[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
THE CONSUMER PRIVACY PROTECTION ACT OF 2002
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
COMMERCE, TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
on
H.R. 4678
__________
SEPTEMBER 24, 2002
__________
Serial No. 107-131
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U. S. GOVERNMENT PRINTING OFFICE
81-960 WASHINGTON : 2002
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
RICHARD BURR, North Carolina BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
GREG GANSKE, Iowa BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Commerce, Trade, and Consumer Protection
CLIFF STEARNS, Florida, Chairman
FRED UPTON, Michigan EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia DIANA DeGETTE, Colorado
Vice Chairman LOIS CAPPS, California
ED WHITFIELD, Kentucky MICHAEL F. DOYLE, Pennsylvania
BARBARA CUBIN, Wyoming CHRISTOPHER JOHN, Louisiana
JOHN SHIMKUS, Illinois JANE HARMAN, California
JOHN B. SHADEGG, Arizona HENRY A. WAXMAN, California
ED BRYANT, Tennessee EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania BOBBY L. RUSH, Illinois
MARY BONO, California ANNA G. ESHOO, California
GREG WALDEN, Oregon JOHN D. DINGELL, Michigan,
LEE TERRY, Nebraska (Ex Officio)
ERNIE FLETCHER, Kentucky
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Barrett, Jennifer, Chief Privacy Officer, Acxiom Corporation. 23
Misener, Paul, Vice President, Global Public Policy,
Amazon.com................................................. 31
Palafoutas, John P., Senior Vice President, Domestic Policy
and Congressional Affairs, AeA............................. 7
Rotenberg, Marc, Executive Director, Electronic Privacy
Information Center......................................... 35
Schall, John A., Executive Director, National Business
Coalition on E-commerce and Privacy........................ 15
Servidea, Philip D., Vice President, Government Affairs, NCR
Corporation................................................ 12
Whitener, Rebecca, Director of Privacy Services, EDS......... 19
(iii)
THE CONSUMER PRIVACY PROTECTION ACT OF 2002
----------
TUESDAY, SEPTEMBER 24, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Commerce, Trade and
Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 9 a.m., in
room 2322, Rayburn House Office Building, Hon. Cliff Stearns
(chairman) presiding.
Members present: Representatives Stearns, Bass, Walden, and
Harman.
Also present: Representative Boucher.
Staff present: Ramsen Betfarhad, majority counsel; Yong
Choe, legislative clerk; and Jonathan J. Cordone, minority
counsel.
Mr. Stearns. The subcommittee will come to order.
And good morning. I apologize; I was a little late, and I
thank my colleague for her patience. Thank you, Mr. Boucher.
Let me just say I welcome our distinguished witnesses to
this legislative hearing on our bill, H.R. 4678, the Consumer
Privacy Protection Act of 2002.
I guess about a year and a half ago our committee began
creating, I think one of the most exhaustive set of hearings
dealing with this type of legislation. We had six hearings on
privacy, and it was a workout to get these hearings,
particularly because there was no need, it appeared, when we
requested these hearings, because the chairman and others said,
Well, I'm not sure we need it.
But I think, as many in the audience would say today, that
there is going to be a need. So I decided to go ahead, and
after careful examination, we had these six hearings; and we
were very pleasantly surprised.
We took the basic premise that we wanted to do no harm to
the Internet. The Federal information privacy legislation
should ensure that no harm comes to the consumer from unwanted
breaches of their information privacy, and at the same time, it
should not harm--most importantly today--economic growth by
hurting the sharing of consumer information. So our bill, H.R.
4678, I think goes a long way to establishing that balance.
Now, perhaps--a lot of you will probably agree.
I think today we are going to feather out some of the
nuances of my privacy bill and also that Senator Fritz Hollings
has. I like to use this quote--I am not necessarily an avid fan
of Ayn Rand, but she did say at one time that ``Civilization is
the progress toward a society of privacy. The savage's whole
existence is public, ruled by the laws of his tribe.
Civilization is the process of setting man free from men.''
So here in America, where we enjoy an open society, we
cherish our privacy too. With the advent of on-line data
collection, the American consumer's information privacy
concerns have rightfully been heightened. As individuals and
businesses turn to computers and computer networks for
commercial and personal reasons, massive volumes of personal
information are generated, collected and stored for personal,
governmental and commercial activities.
All of these activities generate a footprint of sorts:
personal data. And that footprint, in turn, has heightened
consumers' concern over their personal information privacy. The
fact is that personal data is collected both online and
offline. The collection of consumer data on line is just a new
dimension of a very old practice, although an increasingly
significant one.
Moreover, consumer information, whether collected online or
offline, is aggregated into the same data bases and processed
by the same computers without regard to the source of that
data. The consumers' legitimate concerns over their information
privacy must, in turn, be weighed against the fact that our
economy is highly consumer information dependent as it is a
consumer-based economy where over two-thirds of our gross
domestic product is comprised of consumer spending, and that is
nearly $7 trillion.
Historically, consumer information has played an important
role in our economic growth. The free flow of consumer
information has served all of us as American consumers well
throughout our modern economic history. Any Federal law or
regulation that unduly burdens information sharing may bring
about a substantial and negative impact, of course, on our
economy. Therefore, any Federal legislation intended to be
responsive to the public's information privacy concerns must
include within its scope protection from both unwanted on-line
and off-line data collection and use activities, and balance
those protections against the legitimate consumer information
gleaning and sharing activities of a consumer-based economy;
and I think our bill does just that.
Shortly after the conclusion of our hearings I offered some
basic principles. We have outlined these seven principles that
we have and believe that the Consumer Privacy Protection Act of
2002 is a very meaningful effort for all of us. The bill
mandates a privacy policy and statement. The bill requires that
any organization collecting, selling or using consumer's
personally identifiable information for a purpose unrelated to
the consumer transaction must establish a privacy policy, and
the principal elements of that privacy policy must be
accessible to the consumer at the time the organization first
collects this personally identifiable information and
subsequently.
In addition, a data collector must provide the consumer
with the opportunity to preclude the sale or disclosure of his
or her PII to any other data collector and user. As noted in
our bill, it applies to both online and offline, and that has
been our policy from the very beginning.
It preempts States' action, forecloses private right of
action, and vests in the FTC the exclusive authority to enforce
its provisions.
The bill entails a novel cyber security provision designed
to improve the integrity of consumer data and a provision
addressing the interplay between the U.S. privacy protection
and those of other countries.
And finally, my colleagues, the bill fosters self-
regulatory programs by defining the outer parameters of what
would constitute an acceptable privacy program.
I think all of us in the aftermath of the September 11
terrorist attack, the American people and the government, have
understandably focused on enhancing security. Although
protecting our citizens is the top priority of Congress, I do
not want to see the issue of consumer information privacy
overwhelmed by the events of 9/11. Even as a Nation wages war
on global terrorism, it is appropriate that Congress still
considers the matter of information privacy.
