II. History and Overview
A. The Federal Trade Commission's Approach to Online Privacy
The Commission has been involved in addressing online privacy issues for almost as long as there has been an online marketplace. In April 1995, staff held its first public workshop on privacy on the Internet, and in November of that year the Commission held hearings on online privacy as part of its extensive hearings on the implications of globalization and technological innovation for competition and consumer protection issues.
In June 1996, the Commission conducted a two-day workshop to explore privacy concerns raised by the online collection of personal information, and the special concerns raised by the collection of personal information from children. The workshop considered an array of alternatives to address those concerns, including industry self-regulation, technology-based solutions, consumer and business education, and government regulation. A summary of the workshop testimony was published by the Commission in a December 1996 staff report entitled Consumer Privacy on the Global Information Infrastructure. A second workshop in June 1997 delved more deeply into these issues.(2) In all of these endeavors the Commission's goals have been (1) to identify potential consumer protection issues related to online marketing and commercial transactions; (2) to provide a public forum for the exchange of ideas and presentation of research and technology; and (3) to encourage effective self-regulation.(3)
B. Consumer Privacy Online
1. Growth of the Online Market
The World Wide Web is an exciting new marketplace for consumers. It offers easy access not only to a vast array of goods and services, but also to rich sources of information that enable consumers to make better-informed purchasing decisions. It also offers the convenience of shopping from the office or home. This information-rich medium also serves as a source of vast amounts of personal information about consumers. Commercial Web sites collect personal information explicitly through a variety of means, including registration pages, user surveys, and online contests, application forms, and order forms. Web sites also collect personal information through means that are not obvious to consumers, such as "cookies."(4)
The online consumer market is growing exponentially. In early 1997, 51 million adults were already online in the U.S. and Canada,(5) and 73% reported that they had shopped for product information on the World Wide Web.(6) By December 1997, the number of adults online in the U.S. and Canada had climbed to 58 million, and 10 million had actually purchased a product or service online.(7) Analysts estimate that Internet advertising -- which totaled approximately $301 million in 1996 -- will swell to $4.35 billion by the year 2000.(8)
2. Privacy Concerns
While these figures suggest that the online marketplace is growing rapidly, there are also indications that consumers are wary of participating in it. Surveys have shown that increasing numbers of consumers are concerned about how their personal information is used in the electronic marketplace. This research indicates that consumers have less confidence in how online service providers and merchants handle personal information than they have in how traditionally offline institutions, such as hospitals and banks, handle such information.(9) In fact, a substantial number of online consumers would rather forego information or products available through the Web than provide a Web site personal information without knowing what the site's information practices are.(10) According to the results of a March 1998 Business Week survey, consumers not currently using the Internet ranked concerns about the privacy of their personal information and communications as the top reason they have stayed off the Internet.(11) Clearly, consumers care deeply about the privacy and security of their personal information in the online environment and are looking for greater protections.(12) These findings suggest that consumers will continue to distrust online companies and will remain wary of engaging in electronic commerce until meaningful and effective consumer privacy protections are implemented in the online marketplace. If such protections are not implemented, the online marketplace will fail to reach its full potential.
C. Children's Privacy Online
1. Growth in the Number of Children Online
Children represent a large and rapidly growing segment of online consumers and are being actively targeted by commercial Web sites.(13) Children use the Web for a wide variety of activities, including homework, informal learning, browsing, playing games, corresponding with electronic pen pals by e-mail, placing messages on electronic bulletin boards and participating in chat rooms.(14) Among the activities most attractive to children are those that allow them to communicate directly with their peers, for example, chat rooms, bulletin boards and e-mail.(15) Almost 10 million (14%) of America's 69 million children are now online, with over 4 million accessing the Internet from school and 5.7 million from home.(16) Children are also avid consumers and represent a large and powerful segment of the marketplace. They are estimated to spend billions of dollars a year, and to influence the expenditure of billions more.(17) Their growing presence online, therefore, creates enormous opportunities for marketers to promote their products and services to an eager audience.(18) At the same time, the Web offers an easy way to collect large amounts of detailed marketing data from and about children.
2. Safety and Privacy Concerns
A wide variety of detailed personal information is being collected online from and about children, often without actual notice to or an opportunity for control by parents.(19) This information may be collected from children at various places on a site: when the child is registering for a contest, enrolling in an electronic pen pal program, completing a survey, or playing a game. A child may also reveal such personal information in the course of participating in chat rooms or posting messages on electronic bulletin boards -- areas that are publicly accessible to anyone surfing the Web.(20) These practices present unique privacy and safety concerns because of the particular vulnerability of children, the immediacy and ease with which information can be collected from them, and the ability of the online medium to circumvent the traditional gatekeeping role of the parent.
The most potentially serious safety concern is presented by the posting of personal identifying information by and about children -- i.e., information that can be used to identify children, such as name, postal or e-mail address -- in interactive public areas, like chat rooms and bulletin boards, that are accessible to all online users. These activities enable children to communicate freely with strangers, including adults. The FBI and Justice Department's "Innocent Images" investigation has revealed that online services and bulletin boards are quickly becoming the most powerful resources used by predators to identify and contact children.(21) Further, anecdotal evidence indicates that many children surfing the Web claim to have experienced problems such as attempted password theft and inappropriate advances by adults in children's chat rooms.(22)
Traditionally, parents have instructed children to avoid speaking with strangers. The collecting or posting of personal information in chat rooms and on bulletin boards online runs contrary to that traditional safety message. Children are told by parents not to talk to strangers whom they meet on the street, but they are given a contrary message by Web sites that encourage them to interact with strangers in their homes via the Web. The dangers in the Web environment are heightened by the fact that children cannot determine whether they are dealing with another child or an adult posing as a child.
In addition to these safety issues are privacy concerns raised by commercial Web sites' collection of personal information from children for marketing purposes. As described below, the practice is widespread and includes the collection of personal information from even very young children without any parental involvement or awareness.
There is considerable concern about online collection practices that bypass parents, who have traditionally protected children from marketing abuses.(23) Children generally lack the developmental capacity and judgment to give meaningful consent to the release of personal information to a third party.(24) This is an even greater problem when children are offered an incentive for releasing personal information, or when release of personal information is a prerequisite to registering for a contest, joining a kid's club, or playing a game.(25)
Survey data confirm that parents strongly favor limiting the collection and use of personal information from and about their children. For example, 97% of parents whose children use the Internet believe Web sites should not sell or rent personal information relating to children, and 72% object to a Web site's requesting a child's name and address when the child registers at the site, even if such information is used only internally.(26)
In sum, the immediacy and ease with which personal information can be collected from children online, combined with the limited capacity of children to understand fully the potentially serious safety and privacy implications of providing that information, have created deep concerns about current information practices involving children online.