New Consumer Tracking Rules Make it Easier to Flunk Website Legal Compliance

By: Chip Cooper Click author's name for more of his/her articles

Copyright © 2009 Chip Cooper

Let's suppose you want to track behavioral data indicating how users use your website. You provide users who volunteer with a downloadable software application to track this data.

Also suppose you provide a notice of your tracking plan in your end user license agreement accompanying the software, and also in your privacy policy.

Should you feel confident that you've covered all the bases in terms of website legal compliance?

No... says the Federal Trade Commission (FTC) in a June, 2009 settlement with Sears Holding Corporation.

The Sears.com Case

Sears operates both the Sears.com and Kmart.com websites and related marketing operations. To collect consumer behavior regarding shopping habits, Sears initiated a new online community promotion called "My SHC Community".

Sears pitched consumers to join its online community to "participate in exciting, engaging, and on-going interactions - always on your terms and always by your choice." Participating consumers were paid $10.

As part of the registration process for the online community, consumers were notified that if they joined the community, "research" software would be installed on their computers to facilitate the tracking of their "online browsing".

However, the real extent of the tracking was disclosed only toward the end of a relatively long end-user license agreement that was presented in a scroll box at the end of a multi-step registration process. Tracking disclosures were also made in Sears' Privacy Statement.

According to the FTC, starting on line 75 of its agreement, Sears indicated that the "research" software would track "nearly all Internet behavior" of participants including "web browsing, filling shopping baskets, transacting business during secure sessions, completing online application forms, checking online accounts, and, through select header information, use of web-based email and instant messaging services."

The FTC claimed that Sears had failed to adequately disclose the scope of its online tracking to consumers. According to the FTC, facts regarding the full extent of the tracking would be material to consumers who were deciding to participate in the online community, and Sears' failure to adequately disclose these facts constituted a deceptive act in violation of Section 5 of the FTC Act.

Sears Settles With The FTC

Sears agreed to do the following as part of the proposed settlement agreement:

* disclose to consumers all of the types of data that will be tracked, how the data will be tracked, and the extent to which it may be shared with third parties;

* obtain express, op-in consent from consumers for the download of the tracking software through the use of a button or link that is not pre-selected and is clearly labeled;

* provide notification to participants in the online community regarding the installation of the tracking software and how to uninstall it; and

* discontinue collecting data that was transmitted prior to the settlement, and destroy all data collected prior to the approval of the settlement.

Conclusion

The key take-aways from the Sears case are that:

* the true scope of consumer tracking must be prominently and conspicuously displayed, and

* the display should be made early in the consumer's decision-making process.

"Burying" such disclosures in an end user license agreement and a privacy policy will no longer comply.

The Sears case is significant because it is a clear indicator of future enforcement by the FTC in the areas of transparency in the tracking of consumer behavior.

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About The Author: Leading Internet, IP and software lawyer Chip Cooper has automated the process of drafting website documents for small websites with his MyLegalFirewall website documents drafting service. Discover how quick, easy, and cost-effective it is to determine which legal compliance documents you need and to draft them online, and claim your FREE Special Report, Determine Which Legal Documents Your Website Really Needs, at ==> digicontracts.com/