I will conclude by stating that I think we have a balanced
and bipartisan bill, and the American consumer is empowered
with information about what is done with his or her personally
identifiable information so that he or she can make an informed
choice. Commerce, in turn--and this is very important--is
spared the undue burden of regulation that could follow.
So I look forward to our witnesses, and I want to thank
them.
And the gentlelady from California.
Ms. Harman. Thank you, Mr. Chairman. I have obviously
advanced in seniority on this committee at a rapid rate, and I
appreciate it. I want to apologize, first, to you and Mr.
Boucher and our witnesses for the fact that I must leave at
9:45. I am a member of what's called the Joint Inquiry--it
sounds very British to me--which is looking into the plot of 9/
11 and what reforms we might be able to make; and while I agree
with you that 9/11 should not shape our views on every issue,
it certainly does seem to me that we must still focus on it and
the threats that may come after it.
But when I leave, I will hand over this ranking position to
Mr. Boucher, a senior member, a real senior member of the full
committee and a cosponsor of this bill; and I trust that you
will agree that he will ably carry out these duties.
I want to commend you for the efforts you made before you
introduced the bill to reach for all the members of the
subcommittee. I was one of the people reached for. You asked me
my views, you urged me to cosponsor the bill; and at that time
I said that I thought it was a good bill, but I would prefer to
hold off in order to reflect very carefully on whether you had
achieved a balance that I thought would work between the need
to foster technology and the need to protect privacy.
Having thought about it for a couple of months, I thought I
would come to your hearing to tell you that I have now decided
to cosponsor the bill.
Mr. Stearns. Appreciate your support.
Ms. Harman. Well, you are welcome.
And I appreciate the way you worked on this and I
appreciate the fact that you have put together a very able
panel, which I am sure will make suggestions to us that could
improve this product further.
I don't think you are claiming perfection here, Mr.
Chairman. As a mother of four, I often say that perfection is
not an option. But I think you have a very good working
document, and if better ideas are suggested, I am sure you will
be open to better ideas.
So I just want to say that I am proud to cosponsor your
legislation. I think this is an excellent panel, and I look
forward to getting smarter as we hear from these witnesses.
And finally, I would like to ask unanimous consent that any
other members' opening statements be inserted into the record.
Mr. Stearns. By unanimous consent, so ordered.
And I thank the gentlelady from California, Ms. Harman, for
your support; and I think you know, you are not a senior member
in the one sense, but you are senior in another since you have
been here twice, and that creates a lot of wisdom which a lot
of us don't have.
So--having run for Governor, you bring to the table a lot
of perspective, and so your support will be very helpful, I
think, for a lot of our colleagues.
Ms. Harman. I thank you for that. I would just observe,
however, that I call myself the repeater in Congress; and it
may make me smarter or it may make me dumber for going through
this again.
Mr. Stearns. It is my pleasure to welcome an opening
statement from Mr. Boucher from Virginia, who is an original
cosponsor with me and has been very helpful in the whole
development of this bill. So a lot of the credit for this bill
also comes from his participation, and I welcome his opening
statement.
Mr. Boucher. Well, thank you very much, Mr. Chairman. I
appreciate your inviting me to take part in the hearing today.
While not a member of this subcommittee, I have a deep and
abiding interest in this subject matter. And I am pleased to
take part in the hearing.
I want to commend you, Mr. Chairman, for your leadership in
the development of the privacy measure we have before us, and I
am pleased to be an original coauthor of the measure. The bill
would establish a baseline set of guarantees for personal
privacy with respect to personally identifiable information
collected by Web site operators and by off-line entities that
use information for commercial purposes.
The requirements of the bill are straightforward and would
be in the nature of a minimum set of guarantees. These
guarantees protect consumers while promoting effective and
unhindered electronic commerce. First, each Web site and off-
line entity would be required to provide a clear locus of what
information about consumers is collected and then how that
information is used by the party that collects it.
As a second right, after reviewing the privacy statement,
the consumer would be able to decline to have information about
him collected. We commonly refer to this as an opt-out
provision.
As a third matter, the Federal Trade Commission would be
empowered to assure compliance with the basic privacy
guarantees afforded.
And as a fourth matter, the legislation declares that these
guarantees are the true national policy, and the bill preempts
any inconsistent or more onerous requirements that would be
imposed by a State or local government. Were each of the 50
States to impose its own privacy laws, it would be exceedingly
difficult, if not impossible, for companies doing business
nationwide to comply with these varying requirements.
The bill also makes it clear that the baseline Federal
guarantees set forth in this legislation do not affect other,
more specific Federal privacy requirements. So if a particular
industrial sector is subject to some other more precise Federal
privacy regime, then that set of privacy laws would apply and
the provisions of this bill would not.
A number of benefits will flow from passage of the measure.
It would assure that all Web sites and commercial users of
personally identifiable information respect privacy. While
well-known commercial sites tend to be members of self-
regulatory programs and generally respect the privacy rights of
their users, many smaller Web sites do not belong to the SROs,
and currently collect information about users without any
privacy guarantees.
All Web site operators and off-line entities which collect
information for commercial purposes other than some very small
businesses and certain nonprofit entities would be covered by
the bill that we are putting forward. By establishing only a
minimum set of guarantees, the bill fully preserves the ability
of conditions to offer higher levels of privacy and then market
these increased protections as a competitive advantage.
In my experience, consumers use privacy along with
convenience, quality, selection, price and other factors in
order to distinguish among competing electronic commerce
services. Enhanced privacy protection can become a true
competitive asset to businesses that want to step up above the
minimum guarantees required in the law.
Through the legislation that we are putting forth, Congress
would also send the powerful message that both the privacy of
our citizens as well the free flow of information for
unencumbered global electronic commerce are of paramount
concern. With the strong enforcement mechanisms in place in the
U.S. and the specific enforcement mechanisms added by this bill
the measure would assure a corset of enforceable privacy rights
for American consumers.
Mr. Chairman, I think this a valuable effort, and I want to
commend you for the work that you have done. It has been my
privilege to partner with you in this, and I hope that we can
succeed in passing the bill. Thank you.
Mr. Stearns. I thank my colleague.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Charles F. Bass, a Representative in
Congress from the State of New Hampshire
Thank you, Mr. Chairman, for holding this hearing and building on
this subcommittee's impressive record of examining the issues relevant
to privacy and the protection of consumers.
Mr. Chairman, as I look forward to today's testimony, I am anxious
to hear from the many assembled witnesses, and will thus be brief.
I am a cosponsor of this H.R. 4678 because I believe it is the best
effort any committee in either chamber has put forward to address the
legitimate problems that exist for consumers. I am particularly pleased
with the bill's:
rejection of distinction between data collected offline and
online;
with its federal jurisdictional protection of what may well be
inherently Interstate commerce; and
significant further progress on identity theft.
