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May 2, 2011

The FTC Begins Crackdown On Behavioral Ads – Is Your Site In The Cross Hairs?

On March 14, 2011, the Federal Trade Commission (FTC) announced its first behavioral advertising settlement. If your website collects behavioral data or serves behavioral ads – either directly or indirectly through the use of behavioral ad vendors – you need to understand and comply with the FTC’s notice and choice principles, or suffer the consequences.

What Is Behavioral Advertising?

Behavioral ads are based on anonymous data collected on how a user’s computer browses the Internet, including websites visited, searches made, and content read. This data is used to create a behavioral profile that is linked to a specific demographic. The ads seen by the computer’s user are tailored to the user’s interests resulting in significantly increased relevancy and sales.

Contextual ads, in contrast to behavioral ads, are based solely on the content of the specific website page the user is viewing. Because contextual ads are generally not as relevant to the user’s interests as behavioral ads, contextual ads are less effective, and therefore less

Although behavioral data is essentially anonymous when collected, the FTC and privacy advocates are concerned that the amount and depth of some data could lead to personal identification of users. In addition, even if users are not personally identified, the enhanced data about them could rise to the level of an invasion of privacy.

The Chitka Settlement

In 2009, the FTC issued a staff report on behavioral advertising that explained the FTC’s principles regarding behavioral data. The FTC believes that its deceptive and a violation of the FTC Act to fail to provide to consumers proper notice and opt-out choice regarding the collection of behavioral data. The FTC’s settlement with Chitka, Inc. is the first settlement based on these principles.

Chitka is an intermediary between advertisers and websites that serve ads for the advertisers. To collect behavioral data, Chitka passes a cookie on users’ computers and then uses the cookie to track the users’ online behavior.

The FTC alleged in its Complaint that for over two years Chitka advised consumers that if they wanted to opt out of behavioral tracking they could click on a button titled “opt out”. Clicking the button would generate a message that read “you are opted out”. The catch according to the FTC is that the opt out lasted only for ten days, and then new cookies would be passed to consumers’ computers
resulting in tracking of behavioral data for serving behavioral ads.

In its settlement with the FTC, Chitka agreed to:

* delete all identifiable user information collected for the ineffective opt out period,
* provide consumers with a new opt out mechanism that lasts for at least five years, and
* notify consumers whose opt out was ineffective to opt out again.

Chitka also agreed to a notice and opt out procedure that could be interpreted as a blue print for what the FTC believes is generally required for all sites that collect behavioral data. This procedure includes:

* A message on the home page that reads “we collect information about your activities on certain websites to send you targeted advertisements. To opt out of [our] targeted ads, click here.”

* The “here” link points to an opt out page where the user is notified that opt out means the information would not be used for behavioral ads, the status of the opt out (in or out), and that opt out is limited to a specific browser and should be repeated if another browser is used.

* A link on any behavioral ad that reads “Opt Out?”, and that provides text when the users’ cursor hovers over the ad that reads “Opt Out of Targeted Ads”. The Opt Out? link would point to the opt out page described above.


The Chitka settlement clearly establishes that the FTC believes it’s a deceptive practice under the FTC Act to fail to provide notice and opt out choice regarding behavioral ads.

What’s more important is that the notice and opt out procedure agreed to in the settlement may be a clear indication of the specific procedure that the FTC requires for compliance.

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