initiative. The negotiations were done behind closed doors
and EPIC had to file a Freedom of Information Act request just to see
the record of those proceedings.
EPIC, along with Junkbusters, completed a full analysis of the
Network Advertising Initiative guidelines entitled ``Network
Advertising Initiative: Principles not Privacy'' detailing the vague
and weak restrictions it offers 11. That review concluded
that
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\11\ http://www.epic.org/privacy/internet/NAI--analysis.html
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The Principles perpetuate the secretive tracking of Internet users
and run counter to the standards that consumers want. The Principles
place the burden of privacy protection squarely on the consumer by
relying on opt-out for both tracking of Internet users and linking of
profiles to personally identifying information 12.
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\12\ ibid.
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Further, the report recommended that ``strong laws and effective
enforcement will spur Internet advertisers to adopt methods and
technologies that promote consumer privacy'' 13.
---------------------------------------------------------------------------
\13\ ibid.
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Online profiling remains a serious concern for Internet users. I
urge the Committee to ask the FTC why, despite their own
recommendations for Internet legislation, it chose to approve self-
regulatory guidelines for online profiling companies--the most personal
information intensive sector that has developed to date on the
Internet.
BANKRUPTCY
Apart from the activities of online profiling companies, the most
recent development facing online consumers is the growing number of
Internet companies that are auctioning off personal information when
they go bankrupt. In June, online retailer Toysmart.com went bankrupt
and advertised the sale of its assets in the Wall Street Journal. What
caught the attention of many is that the company also attempted to sell
its customer lists and other personal information in violation of
representations made when it collected that data. The ongoing dot-com
shakeout will likely produce more companies trying to recoup capital
for their investors, but how will the privacy of this personal
information be protected?
The FTC was able to pursue Toysmart.com since the company said that
the information collected was ``never shared with a third party''. The
FTC's attempted settlement fell short of requiring the company not to
sell the personal data of its customers. Since then, other companies
have been failing, similarly putting the information of its customers
at risk.
Over Labor Day weekend, Amazon.com told its millions of customers
that in the event that it failed--it would also declare their personal
information as a business asset. That statement and other changes to
the company's privacy policy prompted EPIC's decision to cut ties with
the online bookseller. In a letter to EPIC's newsletter subscribers, we
said that ``Because of this decision, and in the absence of legal or
technical means to assure privacy for Amazon customers, we have decided
that we can no longer continue our relationship with Amazon''
14.
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\14\ http://www.epic.org/privacy/internet/amazon/letter.html
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Failing to guarantee that personal information will not be sold in
the future is an obvious requirement of privacy protection but one that
companies have avoided taking on. As bankruptcies become more common,
the failure to provide privacy standards for online consumers allows
companies to protect privacy only when it suits them. When bankrupt,
the privacy of a company's customers is no longer important to the
company and is no longer respected. Furthermore, the growing number of
bankruptcies points to an underlying problem with the current reliance
on privacy policies. By making privacy policies the only standard to
which Internet websites are held, it allows companies to change the
terms on consumers--most recently allowing companies to unilaterally
declare personal information theirs to sell.
GOVERNMENT PRIVACY POLICIES
Another issue before the Committee today is the issue of government
website privacy policies. While this will not be the focus of my own
testimony, I do wish to make a few comments on this issue.
The General Accounting Office survey commissioned by Rep. Armey and
others found that 97 percent of government websites did not comply with
the FTC Fair Information Practice principles of Notice, Consent,
Access, and Security.
We support efforts to strengthen the privacy safeguards for federal
websites. History has proven that such restrictions are necessary to
curtail possible governmental abuses of power. Events like Watergate
spurred laws such as the Privacy Act of 1974 that provides citizens
with an array of rights to protect their privacy.
I should also point out that government agencies--unlike commercial
entities--are not free to use personal information however they wish.
Government agencies have to comply with guidelines set out in law while
commercial websites have to comply with privacy policies that they
themselves write.