The combined weight of these strengths plus the clarity the bill
brings to the international trade arena make it an effort worth
supporting. I look forward to the testimony and a later opportunity to
use these comments to improve on this draft
______
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you, Mr. Chairman, and let me commend you, first of all, for
the extraordinary effort you and the Subcommittee members have put into
this complex and intricate issue of consumer privacy. I believe this
good work shows in the thoughtful, comprehensive new bill that is the
subject of today's hearing.
One reason I am a cosponsor of H.R. 4678 is because of your careful
consideration of the issue as you crafted this legislation: you have
listened to all sides, all interested parties, and worked off an
extensive record of some six privacy hearings held by this Subcommittee
this Congress. The result, I believe, promises to be a significant
enhancement of the privacy protections for American consumers when
conducting commercial transactions.
The hearing process behind this bill brought out a fact that we
must remember as we move forward: There are legitimate consumer
concerns about how companies collect and use information. There are
also actual abuses of consumer privacy occurring in the marketplace
today. Whether or not such abuses cause direct harm, they can still
harm consumer trust and confidence, which can produce a chilling effect
on the expansion of goods and services available to consumers overall.
Of course, leading companies, often those with the biggest brand
names, understand the value of protecting consumer privacy. They
realize that making consumers comfortable about their privacy practices
is good for business. They also understand that betraying consumer
trust is business suicide. If all companies were like those leading the
pack, then this legislation might not be needed.
But this is not the case. We know there are some bad actors, a
small minority of companies and individuals causing the greatest grief
for consumers. There is also a host of companies that haven't made
privacy a priority for their business. And so I think there is need for
targeted legislation to provide additional privacy protections for
consumers.
This will provide a standard level of federal law to govern privacy
of consumers in those areas not already covered by law. It brings
everyone up to the level where the good guys already are. We are going
to raise the tide.
H.R. 4678 embodies a principal that I think is essential for any
new commercial privacy legislation: promote consumers' privacy without
unfairly hampering current commercial activity and the vast consumer
benefits generated by information sharing.
The many components of this bill align well with my position on
privacy legislation. For example, I will not support a bill that takes
a medium-specific approach to privacy, such as applying only to
Internet transactions. Today's information collection activities are
not bound by any one medium. Companies generally don't build separate
databases or have differing privacy regimes based on the medium used to
collect consumer data. And we should not legislate as if they do.
We also cannot have 50 different laws for information sharing,
which will only stifle interstate commerce--a scenario that gets even
worse if localities start to jump on the bandwagon. I'm pleased, Mr.
Chairman, to see the bill takes a firm stance towards state preemption.
We must also ensure that consumers have the information they need
to make educated decisions about the information collected and used
about them. So I'm also pleased to see that H.R. 4678 includes a
detailed process to empower and educate consumers about company privacy
practices through notices and statements.
And given that the sale of information has been one of the
strongest concerns raised during the hearings, the bill appropriately
includes an important obligation to permit the consumer to preclude the
sale of information from one company to another. But it doesn't mandate
that this be either opt-in or opt-out--as broadly locking in this
decision is not in the best interest of consumers.
Because privacy intersects so many difficult issues, the list of
essential measures needed to navigate this terrain is too long to go
into here. Suffice to say, I'm also pleased to see the bill takes
solid, defendable stances on other necessary fronts.
It emphatically makes clear that self-regulation is a necessary
part of the process. It includes a lengthy and extensive self-
regulatory mechanism to allow privacy organizations to police the
actions of its members with an FTC backstop, if necessary. This should
increase compliance and ease the process consumers have to deal with to
get a problem resolved.
On the legal front: The bill bans private rights of action, which
will prevent harmful lawsuits and limit legal shenanigans. It is proper
to do this because the bill includes strong authority for the FTC to
take enforcement action against violators--and we expect vigilance by
the FTC in this matter.
Lastly, the bill would deploy new information security obligations
and has specific, targeted fixes for identity theft and an extensive
provision dealing with the international aspect of this law. All are
needed and worthy provisions.
I will encourage all Members to join this effort, and be part of
this bipartisan, balanced approach. No one should assume that every
word and comma of the bill is locked in stone. On the contrary, we will
be open to discussions on how best to improve the bill--without gutting
essential principles. If we work together perhaps we can work through
any perceived shortfalls.
Let me add that we also have no set agenda for moving the bill. We
will decide where to go after the hearing. As I stated during the
privacy hearings last year, we are set on our own, determined course
here. We certainly haven't designed this bill as a response to the
Senate's work. This measure builds on our own thoughtful process.
Thank you again Mr. Chairman, and I look forward to the witness
testimony.
Mr. Stearns. We welcome our panel. John Palafoutas, Senior
Vice President, Domestic Policy, AeA; Mr. Phillip Servidea,
Vice President, Government Operations, NCR; John Schall,
Executive Director, National Business Coalition on E-Commerce
and Privacy; Ms. Rebecca Whitener, Director of Privacy
Services, EDS Security & Privacy Services; Ms. Jennifer
Barrett, Chief Privacy Officer, Acxiom; Paul Misener, Vice
President, Global Public Policy, Amazon.com; and Mark
Rotenberg, the Executive Director of Electronic Privacy
Information Center.
Let me thank all of you for coming, and I welcome your
opening statements. We will just start from my left to my
right.
STATEMENTS OF JOHN P. PALAFOUTAS, SENIOR VICE PRESIDENT,
DOMESTIC POLICY AND CONGRESSIONAL AFFAIRS, AeA; PHILIP D.
SERVIDEA, VICE PRESIDENT, GOVERNMENT AFFAIRS, NCR CORPORATION;
JOHN A. SCHALL, EXECUTIVE DIRECTOR, NATIONAL BUSINESS COALITION
ON E-COMMERCE AND PRIVACY; REBECCA WHITENER, DIRECTOR OF
PRIVACY SERVICES, EDS; JENNIFER BARRETT, CHIEF PRIVACY OFFICER,
ACXIOM CORPORATION; PAUL MISENER, VICE PRESIDENT, GLOBAL PUBLIC
POLICY, AMAZON.COM; AND MARC ROTENBERG, EXECUTIVE DIRECTOR,
ELECTRONIC PRIVACY INFORMATION CENTER
Mr. Palafoutas. Thank you, Mr. Chairman. The first thing I
want to do is comment on the process that you employed on this
bill, which I think was extremely important. People forget in
the swirl of Internet privacy and the Internet that the
Internet is a new--it is a new medium. It is a new industry. It
is 8 years old.
And there has been a lot of hyperbole, both on our side and
on other sides, of the Internet and its use. And the process
that you and the Democratic members employ on this bill was
extremely important because you brought consumer groups in,
privacy act advocates and the high tech industry. And I can't
tell you how important that was as a model for this body, and I
hope for the other body, to use in coming up with good privacy
legislation.
We face this problem all the time at AeA. As you know--and
you spoke to our board, Mr. Chairman, on this bill a few months
ago--AeA is one of the largest high tech trade associations in
the country. And the reason we got involved in this early is
because we have operations in 18 cities around the country and
we lobby in a dozen States. And our board became concerned
because we saw the proliferation, the possible proliferation,
of privacy rules at the State level and this concerned us
because the big question of interstate commerce and the
proliferation of 50 State regimes on privacy is extremely--of
great concern to us.
