[Federal Register Volume 64, Number 143 (Tuesday, July 27, 1999)]
[Proposed Rules]
[Pages 40525-40528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19094]


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FEDERAL TRADE COMMISSION

16 CFR Part 312


Children's Online Privacy Protection Rule

AGENCY: Federal Trade Commission.

ACTION: Initial regulatory flexibility analysis.

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SUMMARY: The Commission is publishing this initial regulatory 
flexibility analysis to aid the public in commenting upon the small 
business impact of its proposed rule implementing the Children's Online 
Privacy Protection Act (``COPPA'' or ``the Act'').

DATES: Written comments must be submitted on or before August 6, 1999.

ADDRESSES: Written comments should be submitted to Secretary, Federal 
Trade Commission, Room H-159, 600 Pennsylvania Avenue, NW, Washington, 
DC 20580. The Commission requests that commenters submit the original 
plus five copies, if feasible. To enable prompt review and public 
access, comments also should be submitted, if possible, in electronic 
form, on either a 5\1/4\ or a 3\1/2\ inch computer disk, with a disk 
label stating the name of the commenter and the name and version of the 
word processing program used to create the document. (Programs based on 
DOS or Windows are preferred. Files from other operating systems should 
be submitted in ASCII text format.) Alternatively, the Commission will 
accept comments submitted to the following e-mail address 
<[email protected]>. Individual members of the public filing comments 
need not submit multiple copies or comments in electronic form. All 
submissions should be captioned: ``Children's Online Privacy Protection 
Rule--IRFA Comment, P994504.'' Comments will be posted on the 
Commission's Web site: <http://www.ftc.gov>.

FOR FURTHER INFORMATION CONTACT:
Toby Milgrom Levin, (202) 326-3156, Loren G. Thompson, (202) 326-2049, 
or Jill Samuels, (202) 326-2066, Division of Advertising Practices, 
Bureau of Consumer Protection, Federal Trade Commission, 601 
Pennsylvania Avenue NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: This notice supplements the Commission's 
initial notice of proposed rulemaking, 64 FR 22750 (Apr. 27, 1999), for 
a Children's Online Privacy Protection Rule, 16 CFR part 312, to 
implement the requirements of the Children's Online Privacy Protection 
Act of 1998 (``the Act''), title XIII, Omnibus Consolidated and 
Emergency Supplemental Appropriations Act, 1999, Pub. L. 105-277, 1112 
Stat. 2681, ____ (Oct. 21, 1998). The Commission's notice of proposed 
rulemaking did not include an initial regulatory flexibility analysis 
pursuant to the Regulatory Flexibility Act (5 U.S.C. 603) based on a 
certification that the proposed rule will not have a significant 
economic impact on a substantial number of small entities (5 U.S.C. 
605). See 64 FR 22761.
    In the Notice of Proposed Rulemaking, the Commission concluded that 
the proposed rule's requirements are expressly mandated by the COPPA. 
In the Commission's view, the Act's requirements account for most, if 
not, all of the economic impact of the proposed rule, and the 
Commission's proposal adds little, if any, additional independent 
compliance burden to the statutory requirements. For example, as 
reiterated below, the proposed rule consistently incorporates the 
overall ``performance'' standards set forth in the statute rather than 
mandating any particular compliance method or approach. See 5 U.S.C. 
603(c)(3). Moreover, certain provisions of the rule (e.g., definitions 
taken directly from the statute, enforceability of rule by the 
Commission and the states, severability of the rule's provisions) would 
appear to have no material effect on the costs or burdens of compliance 
under the rule for regulated entities, regardless of size. Thus, the 
marginal cost, if any, that would be imposed by the rule on regulated 
entities, including small entities, would not be substantial. Since the 
Regulatory Flexibility Act does not require an initial (or final) 
regulatory flexibility analysis when a ``rule'' will not have a 
significant economic impact on a substantial number of small entities 
(5 U.S.C. 605), such an analysis did not accompany the proposed rule. 
Nonetheless, in its Notice of Proposed Rulemaking to implement the 
COPPA, the Commission expressly invited public comment on the proposed 
rule's effect on the costs, profitability, competitiveness of, and 
employment in small entities to ensure that no significant economic 
impact on a substantial number of small entities would be overlooked. 
See 64 FR 22761.
    In response, the Commission received comments suggesting, among 
other things, that the Commission publish an initial regulatory 
flexibility analysis

