Address to the Association for Computing Machinery
"Computers, Freedom + Privacy 1999" Conference
Commissioner Mozelle W. Thompson(1)
U.S. Federal Trade Commission
April 7, 1999
I. Greeting and Introduction
Good morning. I am pleased to be here today to speak at this important conference where you will hear from so many creative, committed people talking about a subject directly related to America's future - high technology.
In considering the title of this conference, "Computers, Freedom and Privacy," I am also pleased that we are, in the same breath, talking about important principles concerning freedom, privacy, and individual rights since those principles form the foundation for the strength America has today.
As many of you know, I currently serve as one of the four commissioners on the Federal Trade Commission, and the FTC has been and continues to be on the cutting edge of many high technology issues. Whether its ensuring that there's a full and fair opportunity for market competition and innovation (as evidenced by our recent activities concerning Intel), or ensuring that consumers are protected from fraud and deception on the web - as shown by the over 60 legal actions we have taken against Internet fraud), we continue to work to ensure that our markets are open, and worthy of consumer confidence. And it is here that the conference sponsors have asked me to focus some attention.
As a law enforcement agency, the FTC has been protecting consumers since 1914, and it has undertaken this mission across all media: print, radio, tv, phone and yes, the Internet. While so much time and energy is spent at conferences like this discussing how the online world is different, we sometimes forget how much it mirrors the world we've lived in all our lives.
When you break it down to its essential elements, consumers continue to buy goods and services from businesses, and they continue to expect to be treated fairly and with respect whether the purchase is made at the corner store or from a web site. And that brings us to an important question:
II. Internet Commerce is rapidly growing, but is it all it can be?
It is here that I believe the FTC plays an important role. While some take the simple view that our role is to clamp down on business, I look at our mission somewhat differently. Our job is to create an environment where, through true competition and consumer protection, markets will flourish with safe investments from consumers who benefit from low prices and choice.
Now lets take a look at e-commerce as it is today. By December 1998, 80 million adults [defined as ages 16 years and older] were already online in the United States. Of those, 48 million reported that they had shopped for product information on the World Wide Web, and as many as 16 million people reported that they had purchased a product or service online. A recent Merchants Association survey states that e-commerce is growing 200 percent annually- $13 billion in 1998. Indeed, Internet advertising totaled approximately $1.3 billion for the first three-quarters of 1998, a 127 percent increase over the same time period in 1997.
But notwithstanding this growth of "buyers" on the web, this segment represents only 5 percent of visiting consumers. How do we account for this gap? Privacy and the possibility of fraud are among the top reasons consumers give for non-purchases. Let's take a look at how we are doing with these issues.
III. Internet Fraud
Consumers and commercial marketers are not the only groups to see the value and power of the Internet. Fraud artists are also online, hoping to take advantage of:
- low startup costs;
- instant access to a global customer base;
- the possibility of "real-time" immediate payments;
- a nearly infinite number of places to "hide" from law enforcement; and
- an unparalleled ability to mimic legitimate business.
While most of the Internet cases we have brought since 1994 challenge deceptive claims that the FTC would have pursued in any medium, we are beginning to see the deceptive use of technology itself, and it is only a matter of time before technology-based fraud becomes more prevalent.
To combat Internet fraud in general, the Agency has embarked on a new strategy. One that increasingly uses new technology like the Web itself to identify and track common schemes as well as to educate consumers and businesses about fraud. Another new element of our Internet fraud program is partnering with technology firms to provide FTC staff with the best information and resources available to combat these offenses. The FTC has also significantly expanded its staff in this area just within the last few months, in order to enhance our enforcement capabilities. The Agency has also developed partnerships with Federal, state and local law enforcement agencies to coordinate cases, sweeps, and surf days, and to improve criminal case referrals and conviction rates.
But this effort is not restricted to within our borders. The FTC is actively working with its international colleagues to battle cross border fraud perpetrated by electronic means (such as our Consumer Sentinel database with Canada/Mexico, and information sharing through International Marketing Supervision Network (IMSN)).
