The FTC Takes On Targeted Web Ads

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Sears is the latest target of a campaign against spyware that has forced millions of dollars in settlements from companies such as DirectRevenue and Zango, which had profited from software that installed itself on computers and collected data without users' consent. Leibowitz has generally taken a harder line than his fellow commissioners. In June 2007 he said the $1.5 million settlement with DirectRevenue was too lenient, calling it "a disappointment because it apparently leaves DirectRevenue's owners lining their pockets with more than $20 million from a business model based on deceit."

Internet industry executives viewed Leibowitz's appointment as chairman as a signal that Washington would ratchet up its attention to the impact of technology on consumers. "The stars are aligned for significant change" in online privacy, says Jules Polonetsky, a former executive at AOL (TWX) and Internet advertising company DoubleClick, who now heads the Washington think tank The Future of Privacy Forum.

The FTC has worked closely with the advertising industry to draft guidelines that would help marketers regulate themselves in the area of online privacy. "The FTC has taken a highly substantive and thoughtful look at online advertising so far, says Alan Davidson, Google's director of public policy and government affairs. It has been very attentive both to meeting consumer needs and supporting innovation, and we look forward to working with the agency as its efforts continue."

Congress Readies Opt-In Consent Bill

But Leibowitz hints that he's growing impatient with marketers' efforts. "It's not clear that they're moving far enough or fast enough, even though they're making some progress," Leibowitz says. He supports the controversial approach of making more of the targeted ads on the Internet "opt-in"—meaning they would require consent from Web users before collecting data—and is in talks with members of Congress intent on drafting legislation for online ads.

Many companies fear the prospect of tighter regulation. Bill Todd, general manager at online ad network ValueClick (VLCK), says an opt-in measure "would force our company and others to rethink how we do business today, and I think it would destroy much of the innovation that many people in our industry have developed."

Leibowitz, a graduate of New York University School of Law, disagrees. He says there are "plenty of ways in which companies may very well be able to extract types of information using an opt-in approach," he says. For example, advertisers could reward consumers with cash or extra content for choosing to opt in.

Although the FTC has no direct sway over legislators, Leibowitz is building alliances in Washington. In recent weeks he's met with Representative Rick Boucher (D-Va.), who plans to introduce a bill by September that may require opt-in consent for certain types of online ads. "My overall purpose is not to interfere with the legitimate practice of people who are doing targeted advertising," Boucher says. "My goal is to try to create a greater sense of confidence on the part of consumers."

Despite his calls for self-regulation, the FTC's Leibowitz says he supports Boucher's plans to draft legislation: "We want to work with him, and I think he's exactly on the right track."

Douglas MacMillan is a staff writer for BusinessWeek in New York.

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