And it is amplified by the fact that some of the State
legislatures are only meeting part-time, and while they are
good decent people, they are not spending the time that this
body can in coming up with the kind of legislation, getting the
kind of background that we need on this.
We saw this most clearly this past summer in Minnesota.
Minnesota and California have been the first two States to pass
Internet privacy laws. The Minnesota model is the one that
scares industry the most. It was done in a politically
overheated atmosphere. It was not a bipartisan bill. It was
being pushed through as part of the election year, and we got
what we consider as pretty bad legislation. In fact we are
going to spend a lot of resources, both time and money, in
taking this bill to court because of the issues that it brings
up.
And we are glad that this bill, with its strong preemption,
is going to provide the kind of context that the industry
needs, because now that we have a bill in California and a bill
in Minnesota, what we are concerned about at AeA is that we are
going to see more and more States using these as a template,
and they are going to go out--and now that this is the floor,
they are going to start to implement other legislation that
really causes a great concern to our industry. And because of,
again, our large lobbying activity at the State level, we have
seen that legislatures are not focused on this as they should.
The other thing that this bill highlights--and it is
important for the members to see--is, nobody is more concerned
about consumer confidence than our member companies. I need to
say that again. Nobody is more concerned about consumer
confidence than our member companies. If consumers don't have
confidence in a Web site, they are going to go somewhere else.
If they think that their information is being misused, they are
going to go somewhere else. And I think what your bill has done
is strike a proper balance in saying, Here's the rules; but,
consumers, you have responsibilities too.
So in both the preemption and in the choice provisions we
see very strong and important provisions because we believe
that consumers should have a choice. But it is a choice that is
dictated between them and the provider of the service that they
are getting over the Internet, whether it is--in this case, you
provide for an opt-out, which I think is very important.
Certain companies in our industry have an opt-in model for
their business model. We think that is perfectly appropriate.
But it should be part of that implicit and probably sometimes
explicit contract that the companies have with the consumer.
Your bill comports with our privacy principles that we have
outlined in our written testimony and we have conveyed to your
staff.
And I have to comment a little bit on your staff. I state
in my written comments the persistence and professionalism of
Ramsen. He has indeed been a junkyard dog on many of those
issues in making sure that the committee is getting all the
information that it should have. So I couldn't go by without
making that comment.
As I said, generally speaking, this bill hits our
principles. One--two issues that we are concerned about are
the--what we consider excessive penalties in the enforcement
provision, the fact that in--actually three--the fact that this
does not cover government Web sites which--and also nonprofits.
I remind you that AeA is a nonprofit organization and we do use
information at times. And we do have, as I mention in my
comments and I am sure you will hear from the other panelists,
concerns about the Safe Harbor and the EU privacy directive.
But we applaud you for this bill. It is a very strong bill,
and we look forward to working with you in the next Congress to
make it even stronger.
[The prepared statement of John Palafoutas follows:]
Prepared Statement of John Palafoutas, Senior Vice President, Domestic
Policy & Congressional Affairs, AeA
introduction
Mr. Chairman, Members of the Committee, I thank you for the
invitation to appear today to discuss the need for stronger federal
protections for consumer privacy, and comment specifically on H.R.
4678, the ``Consumer Privacy Protection Act of 2002.''
My name is John Palafoutas, and as AeA's Senior Vice President of
Domestic Policy and Congressional Affairs, I have responsibility for
policy implementation of AeA's Internet privacy initiative, as directed
by our Board of Directors.
By way of background, AeA is the nation's largest high-tech trade
association. AeA represents more than 3,000 companies with 1.8 million
employees. These 3000+ companies span the high-technology spectrum,
from software, semiconductors, medical devices and computers to
Internet technology, advanced electronics and telecommunications
systems and services. With 17 regional U.S. councils and offices in
Brussels and Beijing, AeA offers a unique global policy grassroots
capability and a wide portfolio of valuable business services and
products for the high-tech industry. AeA has been the accepted voice of
the U.S. technology community since 1943. If you'd like more
information about us and our mission, you can visit our website at
www.aeanet.org.
Mr. Chairman and Mr. Towns, I especially want to thank you both for
your leadership on the issue of Internet privacy. By seeking out
information from all corners--consumer groups, privacy advocates, and
the high tech industry--you have shown your commitment to creating
bipartisan legislation that is well rounded and responsive to the
concerns of all. I also wish to commend your committee's Majority
Counsel, Ramsen Betfarhad. In his persistence and professionalism, he
has served this Committee well.
Privacy is an especially important topic for our member companies,
as you may recall Mr. Chairman when you spoke at our Board of Directors
meeting in May of this year. Every one of our member companies'
businesses revolves around the Internet in one way or another.
Protecting online consumers is of paramount importance to our
companies. It is for this reason that AeA has been championing the
cause of strong, non-discriminatory pre-emptive federal privacy
legislation for almost two years now--something that no other trade
association can lay claim to.
As use of the Internet continues to grow, online vendors are
gathering more information about the purchasing habits of their
customers. The increase in the collection and use of this data has
raised public concern over precisely what information is being
collected about consumers, how that information is being used, and
whether it is being transferred to third parties. As a result,
addressing concerns related to the collection and use of consumer
information is becoming of increasing importance to legislators at the
state and federal levels.
E-commerce continues to be one of the driving forces behind the
growth of the U.S. and world economy. Online companies collect a
tremendous amount of information about customers in order to provide
discounted goods and services, efficiently target niche markets, and
notify customers of new products and services. Furthermore, these
personal information databases are a valuable business asset for online
companies. These companies use the databases not only to promote their
own products, but oftentimes transfer this information to third party
marketers. This allows companies to obtain and attract additional
revenue and funding for their operations. However, surveys show that
consumers are concerned over how their information is collected, used,
and distributed.
Policy makers face a dilemma in addressing two very legitimate
needs. On one side of the balance is the very real need for consumer
privacy, and on the other, the constructive actions business has
undertaken in numerous self-regulatory solutions. The role of
government is to be the balance point in the middle--assuring that
effective and enforceable solutions are implemented fairly, without
jeopardizing the beneficial uses of this information by online
companies. Caution must also be taken to assure against the adoption of
burdensome regulations that could impede the continued growth of online
commerce or patchwork state level solutions that are neither consonant
nor enforceable across a borderless medium.
The imposition of stringent privacy regulations on the Internet
could severely slow down the projected e-commerce growth. The
Department of Commerce predicts e-commerce to pass $300 billion by the
end of this year while some in private industry are predicting numbers
much higher. It is for this reason that we have put considerable
thought and effort into our privacy principles.
aea's privacy principles
We first released our Privacy Principles in January of 2001 in
order to guide federal policy makers in considering balanced, pre-
emptive privacy legislation that is sensitive to the needs of consumers
and to the Internet's economic and technical realities. These
principles have been crafted from input and advice garnered from AeA's
member companies, our Grassroots Network, and responses from town hall
meetings across the country. Overwhelmingly, the responses all
identified the grim possibility of multiple and conflicting state
privacy regulations as their top legislative concern.
