Can privacy and consumer protection coexist online?

A paper suggests privacy legislation could hurt online services

Legislation that would create privacy regulations for online advertising could cause consumers to get fewer free services and isn't necessary because privacy advocates have shown no harm from data collection, the co-author of a study on online advertising said.

Online services have been tracking consumer behavior for a decade without creating problems for consumers, said Paul Rubin, a fellow at the Technology Policy Institute (TPI), a free-market think tank, and an economics and law professor at Emory University.

"Everyone talks about how consumers don't know what's going on, and if they knew what's going on, they'd be horrified," Rubin said. "The reason they don't know about it is they haven't bothered to learn about it, and the reason they haven't bothered to learn about it is because nothing bad has happened."

There's little evidence of data collected by online ad networks being used for identity theft, Rubin said. Instead, consumers see multiple benefits from giving up some personal data, such as information about what sites they visit, he added.

Several lawmakers have said privacy legislation is likely to be introduced later this year, but too many regulations could mean that now-free services like search, maps and Web mail could start to cost money or no longer be available, said Rubin, co-author of a TPI report on privacy and online services.

"More privacy, however, would mean less information, less valuable advertising, and thus fewer resources available for producing new low-priced services," the TPI paper argues. "It is this trade-off that Congress needs to take into account as it considers new privacy legislation."

But other speakers at the TPI event suggested that the U.S. Congress does need to pass some online privacy rules.

While targeted advertising serves a useful purpose, consumers deserve to know who's collecting their data online and how it's being used, said Representative Cliff Stearns, a Florida Republican. Stearns predicted that Congress would release a draft of privacy legislation later this year.

However, Stearns also called for lawmakers to move cautiously. Although some have called for legislation that would require online businesses to get opt-in approval from consumers before collecting any information, Stearns said such a rule would go too far.

"It's easy to demagogue this issue and say consumers have a right to know everything and nothing happens unless you get their name on the bottom line," he said.

Leslie Harris, president and CEO of the Center for Democracy and Technology, and Alan Davidson, director of U.S. public policy for Google, disagreed with the TPI paper's premise that there are trade-offs between privacy protection and data-based Internet services. Transparency about data collection is necessary, Harris said, so that consumers will have confidence in online services.

Legislation is needed, she added, because in many cases consumers don't know how much information is being collected about them and how easy it is to identify an individual using a couple of pieces of data.

Online companies can protect user privacy and still deliver useful services, Davidson added.

Privacy advocate Jeffrey Chester, executive director of the Center for Digital Democracy, called the TPI paper flawed. TPI's assertion that new privacy rules could cause major harm to online services is "an absurd, reductionistic, and intellectually-dishonest claim," Chester wrote on his blog.

"Consumer privacy laws are required to ensure that our financial, health and other personal transactions online are conducted in a responsible manner," Chester added. Anyone -- or group -- who believes that we can't have both privacy and a robust online marketplace is out of touch."

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