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Watch Out: The Federal Trade Commission Continues to Watch the (Alleged) Watchers

Posted in Data Security, Internet of Things, Privacy

BigBrotherEye-GettyImages-149355675-600pxIf your company collects information regarding consumers though Internet-connected devices, you will want to take note of the Federal Trade Commission’s (FTC) recent privacy-related settlement (brought in conjunction with the New Jersey Attorney General) with smart TV manufacturer Vizio, Inc. The settlement is significant for four reasons:

  • The FTC reinforces the position it has taken in other actions that the collection and use of information in a way that would surprise the consumer requires just-in-time notice and choice in order to avoid a charge of deception and/or unfairness under Section 5 of the FTC Act.
  • The FTC takes the position that television viewing activity constitutes sensitive data. This marks a departure from its approach of limiting sensitive data to information that, for example, can facilitate identity theft, precisely locate an individual, is collected online from young children or relates to matters generally considered delicate (such as health information).
  • The settlement includes a payment of $1.5 million to the FTC (as well as payment of civil penalties to New Jersey), but the legal basis for the FTC payment is not stated. This could suggest that the FTC will more aggressively seek to obtain injunctive monetary relief in Section 5 cases.
  • Acting Chairwoman Maureen Ohlhausen explicitly noted in a concurring statement her skepticism regarding both the allegation that TV viewing data is “sensitive” and that the FTC’s complaint adequately established that the practices at issue constitute “substantial injury” under the unfairness prong of Section 5.

Leaving aside what the chairwoman’s concurrence may portend for future enforcement efforts, the FTC again seems to be using allegedly bad facts about privacy practices to push the envelope of its authority. Accordingly, with the Internet of Things boom fueling a dramatic increase in the number of Internet-connected devices, companies that either collect information via such devices or make use of such collected information should consider the implications of this enforcement action.

The Challenged Practices

The FTC alleged that Vizio’s collection of viewing and other information—“up to 100 billion data points each day from more than 10 million Vizio TVs”—and its disclosure and use of such information for advertising practices was both unfair and deceptive in violation of Section 5 of the FTC Act because it was done without adequate notice and consumer choice.

The gravamen of the complaint is that Vizio used automated content recognition (ACR) technology to continuously identify virtually all of the content viewed by users of its Internet-connected TVs and then used and disclosed that information, including on a personal or household level, for advertising purposes—all without adequate notice to the consumers or their consent.

According to the FTC’s complaint, the company not only collected such information on TVs sold with the ACR technology installed, but it also remotely installed the technology on older TVs that had been sold without it.

Vizio allegedly shared the information it collected with third parties for three purposes:

  • Measuring audiences, based on a persistent identifier for each TV and details about the content viewed on it (e.g., programming and commercials, time and duration of viewing, and so on);
  • Analyzing advertising effectiveness, including by using IP address information to review consumers’ behavior across devices and determine if, for example, consumers visited a particular website after viewing a television advertisement related to that website; and
  • Using TV viewing data to target advertising to consumers on their other digital devices.

The FTC alleged three violations of Section 5, based on the allegedly inadequate disclosures Vizio made regarding its practices. In short, the FTC alleged that consumers had “no reason to expect” that Vizio was tracking their viewing data on a second-by-second basis and that consumers were not adequately notified of the tracking or of Vizio’s use and disclosure of the information collected. The FTC therefore alleged in relevant part that:

  • Vizio’s collection and sharing of television viewing data without consent was an unfair act or practice in violation of Section 5; and
  • Vizio’s failure to adequately disclose the collection and sharing was a deceptive act or practice in violation of Section 5.

What Is New Here and Why It Matters

Roughly three years ago, the FTC brought a case against the maker of a flashlight app based on allegedly unexpected practices relating to the collection and use of precise geolocation information (which the FTC has long deemed to be sensitive information). The FTC used that case, In Re Goldenshores Technologies, to firmly establish that out-of-policy notice and opt-in consent were required to collect precise geolocation information, and that the purposes of the collection, along with the identity or categories of third parties that received the information, also needed to be disclosed outside the privacy policy.

With the Vizio case, it appears that the FTC is doing for the Internet of Things what it previously did for mobile applications. In its 2012 Privacy Report, the FTC stated that companies “do not need to provide choice [i.e., obtain prior consent] before collecting and using consumer data for practices that are consistent with the context of the transaction or the company’s relationship with the consumer.” Thus, the first noteworthy thing about this case is that the FTC alleges that the tracking of consumers’ TV viewing activity required notice and consent because it was conducted “through a medium that consumers would not expect to be used for tracking.