Federal preemption legislation plays a crucial role in ensuring
consistency and certainty into the marketplace. The passage of Internet
privacy legislation this past year in California and Minnesota
highlights the growing need for preemption legislation. The inherent
danger is both imminent and profound. Other states are now looking to
make a template of these new laws--laws that are provincial in nature
and unconcerned with their deleterious impact on interstate commerce.
Further, only the federal government is in a position to create
uniform U.S. privacy standards that not only protect American
consumers, but that will harmonize with international privacy
directives. Federal legislation should not, however, attempt to replace
or impede constructive private sector efforts, but rather build upon
the baseline that they have laid down.
What good federal preemption language will do is protect consumers
without imposing burdensome, impractical new requirements. Poorly
crafted legislation will translate into higher consumer costs, fewer
online services, and less free content--thus hurting the same consumers
such legislation intends to benefit.
Mr. Chairman, because this legislation largely comports with AeA's
Privacy Principles, AeA believes that H.R. 4678 is generally good
legislation, and with some technical adjustments, it is something I
believe AeA member companies may support.
Legislation Should Ensure National Standards. H.R. 4678 Does This.
The Internet is a new and powerful tool of interstate commerce. Public
policies related to Internet privacy should be national in scope, thus
avoiding a patchwork of state and local mandates. This uniform
framework will promote the growth of interstate e-commerce, minimize
compliance burdens, sustain a national marketplace and make it easier
for consumers to protect their privacy.
H.R. 4678 successfully preempts state and local statutory law,
common law, and rules and regulations dealing with the use of
personally identifiable information (PII) in interstate commerce.
Legislation Should Not Discriminate Against the Internet. H.R. 4678
Doesn't. Consumers should have confidence that their privacy will be
respected regardless of the medium used. Similar privacy principles
should apply online and offline. Public policy should not discriminate
against electronic commerce by placing unique regulatory burdens on
Internet-based activities.
H.R. 4678 makes no distinction between the online and offline
worlds.
Legislation Should Provide Individuals with Notice. H.R. 4678 Does
This. Web sites that collect personally identifiable information should
provide individuals with clear and conspicuous notice of their
information practices at the time of information collection.
Individuals should be notified as to what type of information is
collected about them, how the information will be used, and whether the
information will be transferred to unrelated third parties.
Because H.R. 4678 requires data collectors who sell customer PII to
post notice at the time of data collection, consumers will know that
the collector's practices may raise an issue of consumer privacy, and
allows them to find out exactly what those practices are. Further, H.R.
4678 sets out the requirements for what the notice must contain, as
well as allowing the FTC to issue guidelines and advisory opinions.
Legislation Should Ensures Consumer Choice. H.R. 4678 Does This.
Consumers should have the opportunity to opt out of the use or
disclosure of their personally identifiable information for purposes
that are unrelated to the purpose for which it was originally
collected. Consumers should be allowed to receive benefits and services
from vendors in exchange for the use of information. It is important
that the consumer understands this use and is able to make an informed
choice to provide information in return for the benefit received.
H.R. 4678 mandates that all data collectors shall allow consumers
to opt-out of the sale of their PII to non-affiliated third parties,
and the withholding of consent will last five years.
Legislation Should Leverage Market Solutions. H.R. 4678 Does This.
Private sector privacy codes and seal programs are an effective means
of protecting individuals' privacy. Lawmakers should recognize and
build upon the self-regulatory mechanisms the private sector has put in
place and continues to build. These mechanisms are backed by the
enforcement authority of the Federal Trade Commission and state
attorneys general. Public policies also should allow organizations to
implement fair information practices flexibly across different mediums
and encourage innovation and privacy enhancing technologies.
H.R. 4678 rewards participation in recognized seal programs by
placing the burden of proving non-compliance on the FTC, as well as
allowing for the use of binding private arbitration.
Legislation Should Utilize Existing Enforcement Authority. H.R.
4678 Does This. With the imposition of notice requirements, the Federal
Trade Commission should use its existing authority to enforce the
mandates of federal legislation. Legislation should not create any new
private rights of action.
H.R. 4678 provides that any violation will be an unfair or
deceptive act under Sec. 5 of the Federal Trade Commission Act, thus
not adding new sanctions into the already expanding pantheon of
penalties. However, H.R. 4678 imposes strict monetary penalties that we
believe are excessive, especially the doubling of civil penalties.
Legislation Should Avoid Conflicting or Duplicative Standards. H.R.
4678 Does This. In cases where more than one government agency seeks to
regulate the privacy practices of a particular organization or
industry, those agencies should offer a single coordinated set of
standards.
H.R. 4678 ensures that organizations complying with other federal
privacy laws dealing with the protection of a consumer's PII are deemed
to be in compliance with this act.
aea does have some concerns with h.r. 4678:
H.R. 4678 Does Not YET Protects Consumers in the Public and Private
Arena. Government and non-profit organizations collect a tremendous
amount of personally identifiable information about citizens. The need
to foster consumer confidence applies to private and public sector
activities. Government agencies and non-profit organizations that
collect personally identifiable information should be required to
follow fair information practices imposed on the private sector by law
or regulation. It is well known that consumer information gleaned from
government websites is often traded to third-parties without notice or
consent. We believe this to be an unacceptable practice. H.R. 4678
should hold all government websites--federal, state, and local--to the
same high standards imposed upon private industry.
H.R. 4678 May Have a Negative Impact on the EU Data Protection Safe
Harbor. Back in 2000, a safe harbor was negotiated that would provide
U.S. companies with protection from the EU Data Protection if they
agreed to abide by the privacy principles included in the Safe Harbor.
The EU only agreed to the U.S.'s self-regulatory approach if the FTC
provided the enforcement mechanism for those companies that signed up
for the safe harbor. As it stands today, 242 American corporations have
signed up for the Safe Harbor, and many of those companies are AeA
Members. Further investigation needs to be undertaken to determine if
H.R. 4678 will harmonize with the EU Data Directive, and if it doesn't
then if it will not jeopardize the negotiated Safe Harbor now in place.
It is one thing to say that we are in compliance with the European Data
Directive, and it is quite another to convince the Europeans of that
fact.
We believe that while these concerns are not fatal to the bill at
hand, they do present very important questions that do need to be
addressed before our unqualified support can be given to H.R. 4678. My
staff and I will be happy to work with you and the Subcommittee in
taking up these issues.
Mr. Chairman, thank you for the opportunity to testify on H.R.
4678. AeA looks forward to working with the Committee in developing--
and passing--practicable consumer privacy protection, if not in this
Congress then in the next. I would be pleased to answer any questions
that you may have.
Mr. Stearns. I thank you.