PRIVACY ENHANCING TECHNOLOGIES
Since the beginning of the online privacy debate, EPIC has urged
the wide adoption of privacy-enhancing technologies to protect
consumers. However, I would like to point out what makes a technology
one that enhances rather than invades privacy. Privacy enhancing
technologies make it easier to take advantage of rights as provided
through Fair Information Practices and minimize or eliminate the
collection of personal data.
Without legal guarantees that data is collected for limited
specific purposes, is collected only with consent, is accessible to the
consumer, is securely stored and transmitted, privacy technologies can
currently do little to help consumers utilize their rights. Only when
existing law provides those rights will technologies develop to help
consumers take advantage of them. The Platform for Privacy Preferences
(P3P) demonstrates that failings of online privacy technologies in an
environment without privacy law. A report released earlier this June,
entitled ``Pretty Poor Privacy: An Assessment of P3P and Internet
Privacy'', details some of the protocol's failings 15.
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\15\ http://www.epic.org/reports/prettypoorprivacy.html
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There is however, one area in which technology can address privacy
in the absence of laws. That is in the promotion of anonymity and
elimination of the need to collect personal data. Most of the
activities conducted online such as reading news, shopping for
products, searching for information, can be done without the collection
of information from consumers. However, the current trend towards
``personalization'' results in the increased storage and analysis of
these basic online activities. Infomediaries that seek to provide
information according to user preferences do not provide this
anonymity. Rather than reinforcing that the dispersal of customer
information should not be the norm, they seek to encourage more
information collection by making it easier than ever for personal data
to be disclosed.
CONCLUDING REMARKS
Internet consumers are facing an increasingly hostile environment.
Faced by online profiling companies that seek to know about their
online surfing habits and websites that change their privacy policies
at will, consumers are increasingly left to their own devices in
protecting their privacy. Technologies available to consumers, for
reasons I mention above, have a role to play but will only have
significant impact once legal standards become effective.
Congress has a critical role to play in safeguarding online
privacy. It should build on the legal framework for privacy protection,
consistent through many federal laws protecting personal information
16.
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\16\ Fair Credit Reporting Act (1970) 15 U.S.C. Sec. 1681; Family
Educational Rights and Privacy Act (1974) 20 U.S.C. Sec. 1232g; Cable
Communications Policy Act (1984) 47 U.S.C. Sec. 551; Electronic
Communications Privacy Act (1986) 18 U.S.C. Sec. 2510; Video Privacy
Protection Act (1988) 18 U.S.C. Sec. 2710; See Telecommunications Act
(1996) 47 U.S.C. Sec. 222; Children's Online Privacy Protection Act
(1999) 15 U.S.C. Sec. 6501.
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There is significant public support for Internet privacy
legislation 17. Consumers should not be left without legal
rights in the online world.
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\17\ Business Week/Harris Poll: A Growing Threat, March 20, 2000,
http://www.businessweek.com/2000/00--12/b3673010.htm
Mr. Tauzin. Thank you. I think it is important to point out
that why we are finding it hard to put our arms around all of
the many aspects of the privacy issue is that there is a lot of
tension here. Consumers have different expectations about
privacy. On the one hand they want their privacy protected.
They also would like the advantage of people advertising to
them very specifically and very effectively, as was pointed
out; the notion that I do not necessarily want to see a lot of
ads that are about things that I am not interested in, but I
very much would like to get books and pamphlets and ads and e-
mail and maybe Internet advertising on things that I am
interested in.
At our conference, for example, we heard from a banker who
installed all sorts of privacy protections, separations between
each division in his bank about the information that was stored
there, the mortgage side from the savings and deposit side. And
the first thing they experienced was that their customers
started leaving them because they did not like the service
anymore. They did not like the people telling them we can't
help you because we do not have that information about you.
