FTC To Silicon Valley: Tech Companies Should Protect Consumer Data

Washington wants to know: Why can't technology protect consumers' privacy instead of violating it?

The Federal Trade Commission met today in Berkeley, Calif., with corporate technology leaders and privacy advocates, challenging them to create ways to protect consumer privacy online. The FTC is encouraging technology companies such as Facebook and Apple to come up with self-regulatory tactics that will protect consumers without squashing corporate innovation.

Technology companies should be doing more to protect people, says Pamela Jones Harbour, the FTC's commissioner. "Apple requires all developers to submit potential apps for review," Harbour says. "Through that process, the company could do more to regulate privacy disclosures." Similarly, she says other companies should be taking more steps to protect consumer privacy.

The brainstorming session was the second of three the FTC has held before planning to draft new laws this summer that will control how consumer information is collected and used on the Web. Scrutiny of consumer privacy violation on the Internet has grown over the past several years, as technology advancements arm marketers with new ways to target potential buyers. Companies are buying consumer data from sources such as consumer surveys, loyalty programs and Web and mobile applications to identify potential consumers who are then tracked online and off to deliver more relevant advertising.

Silicon Valley, like Madison Avenue, would be severely affected if the FTC were to impose new privacy restrictions. The advertising industry is making attempts to thwart federal regulation. Just yesterday, the Future of Privacy Forum, a watchdog group based in Washington, D.C., and a coalition of advertising groups, unveiled a symbol (similar to the "@" sign with an "i" inside) they will attach to online ads. When clicked, the symbol will link to a page explaining how the advertiser is using Web habits and demographic data to target consumers. Late last year, the Network Advertising Initiative, an ad industry group, launched downloadable software to prevent cookies from loading on Web browsers.

Google and Yahoo! representatives say they have already established more privacy controls that consumers themselves can oversee. "We'll continue to let people know how to manage their privacy online," says Anne Toth, Yahoo!'s vice president of policy and head of privacy. "But there's already more control online than there is in the offline world."

Some say self-regulation has its limits. Web browsers, such as Microsoft Explorer or Google's Chrome, let consumers erase cookies (except Flash cookies described in "Marketers Have A Fresh Way To Follow You Online"), but they can only let consumers control so much, says Peter Eckersley, a technologist at digital rights group Electronic Frontier Foundation in San Francisco. "At the end of the day, even browsers will risk shutting out advertisers."

A few tech companies are urging the FTC to take action. Those that deal directly with customers do what they can to protect them, says Scott Taylor, Hewlett-Packard's chief privacy officer. Third-party vendors and developers tend to be the problem, and they trigger the need for regulation. "The fact is that that tech isn't bad," says Taylor. "But we need all organizations to be held accountable."

Even Facebook, which recently changed its privacy policies in favor of opening more private information to the public, urged the FTC to step in. "The federal government will have to take a role," says Tim Sparapani, Facebook's director of public policy. "We have to have an open system but we need to have some regulation."

Another eBay Pirate Heads to Prison

A software pirate responsible for ripping off nearly 8,000 online customers and a handful of leading software vendors was sentenced Monday to 21 months in prison after pleading guilty to conspiracy, mail fraud and criminal copyright infringement charges.

Matthew Thomas Purse, 32, of Gilbert, Ariz. also received three years probation from a federal judge in Phoenix, and was hit with $12,000 in fines and restitution for his role in the elaborate software piracy scam.

Purse, along with Christopher Loring Walters, 29, of Newport Beach, Calif., created multiple eBay (NASDAQ: EBAY) merchant accounts between September 2004 and February 2006 from which they sold counterfeit copies of software developed by Apple, Corel, McAfee, Symantec and other vendors.

Walters remains a fugitive, according to a statement released by the Software & Information Industry Association, a trade association for the software and digital content industry that assisted the U.S. Department of Justice in the investigation.

The duo used online sites including SoftwareDiner.com, Thesoftwareyard.com, Argyleeequity.com, Eagletronics.com and Tekdealer.com among others to advertise themselves on eBay as authorized distributors of the counterfeit applications.

According to the SIIA, the top-tier software vendors lost more than $500,000 in sales through the illicit operation.

"Matthew Purse duped nearly 8,000 unsuspecting consumers out of hundreds of thousands of dollars," Keith Kupferschmid, SIIA's senior vice president for intellectual property and enforcement, said in a statement. "He and Christopher Walters cheated software companies such as Adobe, Symantec, Apple, Corel, Intuit and many others out of millions of dollars in revenue."

"Like so many others who sell pirated software online or make illegal copies in the workplace, at least Matthew Purse is now finding out that the justice system takes this crime seriously," he added.

The SIIA along with state and federal law enforcement agencies have racheted up their efforts in recent years to stem the illegal trafficking of counterfeit and stolen software applications at online sites including eBay.

In 2008 alone, IDC estimated that software vendors lost more than $53 billion to software piracy -- an especially galling figure considering worldwide sales of legitimate software applications totaled just over $88 billion that year.

In October, Gregory William Fair of Falls Church, Va. was sentenced to 41 months in te+Gets+41+Months+in+prison for selling bogus copies of various Adobe Systems (NASDAQ: ADBE) applications on eBay from 2001 through 2007 -- software worth more than $1.4 million.

"Anyone who thinks software piracy isn't taken seriously should pay close attention to the Matthew Purse case," Kupferschmid said. "When SIIA uncovers software piracy, the offenders often end up paying thousands of dollars in damages. And as Mathew Purse found out, SIIA's investigations can also lead to jail time for these software pirates."

SIIA originally uncovered the pair's massive software piracy scheme and began an investigation that eventually led to the indictment and conviction of Purse. SIIA investigators forwarded the results of its investigation to the DOJ and other government agencies, and then worked closely with them to pursue Purse and others involved in the piracy schemes.

Those efforts led to Purse's guilty plea in February of last year to a series of conspiracy, mail fraud and criminal copyright infringement charges.

Social Networks Balk Over Privacy

Representatives of some of the leading social sites on the Web today urged federal regulators to resist calls to establish heavy-handed rules that would set limits on the use of consumer data on social networks, warning that far-reaching regulations would threaten to choke off a fast-growing sector of the digital economy.

The Federal Trade Commission continued its inquiry into the privacy implications of online marketing and data collection at a day-long forum at the University of California, Berkeley, hearing from privacy advocates and members of industry as it mulls new regulations.

"Regulation that's a one-size-fits-all will fail," said Erika Rottenberg, general counsel at LinkedIn. "There is self-regulation that is going on."

Each of the industry representatives agreed that in the increasingly cluttered social Web, there are bad actors who endeavor to trick consumers into sharing more information than they realize. However, they called for regulatory restraint, arguing that in most cases those sites or applications fail on their own because word gets around.