Safe Internet Alliance

This weekend, Facebook announced that it had settled a $9.5 million class action lawsuit and was shutting down its controversial Beacon ad platform. Launched in 2007, Beacon faced immediate backlash when it was found that Facebook was monitoring its users' online purchases and then advertising them to their friend feeds. The platform was "opt-out" rather than "opt-in," meaning that it was set as a default that a user had to manually turn off.

The suit also claims that although Facebook has made Beacon an opt-out program, it’s too difficult for users to do so, because they are forced to visit each of Beacon’s 44 affiliate Web site to do just that.

To add even more fuel to the Beacon fire, the lawsuit also claims that Facebook retrieved data on all users who had any impact on the program, regardless of whether they were Facebook users or not.

“Thus, non-Facebook persons who utilized the Facebook Beacon Activated Affiliate Websites were not told that their transaction, and indeed, every transaction they engaged in upon the Website was being communicated to a third party (Facebook) with whom they had no relationship whatsoever,” the suit claims.

This relates to our earlier post on "anonymized data" and what web companies should be doing with the information they collect on our online habits. Back in July, the Senate held a hearing on online behavioral advertising, specifically focusing on "a relatively new type of advertising that involves Internet service providers (ISP) selling subscriber activity to online marketing companies."

NebuAd has become an emerging leader in this field and its CEO, Bob Dykes, was among those testifying. The type of advertising NebuAd engages in works by ad service companies such as NebuAd striking a deal with an ISP that allows the ad service to copy the contents of the ISPs subscriber's online traffic streams (which includes the websites visited and search terms used). The ad service then analyzes the data to create a profile for every individual based on their online behaviors and interests. Then, when a user goes to a website where the ad service has purchased space, the ad service serves ads to the user based on the developed profile.

The hearing comes at a time when NebuAd has been under increased criticism and scrutiny. The Center for Democracy and Technology (CDT)released a report on July 8, alleging that NebuAd practices may violate several federal and state wiretap and privacy laws. The report focuses primarily on possible violations of the federal Wiretap Act as amended by theElectronic Communications Privacy Act. The Act prohibits businesses that provide electronic communication services (including ISPs) from intentionally divulging the contents of electronic communications while they are in transmission.

Should this type of behavioral advertising be equated as a kind of "wiretapping?" As retailers move increasingly online and consumers make more and more of their purchasing decisions with a click of a button, they're having to contemplate privacy issues they'd never considered when visiting their local Macy's or Barnes and Noble. Some believe that a convoluted "opt out" system wouldn't work; however, many companies are smart enough to know that few users would "opt in" to such a system, hence why they rarely choose this option.