Mr. Servidea.
STATEMENT OF PHILIP D. SERVIDEA
Mr. Servidea. Mr. Chairman, Representative Harman, members
of the subcommittee, I am Phil Servidea, Vice President of
Government Affairs for NCR Corporation. Thank you for the
invitation to testify before your subcommittee today.
NCR's heritage for providing solutions for retail and
financial industries goes back almost 120 years to its founding
as the National Cash Register Company. Today, NCR is one of the
world's largest suppliers of solutions that enable transactions
between consumers and businesses, be it in stores, through
self-service terminals or over the Internet.
Mr. Chairman, NCR's corporate slogan, ``Transforming
Transactions Into Relationships,'' speaks to the importance we
place on consumer protection in our solutions. So the subject
of today's hearing is important to NCR as it is to all of us,
since we are all consumers.
I am also the working chair of the Privacy Task Force of
the Computer Systems Policy Project, or CSPP. CSPP is the
Nation's leading advocacy organization, comprised exclusively
of CEOs of the information technology industry. We have worked
closely with the chairman and the committee staff in the
formation of H.R. 4678.
We commend the chairman on the deliberative process used to
craft the legislation. Businesses collecting information about
their customers is not new. Your grandmother's butcher probably
knew not only her name and her favorite cuts of meat, but also
how the children were doing in school. We used to call it
friendly, personal service at a time when businessmen and their
customers were also neighbors.
Today, technology makes it possible for companies thousands
of miles away to also serve their customers better. The growth
of data collecting is fueling the global debate over privacy,
creating a tension between consumers sharing personal
information and businesses' attempts to serve them more
effectively and personally.
The benefits to consumers of personalized service and the
protection of their personal data are not incompatible.
Consumers should and must have control over the use of their
personal data. The protection and appropriate use of personal
information is a growing concern for consumers and businesses
alike. To ensure continued success and growth, it is important
for companies to address privacy as an important consumer
expectation.
One fundamental necessity of commerce, both traditional as
well as e-commerce, is trust. Without trust, businesses cannot
survive. Businesses that do not heed the expectations of their
customers will quickly lose trust, and ultimately their
viability. Quite simply, the business of privacy is good
business.
Consumers in control of their data may freely choose the
release of their personal information in return for better
choices or services. I suspect that each of us as airline
passengers would not mind being offered an upgrade at the gate
because the airline agent knows that we experienced a flight
cancellation days earlier.
Most companies are doing the right thing in providing
privacy options. But as long as there is potential short-term
gain in abusing personal information, can we count exclusively
on company volunteerism to prevent abuse. While many company
executives shudder at the thought of more regulation, their
companies and their customers alike will be better served if
industry and government work together toward rational and
uniform rulings that are fair to all.
NCR believes that the right legislation built on top of
market-driven solutions can assure that all consumers are
afforded this protection.
Presently Federal privacy laws exist which govern specific
industry sectors, protect sensitive information and target
specific harmful or fraudulent behaviors. But in the U.S. there
is no single, broad-based law that affects the use of personal
data, which is why we are here today.
But what type of legislation can work? The CSPP has
advanced a set of four principles for such legislation. I would
like to comment on two of those. First, legislation must be
comprehensive and apply with appropriate flexibility to
personal data, whether collected online, over the telephone or
in face-to-face commercial transactions. To enact legislation
that applies only to on-line activities would mislead the
American consumer.
As a supplier of business intelligence solutions, NCR
knows, as the chairman said, that click-and-mortar firms do not
distinguish between personal data obtained through different
channels. Further, on-line transactions account for only a
small fraction of consumer transactions, last year less than 1
percent. Also, as technologies merge, such as the Internet and
wireless technologies, the distinction between online and
offline is blurring.
Simply put, when it comes to customer's rights, data is
data.
Second, the legislation must recognize that markets,
particularly on the Internet, are national in scope. One only
need recall the endless mailings from banks implementing Gramm-
Leach-Bliley to imagine the morass of legal uncertainty that
would ensue if both State and Federal legislation purported to
govern consumers' rights for personal data protection. Federal
legislation in this area should preempt State and local law.
Mr. Chairman, and Ranking Member Towns, while I have
commented on only two principles, I am proud to say that your
bill, overall, effectively balances consumer and business
interests. H.R. 4678 requires clear and conspicuous disclosure
of businesses' privacy practices and enables individuals to
make informed choices about sharing their personal information.
During NCR's long history, a lot of things have changed,
but its philosophy has not. If you want your customers' trust,
you have to respect your customers' privacy. In summary, NCR is
pro-privacy. H.R. 4678 is a step in the right direction, and we
look forward to working with the subcommittee toward the bill's
enactment.
Thank you, Mr. Chairman, for holding this hearing today.
Thank you for your hard work on drafting H.R. 4678.
[The prepared statement of Philip D. Servidea follows:]
Prepared Statement of Philip D. Servidea, Vice President of Government
Affairs, NCR Corporation; Chair, Networked World Committee, Computer
Systems Policy Project
Mister Chairman, Representative Towns, and members of the
Subcommittee, I am Phil Servidea, Vice President of Government Affairs
for NCR Corporation. Thank you for the invitation to testify before
your Subcommittee today.
NCR's heritage in providing solutions for retail and financial
industries goes back almost 120 years to its founding as the National
Cash Register Company. Today, NCR is one of the world's largest
suppliers of solutions that enable transactions between consumers and
businesses, whether in stores, through self-service terminals, or over
the Internet.
Mister Chairman, NCR's corporate slogan, ``Transforming
Transactions Into Relationships'', speaks to the importance we place on
consumer protections in our solutions. So, the subject of today's
hearing is important to NCR, as it is to all of us since we are all
consumers.
I am also the Working Chair of the privacy task force of the
Computer Systems Policy Project, or CSPP. CSPP is the nation's leading
advocacy organization comprised exclusively of CEOs of the information
technology industry. We have worked closely with the Chairman and
Committee staff in the formation of HR 4678. We commend the Chairman on
the deliberative process used to craft this legislation.
Businesses collecting information about their customers is not new.
Your grandmother's butcher probably knew not only her name and her
favorite cuts of meat, but how the children were doing in school, as
well. We used to call it ``friendly, personal service'' at a time when
businessmen and their customers were also neighbors.
Today, technology makes it possible for companies thousands of
miles away to also serve their customers better. The growth in data
collecting is fueling the global debate over privacy; creating a
tension between consumers' sharing personal information and business'
attempt to serve them more effectively and personally.
The benefits to consumers of personalized service and the
protection of their personal data are not incompatible; consumers
should and must have control over the use of their personal data.
The protection and appropriate use of personal information, is a
growing concern for consumers and businesses alike. To ensure continued
success and growth, it's important for companies to address privacy as
an important consumer expectation. One fundamental necessity of
commerce, both traditional as well as e-commerce, is trust. Without
trust, businesses cannot survive. Businesses that do not heed the
expectations of their customers will quickly lose trust, and ultimately
their viability. Quite simply, the business of privacy is ``good
business''.