[[Page 40526]]

under the Regulatory Flexibility Act.\1\ While the Commission continues 
to believe that such an analysis is not technically required, the 
Commission has decided to publish the following analysis to provide 
further information and opportunity for public comment on the small 
business impact, if any, of the rule. The Commission notes that it has 
already afforded a period of public comment on the proposed rule for 
such comments, and will be conducting a public workshop on July 20, 
1999, on the issue of obtaining parental consent under the rule. See 64 
FR 34595 (June 28, 1999). The workshop will provide an additional 
opportunity for public comment on how compliance with that particular 
requirement might be achieved, while minimizing the potential impact of 
the requirement on regulated entities, including small entities, to the 
extent the Commission has any discretion on that issue. The July 30th 
deadline for comments in response to the initial regulatory flexibility 
analysis set forth below is scheduled to coincide with the close of the 
comment period that will follow the public workshop described earlier.
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    \1\ See Comment No. 74 submitted by the Honorable George W. 
Gekas and James M. Talent of the House of Representatives and 
Comment No. 91 submitted by Jere W. Gover, Jennifer A. Smith, and 
Eric E. Menge, Office of Advocacy, U.S. Small Business 
Administration.
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    Description of the reasons that action by the agency is being 
considered. The COPPA requires the Commission to promulgate this rule 
not later than one year after the date of enactment of the Act. COPPA 
Sec. 1303(b)(1).
    Succinct statement of the objectives of, and legal basis for, the 
proposed rule. To prohibit unfair and deceptive acts and practices in 
connection with commercial websites' and online services' collection 
and use of personal information from and about children by: (1) 
Enhancing parental involvement in a child's online activities in order 
to protect the privacy of children in the online environment; (2) 
helping to protect the safety of children in online fora such as chat 
rooms, home pages, and pen-pal services in which children may make 
public postings of identifying information; (3) maintaining the 
security of children's personal information collected online; and (4) 
limiting the collection of personal information without parental 
consent. The legal basis for the proposed rule is the COPPA.
    Description of and, where feasible, an estimate of the number of 
small entities to which the proposed rule will apply. In general, the 
rule will apply to any commercial operator of an online service or 
Internet website directed to children or a commercial operator of an 
online service or Internet website who has actual knowledge that he or 
she is collecting personal information from a child. See proposed Rule 
Sec. 312.3 (general requirements). The rule does not apply to nonprofit 
entities. See proposed Rule Sec. 312.2 (defining ``operator''). A 
precise estimate of the number of small entities that fall within the 
rule is not currently feasible because the definition of a website 
directed to children turns on a number of factors that will require a 
factual analysis on a case-by-case basis.\2\ The Commission seeks any 
information or comment on these issues, as noted below.
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    \2\ The proposed Rule (Sec. 312.2) states that ``In determining 
whether a commercial website or online service, or a portion 
thereof, is targeted to children, the Commission will consider its 
subject matter, visual or audio content, age of models, language or 
other characteristics of the website or online service, as well as 
whether advertising promoting or appearing on the website or online 
service is directed to children.''
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    Description of the projected reporting, recordkeeping and other 
compliance requirements of the proposed rule, including an estimate of 
the classes of small entities that will be subject to the requirement 
and the type of professional skills necessary for preparation of the 
report or record. The statute and proposed rule do not directly impose 
any ``reporting'' or ``recordkeeping'' requirements within the meaning 
of the Paperwork Reduction Act, but would require that operators make 
certain third-party disclosures to the public, i.e., provide parents 
with notice of their privacy policies. See proposed Rule Secs. 312.3(a) 
(notice on website or online service), 312.4(a), (b), & (c) (format and 
contents of notice), 312.5(c)(3) & (4) (parental notification to obtain 
consent), 312.6(a)(1) (parental notification of information being 
collected on children). The Commission is seeking clearance from the 
Office of Management & Budget (OMB) for these requirements and the 
Commission's Supporting Statement submitted as part of that process is 
being made available on the public record of this rulemaking.
    The statute and proposed rule also contain a number of compliance 
requirements not subject to the Paperwork Reduction Act, including but 
not limited to obtaining verifiable parental consent to collect 
personal information from children, Sec. 312.5(b); allowing parents to 
have the opportunity to review and make changes to information provided 
by their children, Sec. 312.6; and developing and implementing methods 
for maintaining the confidentiality, security, and integrity of 
personal information collected from children, Sec. 312.8. These 
statutorily mandated obligations do not require operators to file 
reports or maintain records within the meaning of the Paperwork 
Reduction Act, although the Commission recognizes that there are 
potential compliance costs associated with these requirements. As noted 
above, the only class of small entities that would be subject to the 
above-described compliance requirements would be commercial operators 
of websites or online services directed to children or those commercial 
operators who have actual knowledge that they are collecting 
information from children, as discussed earlier.
    Since the rule does not directly mandate ``reporting'' or 
``recordkeeping'' within the meaning of the Paperwork Reduction Act, 
the rule does not require professional skills for the preparation of 
``reports'' or ``records'' under that Act. The statute and rule do 
require that certain third-party disclosures (i.e., privacy policy 
notices) may initially require professional attorney and computer 
programmer time to develop and post. For purposes of its Supporting 
Statement to OMB under the Paperwork Reduction Act, the Commission 
estimated approximately 60 hours per site (83% attorney hours, 17% 
programmer hours) in the first year and six hours per web site in 
subsequent years. However, the Commission as noted below, seeks further 
comment on the actual costs or expenditures, if any, of developing and 
posting the required privacy policy notices, and the extent to which 
these costs may differ or vary for small entities. (See the Supporting 
Statement submitted by the Commission to OMB at <http://www.ftc.gov/os/
1999/9906/childprivsup>) It is important to note, however, that the 
Commission anticipates that any expenditures for professional attorney 
or programmer time may be significantly reduced or eliminated if 
websites avail themselves of software or other compliance tools or kits 
that make it easier and less costly to meet the rule's notice 
requirements. A number of industry groups have already developed 
privacy policy toolkits which are available online as part of their 
self-regulatory efforts in the privacy area. The Commission seeks 
further comment on this issue.
    Certain of the statute's and rule's other non-Paperwork Reduction 
Act requirements may require some clerical or computer programmer time 
for compliance. For example, an employee may be required to review 
parental