Ms. Aftab has pointed out that the parental consent of
COPPA is not necessarily functioning as well as people thought
because parents do not take the trouble to go ahead and okay
their kids onsites that kids probably should be visiting. It
would be good for them to visit and have interaction with.
In addition, we have got some experience with that. We had
incredible debates, my friend Mr. Markey and I, over a thing
called the V-chip, and the percentage of parents who are using
it now are still pretty small, and I don't think it is expected
to grow because it is just something parents, as I predicted by
the way, would not have time to go around programming the
television for the week.
So we come to this issue understanding all of this tension,
and the problems we also experience are how much should we
legislate and how much should we count on consumers eventually
controlling much of their own private data through technology
and through information.
But there are several things we have learned today that I
think are important. One, we can have all the privacy notices
required in the world and the bottom line is people are not
necessarily going to read them, and they do get changed and
they are confusing and more consumers will not be adequately
served if that is the way we solve this problem.
Two is that there are some things that do help a lot. You
brought some to our attention, some software, some hardware
technology and seals. We know seals works pretty good. We heard
from Chairman Pitofsky today that only 8 percent of the
companies' surveyed web sites are using seals. Why is that so
low? That would seem to be a real easy thing for consumers to
build confidence in web sites and in advertisers and in
commercial enterprises if they saw and recognized a seal on a
site without having to go read all of this policy and
understand it and opt in or opt out or what have you. If what
we are looking for is a user friendly world on the Internet in
the area of privacy, would not seals, some simple way of
understanding what I am visiting and what my rights are here
without having to read all and understand all of those terms,
wouldn't that seem to be a very positive and sort of
appreciated thing on the web? And why is so small a percentage
of web sites choosing to get an approved seal on their site?
Anyone?
Ms. Aftab. Mr. Chairman, if I may, Parry Aftab, what we are
finding is that consumers do not recognize the viability of
certain seals. There is no one Good Housekeeping Seal of
Approval that is recognized generally by consumers. Once
consumers can find various seals that mean something to them,
then the seals will become a market issue.
Mr. Tauzin. Let me give you an example. If instead of
having the problem you cited where parents have to always
consent to let their kids visit a site and share information,
if there was a kiddie seal that parents knew and recognized to
be representative of a site where, in fact, their kids are not
going to be abused and information is not going to be
mishandled, if they knew that, wouldn't parents appreciate that
instead of having to constantly okay a child's visit to a site?
Ms. Aftab. Absolutely, Mr. Chairman.
Mr. Tauzin. Are we ever going to get there?
Ms. Aftab. We have a seal that is going to be coming out
under Wired Kids, which is safety and privacy, a quality site,
which is a subjective test, but put together by librarians and
teachers and child advocates, saying trust us, we can brand it
for you. That will be coming out of the Wired Kids----
Mr. Tauzin. And I suppose the same thing happened with
software and hardware, that if at some point the private sector
were to build consumer awareness of software and hardware
technologies that are available, that parents and consumers
generally would prefer that than reading extensive notices and
constantly checking to see if the terminology has changed or
the notice has changed, is that right? Any one of you?
Mr. Griffiths. Being a technologist, I have some faith that
technology will provide part of the answer. I think there is a
reason why people do not read a lot of privacy policies either.
Even if we encourage every web site on the planet to have
privacy policies, the nature of the web is very fluid and
dynamic. If you are searching, you do not stop and read the
privacy policy.
Mr. Tauzin. You can't. You do not have time. You may not
know all the terms.
Mr. Griffiths. Exactly. So I believe that technology such
as P3P that allows for automated negotiation of preferences
with respect to a site policy are part of the answer.
Mr. Tauzin. But they are all part of the answer, but the
concern I have is when do consumers really understand which of
these solutions works for them and have the confidence in them?
I do not see that happening yet. I do not see people generally
saying, you know, there is a good seal out there. There is a
good software, there is a good program that I can attach to and
feel comfortable with without having to study and read and
constantly update my permission, if you will, on a site.