Consumers in control of their data may freely choose the release of
their personal information in return for better choices or services. I
suspect that you as an airline passenger would not mind being offered
an upgrade at the gate because the airline agent knows you experienced
a flight cancellation days earlier.
Most companies are doing the right thing in providing privacy
options. But as long as there is potential short-term gain in abusing
personal information, can we count exclusively on company voluntarism
to prevent abuse? While many company executives shudder at the thought
of more regulation, their companies and their customers alike will be
better served if industry and government work together toward rational
and uniform rules that are fair to all. NCR believes that the right
legislation built on top of market-driven solutions can assure that all
consumers are afforded this protection.
Presently, federal privacy laws exist which govern specific
industry sectors, protect sensitive information, and target specific
harmful or fraudulent behaviors. But in the U.S. there is currently no
single, broad-based law that affects the use of personal data, which is
why we are here today.
But what type of legislation can work? CSPP advanced a set of core
principles for such legislation. I would like to comment on two of
those principles.
First, legislation must be comprehensive and apply, with
appropriate flexibility, to personal data, whether collected online,
over the telephone or in face-to-face commercial transactions. To enact
legislation that applies only to online activities would mislead the
American consumer. As a supplier of business intelligence solutions,
NCR knows that click-and-mortar firms do not distinguish between
personal data obtained through different channels. Further, online
transactions account for only a small fraction of consumer
transactions, last year less than one percent. Also, as technologies
merge, such as the Internet and wireless technologies, the distinction
between online and offline is blurring.
Simply put, when it comes to consumers' rights, data is data.
Secondly, legislation must recognize that markets, particularly on
the Internet, are national in scope. One only need recall the endless
mailings from banks implementing Gramm-Leach-Bliley to imagine the
morass and legal uncertainty that would ensue if both State and federal
legislation purported to govern consumers' right for personal data
protection. Federal legislation in this area should preempt State and
local law.
Mister Chairman and Ranking Member Towns, while I have commented on
only two principles, I am proud to say that your bill overall
effectively balances consumer and business interests. HR 4678 requires
clear and conspicuous disclosure of business' privacy practices and
enables individuals to make informed choices about sharing their
personal information.
During NCR's long history, a lot of things have changed, but its
philosophy has not--if you want your customers' trust, you have to
respect your customers' privacy. In summary, NCR is pro-privacy. HR
4678 is a step in the right direction and we look forward to working
with the Subcommittee toward the bill's enactment.
Thank you, Mister Chairman, for holding this hearing today and
thank you for your hard work on drafting HR 4678.
Mr. Stearns. And I thank you for your compliments.
Mr. Schall.
STATEMENT OF JOHN A. SCHALL
Mr. Schall. Mr. Chairman, thank you for the opportunity to
discuss the Consumer Privacy Protection Act. I am John Schall,
the Executive Director of the National Business Coalition on E-
Commerce and Privacy. We are 15 widely recognized companies
dedicated to the pursuit of a balanced and uniform national
privacy policy.
We are engaged in virtually every sector in the economy and
in every geographic location in the country, with over 40
million customers. We are both online and offline, and we are
both financial and nonfinancial companies, companies like
General Motors, John Deere, Home Depot, General Electric,
Charles Schwab.
We believe that H.R. 4678 moves the privacy debate in a
positive direction; and we would like to thank you, Mr.
Chairman, for the enormous amount of work that you and your
staff have put into crafting this legislation.
The straightforward step of letting consumers know how
information is going to be used is the single most important
thing we can do in the area of privacy. A well-informed
customer is the heart of the matter because knowledge empowers
the consumer.
I will focus my remarks today on three areas. One, creation
of a uniform national privacy standard; two, the equal
treatment of on-line and off-line information; and three,
private rights of action.
A patchwork of State laws would pose a significant
disincentive for companies that would be forced to navigate a
sea of conflicting local laws. Mr. Chairman, over 548 bills
were introduced in the 50 State legislatures this year dealing
with privacy; that is 548 different approaches to what 50
different State jurisdictions ought to do with the single issue
we are discussing here today. And if that weren't enough,
numerous local jurisdictions are now also jumping in to tackle
the privacy question.
In Ms. Harman's home State of California, for example, San
Mateo County and Daly City have both just passed their own
privacy laws. And six more counties and cities in just the San
Francisco area are expected to do so in the coming months,
coming weeks. And surely there will be more after that.
Remember, there are almost 100,000 local government
jurisdictions in the United States. I am not sure I even want
to contemplate how a company could comply in 50 different
States and 100,000 different localities.
I would also add that those who argue that they seek a
Federal privacy law to create, quote, ``a floor but not a
ceiling'' are begging the question of fundamental fairness. A
world of floors and ceilings will result in conflicting
standards that benefit some consumers and punish others merely
because of geographic location. We wish to strongly impress
upon the Congress, then, the urgent need to pass legislation
that preempts both State and local laws and provides a uniform
privacy standard across the Nation.
Second, all our companies operate both online and offline,
and we are pleased that this bill treats both types of
information in the same way. Making a distinction between
online and offline would present real difficulty. As a general
rule, all information collected by companies, either online or
offline, is stored in the same system. No distinction is made
based on where the information is collected.
And such a distinction becomes an exercise in hair-
splitting. If information is collected in person and then
stored online, is that online or offline? What if the
information is transmitted from a telephone to a computer? I
mean, these are the sorts of Solomonic judgments that could
keep the courts busy for years.
Third, we are pleased that H.R. 4678 does not permit
private rights of action at a time when everyone agrees that
our society is already far too litigious. The Federal Trade
Commission has recognized that existing enforcement authority
deals with most violations of privacy law.
Opening the door to private rights of action would result
in unnecessary lawsuits and a clogged legal system. Instead,
H.R. 4678 more appropriately creates a Self-Regulatory
Organization process with binding arbitration.
I would also point out that under this bill the States
would still have private rights of action and the litigation
authority vested in them through the many FTC acts.
Mr. Chairman, H.R. 4678 is the most promising alternative
currently pending in the Congress. We would like to suggest,
however, some potential sand traps to avoid and a few drafting
improvements in the bill. For example, the opt-out provisions
of the bill should apply to the use of information and not to
the collection of information. Likewise, our companies who all
deal in both on-line and off-line transactions and both the
business-to-business and the business-to-consumer environments
would like it to be more explicit that this bill applies to
business-to-consumer relationships only. We believe it would
also be helpful to prohibit class action lawsuits.
Finally, unnecessary access provisions are best avoided
because they could, ironically, create perverse incentives for
companies to centrally maintain exactly the sort of customer
profiles that we all seek to avoid.
So, Mr. Chairman, on behalf of the National Business
Coalition on E-Commerce and Privacy, I would like to
congratulate you on striking a sensible balance between the
privacy of the consumer and the needs of the business
community. And thank you.
