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Privacy Trade-Offs: How Further Regulation Could Diminish Consumer Choice, Raise Prices, Quash Digital Innovation & Curtail

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Privacy Trade-Offs: How Further Regulation Could Diminish Consumer Choice, Raise Prices, Quash Digital Innovation & Curtail Privacy Trade-Offs: How Further Regulation Could Diminish Consumer Choice, Raise Prices, Quash Digital Innovation & Curtail Free Speech Comments of Berin Szoka, Senior Fellow, The Progress & Freedom Foundation, to the FTC Privacy Roundtables (Dec. 7, 2009), Comment, Project No. P095416 In general, we at PFF have argued that any discussion about regulating the collection, sharing, and use of consumer information online must begin by recognizing the following: Privacy is “the subjective condition that people experience when they have power to control information about themselves and when they exercise that power consistent with their interests and values.”1 As such, privacy is not a monolith but varies from user to user, from application to application and situation to situation. There is no free lunch: We cannot escape the trade-off between locking down information and the many benefits for consumers of the free flow of information. In particular, tailored advertising offers significant benefits to users, including potentially enormous increases in funding for the publishers of ad-supported content and services, improved information about products in general, and lower prices and increased innovation throughout the economy. Tailored advertising increases the effectiveness of speech of all kinds, whether the advertiser is “selling” products, services, ideas, political candidates or communities. With these considerations in mind, policymakers must ask four critical questions: 1. What exactly is the “harm” or market failure that requires government intervention? 2. Are there “less restrictive” alternatives to regulation? 3. Will regulation’s costs outweigh its supposed benefits? 4. What is the appropriate legal standard for deciding whether further government intervention is required? We have addressed these questions in the PFF publications attached below, which I respectfully submit for the Commission’s consideration. This executive summary highlights their findings. Berin Szoka is a Senior Fellow with PFF and the Director of PFF’s Center for Internet Freedom. The views expressed here are his own, and are not necessarily the views of the PFF board, other fellows or staff. 1. “Properly defined, privacy is the subjective condition people experience when they have power to control information about themselves.” Jim Harper, Cato Institute, Understanding Privacy – and the Real Threats to It, Cato Institute Policy Analysis No. 520, Aug. 4, 2004, http://www.cato.org/pub_display.php?pub_id=1652. 1444 EYE STREET, NW SUITE 500 WASHINGTON, D.C. 20005 202-289-8928 [email protected] www.pff.org Page 2 Szoka Comments on FTC Privacy Roundtable, Dec. 7, 2009 Online Advertising & User Privacy: Principles to Guide the Debate, Berin Szoka & Adam Thierer, Progress Snapshot 4.19, Sept. 2008. Targeted Online Advertising: What’s the Harm & Where Are We Heading?, Berin Szoka & Adam Thierer, Progress on Point 16.2, Apr. 2009. Privacy Polls v. Real-World Trade-Offs, Berin Szoka, Progress Snapshot 5.10, Oct. 2009. The Benefits of Online Advertising & Costs of Privacy Regulation, Berin Szoka & Mark Adams, PFF Working Paper, Nov. 8, 2009. 2 Regulating Online Advertising: What Will it Mean for Consumers, Culture & Journalism?, Berin Szoka, Mark Adams, Howard Beales, Thomas Lenard, Jules Polonetsky, Progress on Point 16.22, Oct. 2009. I. A Principled Pro-Consumer Alternative to Further Regulation The “Privacy Wars” that have waged over how government should regulate online collection and use of data might better be referred to as the “Privacy Proxy Wars” because the most clearly demonstrated “harm” at issue seems to be from government itself, not the private sector. The Fourth Amendment guarantees that “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated…” Americans have a legitimate expectation that this “security” extends to their digital “papers and effects,” yet that expectation is not given effect by current restraints on government access to consumer data in American law. Thus, we have proposed the following layered approach to concerns about online privacy, focusing on restraining government access to data, rather than crippling the private sector uses of data that directly benefit consumers: 1. Erect a higher “Wall of Separation between Web and State” by increasing Americans’ protection from government access to their personal data—thus bringing the Fourth Amendment into the Digital Age. 2. Educate users about privacy risks and data management in general as well as specific practices and policies for safer computing. 