Mr. Griffiths. I think the answer today is that the
Internet is still changing. It is ever changing and expanding
and growing.
Mr. Tauzin. Is it too little too late?
Mr. Griffiths. Well, I think we see approaches from a
regulatory perspective, from a self-regulatory perspective,
from a technology and an awareness perspective, and I think it
will take some time to work through. I really do.
Mr. Tauzin. Ms. Cady?
Ms. Cady. I wanted to first of all give a personal response
rather than a corporate response to why I think there is a lack
of understanding of seal programs on the part of people who are
in business, not on the consumer end. On the consumer end, we
have the branding problem, and we all know that consumer
branding of anything takes time and money and effort and
certainly the seal programs are working toward that.
From the other perspective of businesses, it is hard to
know which seal might be relevant. And then it is: Can I
actually participate? Because there is a cost involved to the
web site owner and if they are a very small organization they
may deem that joining a seal program is not something they
could do at some point--at this point.
Mr. Tauzin. But if legislation provided safe harbor from
government regulation if you were sealed properly, that would
help, wouldn't it?
Ms. Cady. That would solve the branding problems.
Mr. Tauzin. That is one of the things we are looking at
that might help a great deal.
Ms. Cady. On the issue of expanding protections, what
Privada is working toward, quite frankly, is to not have to
have you worry about a seal if you are a consumer, or not
having to worry about knowing where the technology is. But what
we are trying to do is build in down another layer so that it
will be with you all the time. And so our vision is that
privacy is provided for you by your financial service provider
and/or your Internet service provider, and/or other service
providers that are available to you and which you use and you
use it in conjunction with the tools that you are already
using, your current browser, your current e-mail clients so
that you have that protection if you want, and it is available
to you easily.
Now, we again have a sales and branding and growth problem.
So that we can't say to you that today, Mr. Chairman, we can do
this for everyone in this room and everyone listening to this
hearing, but that is certainly where we are going. Thank you.
Mr. Tauzin. Mr. Shen, you wanted to add something.
Mr. Shen. Yeah. I just want to add on to your earlier
comments, Mr. Chairman. I think obviously what we are trying to
address here are really the needs of the consumers; and I think
consumers, while they have an appreciation for the fluidity,
the dynamic nature of the Internet, really don't want that
fluidity and dynamic nature to touch their personal
information. They want guarantees.
Mr. Tauzin. Let me tell you something about that. We have a
hard time gauging what consumers really want in this area, and
I will tell you why. We find this out in a lot of our political
surveys. When you ask consumers questions about this, they
often tell you what they think they should want rather than
what they really want. They often answer these questions with
``I am supposed to want to protect my privacy,'' as opposed to
``Yeah, I will take all these efforts to go operate all these
consents and these opt-in and opt-outs.''
What they really want is comfort, ease. They want to be
able to use these systems with some credit confidence but also
with ease, and user friendliness is a huge consumer desire we
are finding in our meetings and town hall meetings and
discussions and everything else about this.
When you really pin people down they say, yes, I want my
privacy protected and protected at all costs. But they also
tell you, when you really get away from any kind of public
surveys where they are answering what they think you want them
to say, what they say is they really want this to be easy. I
don't want all this trouble. I don't want to have to work too
hard to use these systems. I don't want to have work too hard
to access, for example, credit or to access the store that
sells me what I want on the web and to get the information I
want; and I am willing to take some risk to do that.
But if you can make it, you know, reasonably secure for me,
reasonably, you know, comfortable that I am not going to get
burned on this, if you make it easy, I am pretty happy. That is
what we are hearing. It is a real tension.
So it is hard to understand what consumers really want in
the way of legislation and/or, you know, even regulation in
this area. I hear you, and I know what you are saying. Because
whenever we do surveys, privacy, No. 1, everybody wants it
protected at all costs.