[[Page 40527]]

responses to the operator's requests for consent. Depending on the 
method chosen by the operator to seek parental consent, some employee 
training may be required, e.g., training an employee manning a toll-
free telephone number to recognize whether a child or adult is on the 
line. Similar skills would be required of employees responsible for 
handling requests from parents who want to review the information 
provided by their children. Finally, computer programming and security 
expertise will be required to ensure that the operator maintains the 
confidentiality, security, and integrity of the data collected from 
children. Because the Commission currently has no basis on which to 
determine the number of hours required to conduct such tasks and as 
these requirements are not subject to the Paperwork Reduction Act, the 
Commission has not attempted here to provide an estimate in terms of 
burden hours, but is instead seeking reliable information and comment 
on costs and burdens for small entities.
    Identification, to the extent practicable, of all relevant Federal 
rules that may duplicate, overlap or conflict with the proposed rule. 
The Commission is unaware of any duplicative, overlapping, or 
conflicting Federal rules. As noted below, the Commission seeks 
comments and information about any such rules, as well as any other 
state, local, or industry rules or policies that require website 
operators and online services to implement business practices (e.g., 
notification, parental consent, security measures, etc.) that would 
comply with the requirements of the Commission's proposed rule.
    Description of any significant alternative to the proposed rule 
that accomplish the stated objectives of applicable statutes and that 
minimize any significant economic impact of the proposed rule on small 
entities, including alternatives considered, such as: (1) establishment 
of differing compliance or reporting requirements or timetables that 
take into account the resources available to small entities; (2) 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (3) use 
of performance rather than design standards; (4) any exemption from 
coverage of the rule, or any part thereof, for such small entities. 
Under the proposed rule, subject operators will be free to choose one 
or more methods to achieve the goals of the rule based on their 
individual business models and needs. In many instances the proposed 
rule utilizes a performance standard to permit as much flexibility as 
possible for website operators to comply with the rule. For example, 
proposed Rule Sec. 312.4(b) minimizes the burden on website operators 
and online service providers by permitting the notice to be posted by 
providing ``links'' to notices, rather than requiring complete texts of 
the notice, on each ``page'' or other location(s) where personal 
information is collected from children. Likewise, the requirements for 
parental notice (proposed Rule Sec. 312.4(c)) are flexible and open-
ended for all entities, not just small entities, requiring simply that 
the operator make ``reasonable efforts, taking into account available 
technology, to ensure'' that notice reaches parents. See also proposed 
Rule Sec. 312.5 regarding parental consent.
    Although these rules impose some costs, it is important to 
recognize that the requirements of notice, consent, access and security 
are mandated by the COPPA itself. Although the Commission has sought to 
minimize the burden on all businesses, including small entities, by 
incorporating the statute's flexible ``performance'' standards, the 
Commission does not have the discretion to provide for exemptions from 
the COPPA based on size of the operator. Likewise, the proposed rule 
attempts to clarify, consolidate, and simplify the statutory 
requirements for all entities, including small entities, but the 
Commission has little discretion, if any, to mandate different 
compliance methods or schedules for small entities that might ``take 
into account the resources available to small entities'' but not comply 
with the statutory requirements. For example, the COPPA requires the 
posting of privacy policies by websites and online services before 
information is collected from children and a waiver for small entities 
of that prior notice requirement (e.g., by permitting notice after the 
fact) would be inconsistent with the statutory mandate. See COPPA, Pub. 
L. No. 105-277, Sec. 1303(b)(1)(A) (i) and (ii).
    Nevertheless, the Commission is seeking to address the variability 
of online businesses and to devise performance standards to allow for 
flexibility and innovation to achieve compliance with the mandated 
COPPA protections. Throughout the rulemaking proceeding, the Commission 
has made every effort to gather information regarding the economic 
impact of the COPPA's parental notice and consent requirements on all 
operators, including small entities. Thus, the Federal Register notice 
announcing the proposed rule included a number of questions for public 
comment regarding the costs and benefits associated with these key 
requirements with respect to small entities.
    In addition, the agenda for the July 20th public workshop includes 
topics designated to elicit economic impact information, particularly 
as it would affect small businesses. The workshop will examine a wide 
range of mechanisms to implement parental consent so as to obtain a 
rich record of how operators, including small entities, can comply with 
the statutory requirement.

