Privacy Battle Pits Lawmakers Against Tech Companies

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The political consensus is forming in Washington around greater regulation of online advertising to protect consumer privacy.

The twin goals are more consumer awareness of behavioral tracking and more “user friendly” opt-out standards, meaning you could more easily restrict websites from tracking information about you, based on your purchases and searches on the Internet.

There’s legislation in the works that would require all websites using tracking technology to get a consumer's consent before using personal information for commercial purposes, such as tailoring ads to web-surfing habits.

Congressman Rick Boucher, (D-Va.), is leading the charge.

“What we’re seeking to do is very fundamental and that is [to] make sure that everyone who uses the Internet and visits websites knows what information is collected about them and then how that information is used,” said Boucher, who is chairman of the Subcommittee on Communications, Technology and Interest.

Boucher and Congressman Cliff Stearns, (R-Fla.), are circulating draft legislation that would prohibit cell phone companies from using information about your geographical location, or race, religious beliefs or sexual orientation, without your consent.

Before the August recess, the powerful chairman of the Senate Committee on Commerce, Science and Transportation, Jay Rockefeller, (D-W.Va.), also sounded the Internet privacy alarm.

“From this profile they determine your tastes and private characteristics,” said Rockefeller. “They inundate you with advertisements based on this information. They can spam and potentially scam you.”

In the first quarter of 2010, online advertising revenues topped $5.9 billion—up 7.5 percent from a year ago. Consumers' “opting out” of being tracked could cut into that bottom line.

• First Story in Series: How Businesses Mine Consumer Data

Naturally, lobbying is heating up. In the second quarter, Google

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[GOOG  Loading...      ()   ] spent $1.34 million on lobbying Washington—a 41 percent increase from a year ago, according to Open Secrets, a non-partisan group that tracks money's effect on US elections and public policy.

The message to lawmakers is that the multi-billion dollar Internet economy could not exist without advertising and strong privacy safeguards.

“Google's greatest asset is our users’ trust,” said Alma Whitten, the privacy engineering chief at Google. “The information that users entrust to us enables us to better match searchers to the information that they seek [and] to fight off those who would scam our users.

Another big tech site, Facebook, which has dealt with criticism about the protecting the privacy of its users, has another way of looking at the issue.

“One of the primary reasons for Facebook’s success is that Facebook provides uniquely powerful controls for sharing information,” said Bret Taylor, the social networking site’s chief technology officer.

Late last week, the Interactive Advertising Bureau, a trade group of Internet advertisers, called on members to contribute to a fund to depend the industry.

Lawmakers are leaving the door open for the industry to come up with a set of self-regulating “best practices” standards. But consumer and privacy advocates are pressuring lawmakers and the Federal Trade Commission to take a harder line and draft legislation.

Stay tuned, er, online, for the next chapter.

Look for reports from Jon Fortt, Hampton Pearson, and Julia Boorstin, Wednesday August 18 through Friday August 20—part of CNBC's special series "Tangled Web: Profits & Privacy."

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