But then when you really get down to it they say, ``Yeah, I
really want my kids to go and visit those good web sites'' and
``Yeah, I really want the advertisers to know enough about me
to target ads for my taste and my wants and my desires'' and
``Yeah, I don't want to have to read big notices and I don't
really want to have decide which seal is a good seal and which
program is a good program.'' I mean, we get real conflicting
signals about this stuff. As much as we think we understand it,
we constantly realize we don't.
The other thing I want to get into with you is the question
of bankruptcies, mergers, acquisitions, change of leadership.
Here we are collecting data. I may indeed agree that your
company, your web site, can collect all my data because I trust
you with it. I trust you are going to manage it well. But next
week you die. Somebody else takes over the company. Next week
the company merges with another company.
You mentioned merging personally identifiable data with
nonpersonally identifiable data problems, but you have got a
range of issues here, not just bankruptcy but issues where we
change the management of the company, the stockholders may
change, I may merge, I may sell the company, all sorts of
different ways in which different people come in to control how
the information I trusted with a certain group of people or a
company that I trusted only to find out that company is a new
company tomorrow because it merged or it was acquired or
because it went bankrupt and was selling all its assets,
including my information.
There are all sorts of different scenarios you can paint
where information I thought was secure with this group of
people in this company brand name that I trusted is all of a
sudden now potentially under somebody else's control. How do we
deal with that? Anybody.
Ms. Aftab. Mr. Chairman, I will put my bankruptcy
practitioner hat on because, before I started doing Internet
law, I used to do Chapter 11 bankruptcies. There is a problem
here in that there is a tension between the bankruptcy laws,
which try to maximize the value of any asset of a company and
the ability of a trustee or the debtor in possession, and the
bankruptcy court to permit any contract to be modified. So that
you can say it will never happen, but under the bankruptcy law
and under policy you can move all those things around.
Mr. Tauzin. But I mean we are talking about dot com
companies now. Dot com companies, the physical assets very
often are much less valuable than the information assets, the
intangible assets. In fact, there is a huge debate over how to
properly assess the value of a company and how do you measure
intangible assets. As you know, FASB has got a big debate on
its hands. We have engaged them on that very question.
But the point is that in dot com companies the information
base is the asset, and if we say as a matter of law that
because you collected that on a confidential basis with your
consumer base that you can't ever transfer your company with
that asset, you are basically devaluing that company
significantly in commerce, are you not?
Ms. Aftab. You absolutely are, Mr. Chairman. I think that
is part of the tension, and part of what can be done is people
can actually reach out to members of that list through e-mail
and say we are moving this or this list is up, not an answer,
certainly not an answer, but something that at least will raise
additional questions.
Mr. Tauzin. It is something we may have to address, right?
Because it gets down to whether or not--in this case, the
rights of the consumer is a matter of contract or we make it a
matter of law, and if we take it from whatever the contract
provided, whatever agreement I had with the company, we start
making law on it, it could dramatically affect the value of dot
com companies, the way in which dot companies are financed and
the way the stock performs and everything about them. It could
dramatically affect the whole dot com economy.
Mr. Chiang. Well, Mr. Chairman, with regulating this facet
of, let us say, the sale of information of the company, can't
we look toward where--previous legislation where when two banks
merged and one person's ATM fee is $1.20, another person's ATM
fee is $1.25, where you have maybe not just one e-mail
notification but maybe a statement update or a card member
services agreement update where you maybe don't just send one
e-mail, maybe a series of three e-mails.
Mr. Tauzin. But let us say I have a privacy policy at my
bank that I will not sell or transfer your private financial
information to anyone else, but now I go bankrupt and my bank
is being sold and somebody else acquires it. Is the asset--my
financial information--an asset of that company that can be
transferred even though I have a contractual relationship with
a bank that it not be shared with anyone else? Get my drift?
These are weird questions.