Questions for Comment To Assist Regulatory Flexibility Analysis

    1. Please provide comment on any or all of the provisions in the 
proposed rule with regard to (a) the impact of the provision(s) 
(including any benefits and costs), if any, and (b) what alternatives, 
if any, the Commission should consider, as well as the costs and 
benefits of those alternatives, paying specific attention to the effect 
of the rule on small entities in light of the above analysis. In 
particular, please provide the above information with regard to the 
following sections of the proposed rule:
    a. The requirement that notice be placed on the website, 
Sec. 312.4(b);
    b. The requirement that notice be provided to parents, 
Sec. 312.4(c);
    c. The requirement that operators obtain verifiable parental 
consent, Sec. 312.5;
    d. The requirement that parents be allowed to review and correct 
personal information provided by their children, Sec. 312.6;
    e. The requirement that operators take steps to ensure the 
confidentiality, safety, and integrity of the information provided to 
them, Sec. 312.8; and
    f. Any other requirement not mentioned above.
    Costs to ``implement and comply'' with the rule include 
expenditures of time and money for: any employee training; attorney, 
computer programmer, or other professional time; preparing relevant 
materials; processing materials, including, for example, processing 
parental consent materials or requests for access to information; and 
recordkeeping.
    2. Please describe ways in which the rule could be modified to 
reduce any costs or burdens for small entities consistent with the 
COPPA's mandated requirements.
    3. Please describe whether and how technological developments (such 
as the development and implementation of digital signatures) could 
reduce the costs of implementing and complying with the rule for small 
entities or other operators.

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    4. Please provide any information quantifying the economic benefits 
to website operators of collecting personal information from or about 
children, including any information showing: advertising revenues based 
in part upon the number of children registered at a site; revenue 
derived from the sale or rental of children's personal or aggregate 
information to others; efficiencies resulting from marketing to a 
targeted audience; or revenue resulting from designing a customized and 
appealing site.
    5. Please identify all relevant Federal, state or local rules that 
may duplicate, overlap or conflict with the proposed rule. In addition, 
please identify any industry rules or policies that require website 
operators and online services to implement business practices (e.g., 
notification, parental consent, security measures, etc.) that would 
already comply with the requirements of the Commission's proposed rule.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 99-19094 Filed 7-26-99; 8:45 am]
BILLING CODE 6750-01-M