Rep. Tauzin, FTC Stress Consumer Privacy Concerns

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The most important legal theme that pervaded this month's spring meeting of the Electronic Retail Association, as NIMA International is now known, was the growing issue of consumer privacy.


As the association reaches beyond the infomercial industry and encompasses much of what electronic marketing and retailing will become in the next decade, it also must address issues arising from the use of digital technology.


Telecom Explosion


Member of Congress Billy Tauzin, a 10th-term Republican from Louisiana, gave a detailed explanation at the Washington conference of the work his House Commerce subcommittee is doing to monitor and oversee the explosion in telecommunication services.


The convergence of telephone, television and computer functions in a digitized format will bring a true revolution in many forms of telecommunications, including electronic retailing.


"The work to develop high definition TV is not so that we can see ball games in finer detail," he said. "Rather, it is a result of needing to be able to communicate in digital form, which will allow for the marrying of the computer and the television."


Microsoft's acquisition of WebTV is evidence that the private sector appreciates the potential uses for what we now consider simple television sets.


Tauzin noted that the potential impact of convergence would allow marketers to work in ways that we can barely imagine today. A critical factor, however, will be that consumers have a high degree of confidence in the security of their communications and data.


Citing examples of the massive frauds that have occurred with cellular telephone communications, particularly the analog models, Tauzin talked about the need for legislative reforms and law enforcement.


"It is wrong to deal with very personal information, financial information and health information of individuals in a way that does not provide security," he emphasized.


Encryption could be one important tool in solving the problem, but it is quite controversial. Consumers will need encryption and other security devices not only to protect their personal information against identity theft and service theft, as with cellular phones, but also to maintain the privacy of their sensitive information, he said.


Businesses Need Privacy, Too


Tauzin was also concerned about the need for businesses to have protection as well.


"If Blockbuster has a subscriber who can download a movie when we get to the days when you will not have to go to the store to rent a tape," he said of the video store chain, "Blockbuster will need to know that the movie is going to the right person and only to the right person, and that they will get paid for it."


While Blockbuster would need security to protect its own business, he said, owners of the movie or others who are entitled to royalty payments will also want to make sure that the entire consumer transaction is secure. It seems certain that Congress will take its oversight and legislative roles seriously where, as here, public policy concerns about privacy converge with the legitimate needs of both business and consumers.


Impact on DRTV


While this is a critical policy debate that will occupy the Congress in the next year or two, it also has real and serious implications for direct response firms. DRTV, direct mail and catalog marketers increasingly are making use of customer names, identifying information, preferences and other key data for back-end sales and database marketing efforts. From prescreening to target marketing lists to using one's own database, all users of private consumer information will come under scrutiny by the FTC and others.


FTC Commissioner Mary Azcuenaga, the other keynote speaker with Tauzin at the ERA conference, touched briefly on some of the FTC's ongoing efforts in the privacy area.


First, the FTC has announced that it will do a "sweep" of Web sites, looking at how a broad range of American companies explains their internal privacy policies. The sweep is scheduled to be completed by the end of this month. Second, the FTC will submit a report of their findings to the Congress before early summer. This is the report that Member of Congress Tauzin, with many others, are eagerly awaiting.


"I have no problem with consumers opting out so their information cannot be used," said one attendee at the program, "but it would be a very different story in my business if I could only use data about individuals who affirmatively opt into having their information shared."


That comment posits an extreme example, but it illustrates what is at stake for electronic retailers as Congress wrestles with the problem. Ironically, it may not be the government "big brother" concern that drives the issue. It may turn out to be the electronic retailer who will wind up with enough information to tailor electronic sales pitches almost on an individual basis.


The FTC is watching. The Congress is watching. This much is sure: Members of ERA and similar associations by any other name will definitely be impacted as government oversight and regulation of privacy concerns unfold in the next couple of years.


Barry J. Cutler is a partner in the Washington, DC, office of Baker & Hostetler Llp. From 1990 to 1993, he was director of the FTC's Bureau of Consumer Protection.
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