Inside Google

Internet companies such as Google Inc. and Facebook Inc. are being urged by the government to work with consumer groups to develop new privacy rules to protect Web users or face regulations.

Internet companies liked the Commerce Department report on Web privacy, released today, while consumer-protection advocates said it left too much to the discretion of the industry to police itself.

The Commerce Department called for the Web industry to write voluntary codes of conduct for protecting privacy of Web users that would be enforced by the Federal Trade Commission. Officials stopped short of calling for a privacy law, while saying that if companies didn’t establish their own rules, the department should consider asking the FTC to write regulations or for Congress to pass a law prescribing them.

New rules have “major implications for American consumers and American businesses that depend on e-commerce for an ever- growing share of their sales,” said Commerce Secretary Gary Locke in a conference call with reporters today in Washington. “Right now there are no uniform requirements on how businesses should handle consumer information online.”

He said the government is pushing Internet companies to come forward with new rules because the industry was too slow in creating comprehensive guidelines on its own. Locke said he hoped to have new policies completed sometime next year.

Good for Industry

The U.S. is focusing on privacy as the global Internet economy has reached an estimated $10 trillion annually, according to an estimate by the Information Technology and Innovation Foundation cited in the Commerce report. Advocacy groups and some lawmakers are calling for better privacy practices.

The report is “good news for Internet companies” because it will give them latitude in the development of rules, Rebecca Arbogast, a technology analyst for Stifel Nicolaus in Washington, said in an interview. The Commerce Department “is very mindful that they don’t want to kill the goose that laid the golden egg.”

“All companies, online and offline, need to develop transparent policies for protecting user privacy,” said Ed Black, president of the Computer and Communications Industry Association, which counts Google, Facebook, EBay, Microsoft and Oracle among its members. “Privacy will become a differentiating criterion for companies and users,” he said in an e-mailed statement.

‘Industry Friendly Document’

Consumer groups including Consumer Watchdog and the Center for Digital Democracy, both based in Washington, have raised concerns about how Internet marketing companies compile personal information to target online users with advertising. The FTC said in a privacy report released Dec. 1 that data collection on the Web is sometimes done “in an irresponsible or even reckless manner.”

Revenue from online advertising may reach $25.6 billion this year and $28.4 billion in 2011, up 12 percent this year and 11 percent next year, according to Brian Weiser, global director of forecasting at Magna Global, a unit of New York-based Interpublic Group of Cos., owner of advertising agencies.

Google and Facebook welcomed Commerce’s collaborative approach, respect for innovation and its efforts to preserve the flow of information internationally.

‘No Fear Mongering’

“There’s no fear mongering in this report,” said Stu Ingis, a partner at Venable LLP in Washington, which is advising a coalition that represents more than 5,000 advertisers, led by the American Association of Advertising Agencies and the American Advertising Federation. “It recognizes the value of the advertising market and the Internet industry for the economy.”

The groups introduced a self regulating opt-out button in October that allows consumers to indicate they don’t want their online behavior to be tracked.

Google rose 70 cents to $591 a share while EBay rose 31 cents to $30.50, both at 3:50 p.m. New York time in Nasdaq Stock Market trading.

Consumer groups criticized the department’s position. In calling the report “an industry friendly document,” Consumer Watchdog said in an e-mailed statement that the Commerce Department “proposes relying on a failed self-regulatory model when it’s clear that real regulations with meaningful enforcement are necessary.”

‘Wild, Wild West’

Chris Calabrese, legislative counsel for the American Civil Liberties Union, also called for privacy legislation. “It’s a wild, wild West out there in terms of consumer privacy and there are not very many protections out there,” he said in a conference call with reporters. “Now it’s up to Congress to act. Congress has to create a robust set of protections.”

Senator Jay Rockefeller, a Democrat from West Virginia who asked Facebook and MySpace Inc. in October about private information that was leaked from their websites, said in an e- mailed statement, “Legislation is necessary to protect consumers. Online companies must be more accountable and our national privacy policy must better serve consumers.”

Commerce officials didn’t take a position on the FTC’s call Dec. 1 for giving online consumers the option not to have their Web activity tracked.

“Do-not-track has a lot of different meanings,” said Daniel Weitzner, associate administrator for policy at the National Telecommunications and Information Administration, a unit of the Commerce Department. “We’re interested in enhancing consumer control.”

To contact the reporter on this story: Sara Forden in Washington at [email protected]

To contact the editor responsible for this story: Larry Liebert at [email protected]