Mr. Chiang. Right. Previously, I think that is why if the
FTC were given the regulatory authority--and I am not, you
know, financially supported from them in that MoneyForMail is
its own for-profit corporation. But in that instance where then
the FTC can say in the specific example, the case study where I
think a company called Toysmart went out of business----
Mr. Tauzin. That is the one we are talking about. That case
was built because, obviously, it went out of business. But the
point I make is I can envision 12 different scenarios where the
ownership, control of that information changes hands, not just
through bankruptcy. We could have a major shake-up at the
corporation, all the board of directors get fired and a new
management team is brought in. Effectively, that is a new
company now in control of my information.
Did I want that team to have my private information? Maybe
people I don't trust. Maybe, you know, if a foreign entity
moves in and I may have some problem with that. I might have--
you know, we have got an entity seeking to buy a company in
America that is government-owned right now. We are having a big
discussion about that. Suppose that entity has private
information? Now a foreign government is going to have
information about me that maybe I didn't want a foreign
government to know.
You get my drift. There are many scenarios affecting the
collection and the use of private information by companies in
this changing marketplace that we need to think about, and we
are going to need some help in figuring all that out.
Mr. Chiang. I think previously with the property question
issue that was I think two panels ago, where who owns the data,
it is shared data between the corporation and also the
personal----
Mr. Tauzin. Let us get away from the Internet. How do they
work in the brick and mortar?
Mr. Chiang. I think what is going to happen is that the
Internet is causing a catalyst where in America it is very
inexpensive to send out a piece of direct mail. I mean, if
anybody goes home today and looks at how many credit card
inserts that you are going to have, it is probably between 10
to 15. It is not price constrained. It is just logistics
constrained--not even logistics constrained, but just----
Well, getting back to the point where I think what is going
to happen with the Internet, it is going to cause people to
say, hey, well, don't I also then control other pieces of data
that is compiled and collected on me, not just Internet data
where I like to purchase these specific toys that are racing-
oriented toys? Then what about credit data pieces? Don't I also
control my own credit data? I mean, where everyone's talking
about notice and choice and access--I mean, today I don't have
access to my own credit report, and I work in the credit
industry, and I do not have access unless I pay $8. That is
going to catalyze some of the questions that I think are going
to happen in the industry which is, who does control it? Is it
shared control of the information?
Mr. Tauzin. We have never settled all that, have we, about
who owns the information about me and doesn't it have a lot to
do with how you obtained it? I mean, you can observe me in this
room and gather a lot of information about me, and so you are
obtaining it in a public sense. How it is obtained may have
something to do with whether or not we protect it in the
person, we allow it to be in the public domain or publicly used
or publicly traded. I don't know. But some interesting thoughts
that we are going to have to have and some interesting
discussions.
Mr. Shen, you look very thoughtful.
Mr. Shen. You obviously bring up a lot of very interesting
issues, basically why I like working on this issue as well. We
are confronting new sort of conflicts, things that we have--
tensions between bankruptcy, the need to try to satisfy
creditors and also the need to protect consumer privacy.
I think, sort of adding on to what people have already
said, there is no reason I think why most American companies
cannot contact their customers if they are going to be bought
or merged or acquired in some fashion. The Internet is
interactive. It supposed to facilitate that sort of contact and
communication.
I think, with all due respect to your earlier point, what
happens in the off-line world is something we do have to go
back and address. I think in the off-line world there is
obviously not a great deal of protection for personal
information in a bankruptcy proceeding. Is there a reason to go
back and see if we want to reopen that issue? I definitely
think so.
Mr. Tauzin. The reason I raised the issue--if we get away
from the Internet, take ourselves back in time a bit. If I have
a little country store in Thibodaux, Louisiana, where I was
born and raised, and I have a customer base that I have been
selling to and I decide to sell out, I sell that information--
we sold that information to the next guy that bought the store,
and nobody complained. What is different about the Internet
that makes us want to complain? What was it--Toys.Com, why was
that such--whatever it was--why was that such a scary thing
when that happened in the brick and mortar world with such
frequency?