In other words, while a consumer might reasonably expect to receive a marketing email or mailer from a retailer after making a purchase, here the FTC seems to be strongly suggesting that the use of information collected from connected TVs for tracking or advertising purposes is not reasonably expected by consumers and thus requires out‑of-policy notice and choice.

The case is also noteworthy because the FTC deemed the television viewing data to be “sensitive,” such that its collection and sharing without consent “caused or is likely to cause substantial injury to consumers” and was therefore unfair.

Chairwoman Ohlhausen’s concurrence indicates that she was skeptical of both the classification of TV viewing data as sensitive and of the use of unfairness in this case, as she specifically noted that the FTC needs to “examine more rigorously” what constitutes a substantial injury under the unfairness prong of Section 5. Indeed, the complaint says nothing about how or why consumers were actually injured or likely to be injured by Vizio’s practices. Nevertheless, Vizio apparently decided not to challenge the FTC on this point, thereby giving the FTC another precedent regarding its unfairness authority that may be germane to the cases it is currently litigating with respect to that authority.

A third noteworthy point is that the FTC indicated how it expects the required notice and choice to be provided to consumers in this context. It did so first by outlining, in its complaint, the notice practices it found to be inadequate:

  • Vizio failed to provide any onscreen notice on TVs that had ACR tracking technology preinstalled and turned on by default;
  • The initial onscreen pop-up notice presented when ACR technology was remotely installed on a previously purchased TV was not specific about the collection of viewing data or the ACR software, and it did not directly link to either a settings menu (so that users could exercise choice regarding these practices) or even a privacy policy (so that users could learn more about these practices); and
  • Vizio’s effort to rectify the above practices (during the pendency of the FTC investigation) was also insufficient because, while the notice did refer to the collection of viewing data, it timed out after 30 seconds without any action by the consumer (i.e., it did not obtain affirmative consent), and it did not provide easy access to the settings menu (i.e., it did not tell consumers about their ongoing choices with respect to Vizio’s viewing-data practices).

The stipulated order requires that Vizio provide consumers with out-of-policy notice of the following practices: (1) the types of data it will collect through the TVs; and (2) the data that will be shared with third parties, those parties’ identities or specific categories, and the purposes for the sharing. Vizio must also obtain affirmative express consent to these practices at the time the disclosure is made—and after any material changes to its practices.

Finally, the case is noteworthy because the FTC’s relief included a payment of $1.5 million from Vizio. As noted above, the FTC does not have civil money penalty authority in connection with ordinary violations of Section 5 of the FTC Act. It does, however, have the authority to obtain monetary equitable relief, such as to redress injury to consumers or in the form of disgorgement of ill-gotten gains. Here, however, the complaint and order do not specify the basis for the monetary relief.

For example, there is no indication that the FTC believes consumers overpaid for the TVs at issue or that they are due refunds or payments in light of the practices alleged, or that any refunds will be paid to consumers. It is possible that it is intended to be a recoupment of the fees that Vizio received in licensing the data to third parties. But, at this point, the required payment appears difficult to differentiate from what a simple penalty for a violation of Section 5 would look like.

In Summary

This case can serve as a roadmap for what the FTC currently considers may be required to avoid a charge of deception or unfairness under Section 5 relating to the collection and use of information from connected devices, when that information is used or shared for unexpected purposes. In addition, in light of the FTC’s apparently aggressive use of its authority to obtain relief for consumer redress, companies working in this space may now need to re-evaluate the potential risks of alleged noncompliance with the FTC Act.

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For more information on the FTC’s actions and guidelines regarding privacy and data security, please see the following Socially Aware articles: Big Data, Big Challenges: FTC Report Warns of Potential Discriminatory Effects of Big Data; FTC Report Reinforces the Rules for Cross-Device Tracking; FTC Issues Landmark Report on Internet of Things; and Snap Judgment: FTC Alleges Snapchat Did Not Keep Its Privacy and Security Promises, But Suggests Broad New Duty in the Process.

For earlier posts regarding the Internet of Things, please see: The Internet of Things: Interoperability, Industry Standards & Related IP Licensing ApproachesThe Internet of Things: Interoperability, Industry Standards & Related IP Licensing Approaches (Part 2)and FTC Issues Landmark Report on Internet of Things.