3. Empower users to implement their privacy preferences in specific contexts as easily as possible. 4. Enhance self-regulation by industry sectors and companies to integrate with user education and empowerment. 5. Enforce existing laws against unfair and deceptive trade practices as well as state privacy tort laws. Such a layered approach would not only be a “less restrictive” alternative to increased government regulation, but also potentially more effective in key respects than government data use/collection mandates. In an ideal world, adults would be fully empowered to tailor privacy decisions, like speech decisions, to their own values and preferences (“household standards”). Specifically, in an ideal world, adults (and parents) would have (1) the information necessary to make informed decisions and (2) the tools and methods necessary to act upon that information. Importantly, those tools and methods would give them the ability to 2. Currently in draft form, pending further research quantifying the benefits of personalized advertising. Szoka Comments on FTC Privacy Roundtable, Dec. 7, 2009 Page 3 block the things they don’t like—annoying ads or the collection of data about them, as well as objectionable content. A wide variety of self-help tools and “technologies of evasion” are readily available to all users and can easily thwart traditional cookie-based tracking, as well as more sophisticated tracking technologies such as packet inspection. While cookie management tools that allow users to delete their cookies have been standard in browsers for some time, the latest generation of browsers incorporates far more advanced control over what kind of cookies browsers will accept from websites in the first place. Furthermore, the extensible nature of modern browsers allows any freelance software developer who sees a way to improve a browser to do so by writing an add-on that “plugs in” to the browser using standard programming interfaces designed by each browser developer. Many such add-ons are wildly popular, but even those users who never install a single one benefit from the acceleration of browser evolution made possible by add-ons. We have documented examples of these tools in an ongoing series of blog posts about “Privacy Solutions,” available at www.pff.org/privacy-solutions/. But a “layered approach” that relies on user empowerment and education need not be perfect to be “good enough,” because “privacy” is not an absolute good that trumps all other consumer interests, nor can “community standards” accommodate a diverse citizenry. If we “make the best the enemy of the good” by insisting on perfection, consumers will be made worse off. Advertising is indispensable to the future of online media, but it is also currently inadequate to sustain “Free” culture. The advocates of regulation pay lip-service to the importance of advertising in funding online content and services but don’t seem to understand that this quid pro quo is a fragile one: Tipping the balance, even slightly, could have major consequences for continued online creativity and innovation. Something must give because there is no free lunch.3 II. Benefits to Users of Smarter Online Advertising The attached working paper I co-authored with PFF Visiting Fellow Mark Adams identifies five broad categories of benefits to users from targeted advertising: 1. More relevant, and potentially less annoying/interruptive advertising for consumers; 2. Higher-quality content and services supported by advertising; 3. Better correlation between the production of content and services, and consumer preferences; 4. A more vibrant media and improved political discourse and communities; and 5. Lower prices for consumers and greater innovation throughout the economy. 3. Berin Szoka & Adam Thierer, The Progress & Freedom Foundation, Targeted Online Advertising: What’s the Harm & Where Are We Heading?, Berin Szoka & Adam Thierer, Progress on Point 16.2, April 2009, www.pff.org/issues-pubs/pops/2009/pop16.2targetonlinead.pdf. Page 4 Szoka Comments on FTC Privacy Roundtable, Dec. 7, 2009 The paper explains how better targeting of advertising delivers these benefits by: Increasing the informational value of advertising to consumers; Increasing advertising funding for content and services that might not be sustainable on an ad-supported basis with untargeted or less targeted advertising; and Reducing the costs of buying and selling (“transaction costs”). In particular, we note that, with behavioral targeting, the value of a site’s viewers depends less on the content associated with that site (keywords) and more on the viewers themselves. In this sense, behavioral advertising levels the playing field by allowing websites to sell access to viewers directly, rather than through the keywords associated with the website. Better targeting democratizes the ad-supported economy by empowering consumers to
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