Mr. Shen. Well, I think one possible answer--and that is
not a complete answer--is that the information collection on
the Internet is much deeper than it has ever been before.
Perhaps if you had owned a small business in Louisiana with
information about a person's name, maybe their mailing address
in case you wanted to send a receipt to them. On the Internet
you create profiles like this gentleman does right next to me.
You create information, records about what they have been doing
on-line across thousands and hundreds of web sites. I think
that is at least one reason----
Mr. Tauzin. Is part of it the fact that we all know that
little store owner in town and we probably know the person who
is buying the store but we don't know all these people on the
web?
Mr. Griffiths. Right. And it is important what the original
premise was of the collection and that original relationship. I
think if the party down the line meets and supports the
original premises of collection, it will be used for this
purpose and contact in this way, then it is seamless. If they
dramatically change the premise under which they are
contacting, then it is scary.
Ms. Aftab. I think also in the Toysmart case there were
children involved and I think there is this fear that parents
have and knowledge that they have that their 8-year-olds know
more than they do about what is going on with the computer and
the Internet.
Mr. Tauzin. And they do.
Ms. Aftab. They absolutely do. If you have to have
something fixed, you call the 8-year-old. But in this case,
children were sharing information at the site, and the concern
about the parents not even knowing what the kids may have
shared and that now being sold to third parties is what had
frightened people.
Mr. Tauzin. When we were growing up, my parents used to be
afraid of what we would tell our teachers about our parents.
Ms. Aftab. That is it. And the most we had was the Birthday
Club at Howard Johnsons.
Mr. Tauzin. Now, we can tell people we totally don't know
about anything. It is a totally different world.
We could keep this going a long time, and we probably will
before we come to some conclusions, but I will invite you to do
several things.
No. 1, the record stays open for 30 days. If something we
have said here or something you have heard here has provoked
some good thought and some good comment from you, please submit
some more information to us.
As I said, this is an extraordinary learning process. Mr.
Shen, you are right. It is one reason I love this work, too,
because it is extraordinarily fascinating; and I don't know
where it all comes out yet. I do know that we have got enormous
tensions here, and you have heard from a lot of members how we
need to proceed very judiciously here and carefully here
because, obviously, we can make some rules that don't work. We
can do like that bank. We can impose some conditions on people
that we think people want only to find out not only they don't
want it but it didn't work very well for them.
Finally, we obviously need some real-world thought and
experience from those of you working with consumers to try and
find solutions that work for them.
The record will stay open. We may have some questions we
may want to submit to one or two of you.
I apologize for the lack of members here. That is the
reason why I have always hated second and third panels because
the members all leave and I am the only one left with you, but
it has been a good experience for me. I have learned a lot, and
we will try to make sure other members pick up your material
and read it and learn from it as well. Thank you very much.
If you have got something final you want to tell me, this
is a good chance.
Ms. Aftab. I would like on behalf of the entire panel to
offer all of our continuing expertise to anyone who is willing
to listen.
Mr. Tauzin. Thanks so much.
The hearing stands adjourned.
[Whereupon, at 2:50 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of Hon. Dick Armey, House Majority Leader
I would like to thank the Chairman, Ranking Member and the
Committee for inviting me to testify today. Internet privacy is an
important subject, and one that deserves our full attention.
And since we're talking today about the government's online privacy
standards, we need to be doubly vigilant.
The government collects and stores vast amounts of personal
information on you and me. The IRS knows how much you make, who you
work for, and where you live. And the Department of Health and Human
Services has access to many of your personal medical records.
You are required to give this information to the government. You
have no choice. But you don't have to use a commercial website if you
feel it has a bad privacy policy. And which worries you more? The IRS
accidentally disclosing your personal financial information, or a
website knowing how many books you purchase each year?
That's why the government must be held to absolutely the highest
privacy standard. There is no excuse for anything less.