But perhaps our most significant role in this area of consumer protection, results not from our direct enforcement actions, but by taking a lead policy-making role before the OECD Consumer Policy Committee in Paris. There, we are participating in the development of international guidelines for consumer protection in electronic commerce. This important undertaking by the OECD is designed to provide governments, businesses and consumers alike with some framework for the protection of consumers in a online environment. It should be completed by the end of 1999.
But I would be remiss if I stopped here and didn't take a moment to comment on another area near and dear to my heart...
IV. Online Privacy
In my view, respecting consumer privacy online is no different than protecting the security of consumer credit card data or making sure consumers they get the products they ordered...its all about good business practice. We need only to look at the newspapers to see that consumers are keenly aware of and concerned about on-line privacy risks.
Most of you here are well aware that since 1995, the FTC has been actively working with business and consumer groups to encourage the development of online privacy protections through our Consumer Privacy Initiative. While the Commission has consistently supported self-regulation as providing the best means for protecting consumer privacy, [on the grounds that self-regulation provides the best opportunity for the development of clear and effective policies while at the same time supporting innovation], I have also been clear in stating that self-regulation must be real and effective. Now, I might also add that it has to be timely.
Last June, the FTC issued a report to Congress on the results of a major "web surf" assessing the extent to which self-regulation has adequately protected the public. At that time, we found industry's efforts to be severely lacking. I'm sure you've all heard the numbers quoted many times, and it goes without saying that we found the results regarding children's privacy particularly alarming.
As a result, the Commission recommended that Congress take legislative action, to provide for parental consent before information is collected from children 12 and under, and to provide parents of children 13 and over an opportunity to have their children's information removed from a web site's database after it has been collected. I am happy to state that this past fall, Congress passed the Children's Online Privacy Protection Act in 1998 and the FTC is currently drafting the regulations to implement it.
But just because there has been legislative action concerning children, that doesn't mean that we have forgotten about adults. At the same time, we're glad to see that industry-based self-regulatory programs are in formation, but I am concerned that they are not yet fully operational.
This presents serious concerns on three fronts: 1) coverage - consumers need to be confident about more than the 100 biggest web sites. 2) enforcement - self regulation needs to be backed up with results that ensure consumers get redress, and 3) there is still no consensus on how to deal with public records.
By now, I'm sure most of you have also heard that we are working with industry on a follow up survey conducted by a team at Georgetown University. That survey will be used to further assess industry progress on self-regulation, and will be released in early May.
But the FTC is not waiting for legislative or self-regulatory movement to take other action to protect online privacy. Last year, the Commission brought a well-publicized case against GeoCities. That action sent a clear message to the world that the FTC is looking carefully at web site information practices and the obligations of online companies to their consumers.
V. But, why do all these issues matter?
First, e-commerce is important to America. It represents new money and investment, it is influencing decision making across industries, and the world is looking to America for leadership on these issues. Second, it forms the basis for the implementation of a new government paradigm, one that is:
- Less intrusive,
- more market-oriented, and
- more interactive, with partnerships between business, government, and citizens,
- and focused on effective, pragmatic solutions.
VI. But how is this working? The Public Policy Test
Last year, I stated that for industry, taking responsibility for Internet privacy is a important public policy test. The first quest is: can industry be responsible for the medium? More importantly, however, we must ask, can industry be trusted to take lead for public problems generally? The jury is still out on that question.
VII. So what does this all mean for online consumers?
Like privacy, I believe consumer protection on line, is also at a critical juncture. Right now, we have a exciting and unprecedented opportunity for industry to have a important leadership role in shaping public policy for this important new medium, while they benefit government and public trust. But their failure to respond will not only have a negative effect on the future of the industry, but also the public's confidence in industry's ability to work with government to solve important policy issues.
Consumers have a right to expect that industry and government will work together to find new and better ways to make the Internet safe, inspire consumer confidence and preserve the innovative spirit of e-commerce. Now, its up to us all to deliver on that promise.
1. The views expressed by Commissioner Thompson in this written text and oral remarks are his own and do not necessarily reflect the views of the Commission or other Commissioners.