TCS Daily


Trial Lawyers For Privacy

By Sonia Arrison - May 16, 2002 12:00 AM

America's technology community has good reason to wonder whether Democratic Senator Ernest "Fritz" Hollings has something against it. In March, he introduced a harmful digital-rights management bill and now he's proposing burdensome privacy regulations that only apply to online business.

Senator Hollings argues that his Online Personal Privacy Act (OPPS) is meant to spur e-commerce. "Good privacy means good business, and the Internet economy could use a dose of that right now," he said. But the bill would have the opposite effect.

The OPPS would require companies that collect information online to attain "opt-in" consent from consumers if the firm wants to use (not simply trade or sell) sensitive data such as financial information, ethnicity, sexual orientation and social security numbers. "Opt-in" means that companies must pursue customers for permission to use data, whereas "opt-out" means that privacy sensitive customers can contact the company to halt sharing/use of data.

Both opt-in and opt-out schemes protect privacy at the same level once the consumer makes a decision. Yet opt-in has greater costs because it requires companies to spend enormous amounts of time and money pursuing customers to get permission to send them an offer. Sometimes, if the costs of contacting customers are too onerous, consumers will lose out on deals that could have been offered to them.

Since offline collection of data is exempt from the bill, businesses that collect data both on and offline have reason to be concerned. Most obviously, this distinction serves as a disincentive for businesses to move more of their services online, making things less convenient for the consumer. But there are other problems too.

Because Hollings's proposal would force companies to separate information collected on and offline, it could result in confusion and annoyance. For instance, if you signed up for an account online and then wanted to communicate with the same company over the phone, you may have to provide your information all over again as the phone operator may not be able to access the online database.

By targeting only information collected online, Hollings's bill threatens anyone doing e-commerce with a heavy legislative burden and its associated costs. That's not something e-commerce needs right now. And consumers don't need this type of legislation either.

According to a recent report by the Progress and Freedom Foundation, a huge majority of sites (99 percent of the most popular and 80 percent of a random sample) post a privacy policy. Likewise, 93 percent of the most popular sites give consumers choice over sharing information with third parties. These policies developed without blanket government regulation, demonstrating that businesses are responding to consumer privacy concerns.

A majority of FTC commissioners, including Chairman Tim Muris, have opposed Senator Hollings's bill. "Since 1996, five new laws have had a substantial impact on privacy-related issues. We should gain experience in implementing and enforcing these new laws before passing general legislation," Muris cautioned.

Commissioner Orson Swindle also weighed in, suggesting that the bill is trying to solve problems that don't exist. "To my knowledge, there is no evidence of a market failure with respect to online privacy practices, nor are there signs of impending market failure that would warrant burdensome legislation," he said.

Senator Hollings has long aspired to enact privacy legislation similar to data protection laws in the European Union. Those laws afford citizens a great deal of privacy on paper and have led the Senator to lament that European citizens are "granted more protection than Americans." But this isn't true.

Clearly, Senator Hollings's staff missed a critical study by the left-of-center group Consumers International that showed that U.S. web sites outperformed the highly regulated European sites when it comes to privacy.

While Hollings's bill might seem like a regulator's dream, the real winners if this bill were to become law are trial lawyers. Here, one starts to sense a pattern with Hollings's attacks on the tech sector.

Hollywood paid Hollings $264,534 and got the digital management rights bill it wanted. Lawyers paid more than a million, and it just so happens that the ability to sue is a key feature of his new privacy legislation. Even privacy regulation advocates such as Hewlett Packard are recoiling at this part of the bill.

Most observers don't expect any privacy legislation to pass this session. With the introduction of the Hollings bill, however, the privacy debate has picked up where it left off before September 11. Nothing could make privacy regulation advocates happier. But if legislators really want to do what's best for consumers, they will allow time to examine the effects of current laws and stop trying to regulate problems that do not exist.

Sonia Arrison is director of the Center for Technology Studies at the California-based Pacific Research Institute and is author of Consumer Privacy: A Free Choice Approach. She can be reached at sarrison@pacificresearch.org.
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