And that's why I was quite surprised when the GAO discovered that
the government failed to meet the Federal Trade Commission's own
criteria for online privacy. They didn't just fail, they failed big
time. A mere 3 percent of the agencies surveyed lived up to the
proposed standards. And the FTC wasn't even on the list of agencies
that passed. They failed to meet their own criteria.
So when I hear administration or FTC officials talking about
privacy, I can't help but think: Doctor, heal thyself.
There is more evidence of a certain cavalier attitude toward
personal privacy on the part of the administration. A privacy watchdog
group known as Privacilla recently issued a report last week that shows
the White House and other administration websites violate the Child
Online Privacy Protection Act.
Rep. Terry Everett and his subcommittee found that the Veterans'
Administration computer system was so insecure that any 12-year-old
hacker with limited skills could ``own'' the system and call up
confidential medical records at will. And that's after the VA has spent
over 5 billion dollars upgrading their computer systems.
Without proper security, there can be no privacy. Recently, Rep.
Steve Horn gave the government as a whole a ``D-'' for its computer
security efforts. But, even worse, several agencies such as the
Departments of Health and Human Services, Justice and Labor that
collect a lot of personal information failed completely.
Further, just three weeks ago the Department of Justice posted on
its website a report about the review of its controversial
``Carnivore'' Internet cybersnooping system. But there was a problem--
the agency didn't bother to adequately protect the personal information
about the researchers involved in the study.
The clear message from all this seems to be: we need to get our own
house in order.
Now, I have read many administration officials complain to the
media that applying FTC rules to the government is unfair. They say
it's like comparing apples and oranges. I don't think so. I say that we
need results, not excuses.
When the FTC first began measuring private sector websites with its
``Fair Information Practice Principles,'' it was a ``pop quiz.'' It
never gave advance notice to the companies that were checked. And I
seriously doubt that the FTC would have let a commercial website get
away with the excuse they were just ``complying with the spirit of the
FTC rules.'' Our GAO study was not a pop quiz. The government knew in
advance the criteria by which they would be graded. And, in fact, the
FTC was unable to meet its own criteria. There's no excuse for that.
Others in the administration have pointed to the Privacy Act as the
reason why they failed to provide ``notice'' to website visitors. But
the whole point of a privacy policy is to disclose to visitors what
your policies are. How many people actually understand the laws and
guidelines governing government websites? Just because you can find
guidelines in the Code of Federal Regulations doesn't mean you
shouldn't post this information for website visitors in plain English.
It's entirely fair to see whether the administration can live up to
the standards that they are trying to impose on everyone else.
Government should live by the same rules it imposes on everyone else.
I was pleased to read Commerce Secretary Norman Mineta quoted as
saying that he intends to make his agency's website adhere to the
proposed FTC standard. So the claims that the government just can't
meet these standards rings hollow.
The GAO report certainly has raised questions about the standards.
And it certainly is interesting that several Administration officials
have begun to point out deficiencies in the FTC criteria in light of
the GAO report. None of these individuals spoke up when the FTC was
using the same criteria to beat up on the private sector.
With this in mind, I think the FTC guidelines on privacy bear re-
examination. Because I wonder how well a government that has this kind
of a performance can presume to police the private sector on privacy.
Either the FTC standards are the correct measure of online
privacy--in which case the federal government is an absolute privacy
disaster; or, they are not the correct criteria, and the FTC should not
be asking Congress to impose them on the private sector. It's one or
the other.
That is, in fact, the main reason we asked GAO to perform this
study. We are learning more about what it means to have principles
governing website privacy. And we need to keep asking these sorts of
questions before we assume we have all the right answers.
Make no mistake--the government's privacy failures should not be
construed as an excuse for the private sector. Obviously private
websites should observe good privacy habits. A few bad apples shouldn't
be used as an excuse for the government to jump in and regulate the
Internet. So long as the private sector continues to do a much better
job than the government, and continues to improve its own practices, we
should restrain the instinct to interfere with the Internet.