[The prepared statement of John A. Schall follows:]
Prepared Statement of John A. Schall, Executive Director, National
Business Coalition on E-Commerce and Privacy
Mr. Chairman and Members of the Subcommittee, on behalf of the
members of the National Business Coalition on E-Commerce and Privacy, I
want to thank you for permitting me the opportunity to discuss our
views on HR 4678, the Consumer Privacy Protection Act of 2002. We
believe that this is an important piece of legislation with profound
consequences not only for e-commerce specifically, but for the economy
as a whole.
The National Business Coalition on E-Commerce and Privacy, of which
I am the Executive Director, is comprised of 15 widely recognized
companies dedicated to the pursuit of a balanced and uniform national
policy pertaining to electronic commerce and privacy. We are engaged in
virtually every sector of the economy and in every geographic location
in the country, with over 40 million customers. We deliberately created
a diverse coalition because the privacy issue is not just restricted to
the financial services industry or the health care community, but
touches on every sector of our economy.
We believe that we are the only coalition whose membership includes
financial and non-financial companies. Our wide range of companies are
in manufacturing, like General Motors and John Deere Corporation;
retail, like Home Depot; hospitality, like Six Continents Hotels;
media, like General Electric; as well as some insurance and financial
services companies such as Charles Schwab. These and our other members
are all top competitors in the e-commerce marketplace, who use the
Internet as an essential component of their ability to deliver goods
and services to their customers.
Our members have spent decades developing respected brand names and
cultivating mutual trust with their customers, and I can assure every
member of this Subcommittee that we are strongly committed to ensuring
the privacy of our customers both on-line and off-line.
It is for that reason that we are very encouraged by the provisions
of HR 4678. We believe this bill moves the privacy debate in a positive
and useful direction, and the Coalition would especially like to thank
you, Mr. Chairman, for the enormous amount of work that you and your
staff have put into analyzing the complexities of the privacy issue and
in crafting this legislation.
The Coalition is pleased that HR 4678 lays out a clear-cut and
balanced privacy policy for the nation. By requiring the prominent
posting of, and by requiring adherence to, a company's privacy
policies, it is our view that HR 4678, more than any other piece of
legislation currently before the Congress, assures that consumers have
the information that they need in order to make informed choices about
the use of personal information that pertains to them. A well-informed
consumer is the heart of the matter because in a free market economy,
knowledge empowers the customer. And we believe that the simple and
straightforward step of letting consumers know how information is going
to be used is the single most important and useful thing that we can do
in the area of privacy.
I will focus my remarks today on three areas that our Coalition
deems especially important: 1) the creation of uniform national privacy
standards; 2) the equal treatment of off-line and on-line information;
and 3) private rights of action. We are pleased to see that HR 4678
deals with each of these vital issues in a balanced and sensible way.
By creating uniformity of state and local privacy laws, we believe
HR 4678 demonstrates an appropriate appreciation of the nature of e-
commerce and the modern economy. An economy in which orders for new
products and services can be made at the touch of a button. An economy
that allows a customer in Oregon to purchase a product in Florida in a
matter of mere seconds. An economy that is, in a very real way, an
economy without borders.
A patchwork of state and local laws would pose an enormous burden
to, and fragmentation of, our economy. This would be a significant
disincentive for companies to participate in the e-commerce
marketplace, especially smaller companies, since they would be forced
to navigate a sea of sometimes conflicting state and local privacy
laws. Furthermore, the costs of complying with such conflicting laws
would, more likely than not, be passed on to the consumer.
Mr. Chairman, in the 50 states this year, over 548 privacy bills
were introduced in the state legislatures. That's 548 different
approaches to what 50 different state jurisdictions ought to do about
the single issue we're discussing here today.
And if that weren't enough, numerous local jurisdictions are now
also jumping in and beginning to tackle the question of privacy. For
example, in the State of California, San Mateo County and Daly City
have both just passed their own privacy laws, with San Francisco,
Berkeley, Marin County, Contra Costa County, and Alameda County all
expected to do so in the coming weeks. And that's within just the San
Francisco Bay Area. Surely there will be more after that. Remember,
there are almost 100,000 local government jurisdictions in the United
States. I'm not sure I want to even contemplate how a company could
comply with 50 states multiplied by 100,000 localities multiplied by a
minimum of 548 different privacy policies.
Obviously, this is a recipe for a disjointed and inefficient
marketplace. We, therefore, wish to strongly impress upon the Congress
the urgent need to pass legislation with strong Federal preemption of
both state and local laws. We believe that only by effectively
providing a uniform privacy standard across the nation, will the
Congress be able to avoid the problems that would accompany a multitude
of legal requirements, with all of the ultimately unworkable
administrative requirements that would imply.
I would also add, Mr. Chairman, that those who argue that they seek
a Federal privacy law to create ``a floor but not a ceiling,'' are
begging a fundamental question of fairness. If privacy is to mean
anything it is as a guarantee of certainty that consumers may know the
rules of the road wherever they go in our economy. Far from being a
protection of privacy, the ``floor and not a ceiling'' argument will
result in confusion and conflicting standards that will benefit some
consumers and punish others almost at random because of the mere
accident of geographical location. In the world of floors and ceilings,
where you live will be more important to your privacy than who you are.
Secondly, the Coalition is greatly pleased to see that HR 4678
treats information gathered on-line and off-line in the same way. Every
one of our member companies operates both on-line and off-line, as
does, I assume, almost every major American company, as well as a
number of smaller ones. While we appreciate that those Members of
Congress who seek to make a distinction between on-line and off-line
information believed that they are assisting certain portions of the
business community, the truth is that doing so, in fact, would be
enormously burdensome and presents some very real difficulties.
To begin with, as a general rule, all information collected by
companies either on-line or off-line is stored in the same system.
Often no distinction is made based on where the information is
collected. To create such a distinction in law would be to invite
enormous record keeping and financial burdens for private industry, to
no practical real world benefit for the consumer.
Furthermore, to create such a distinction becomes an exercise in
the most profound hair splitting. Is information collected in person
and then stored online considered online or offline? What if the
information is collected over the telephone, or through a computer? Or
transmitted from a telephone to a computer? These are the kinds of
Solomonic judgments that will keep the courts busy for years if a
distinction is made between on-line and off-line information.
By treating similar information gathered on-line and off-line in
the same way, HR 4678 sensibly balances the needs of industry with the
privacy of the consumer, and assures the protection of both with a
minimum of ambiguity.
Thirdly, we are greatly pleased that HR 4678 does not permit
private rights of action at a time when everyone agrees that our
society is already far too litigious. The Coalition is well aware that
this matter of private rights of action will be highly controversial
and is an outgrowth of broader legal reform issues facing the Congress.
But the likely result of a private right of action would be to dissuade
companies from relying on e-commerce, or more likely, it would cause
them to hedge their bets against frivolous lawsuits by adding costly
procedures and protections. Such procedures and protections would not
measurably aid consumers, but their costs would be passed on in the
form of higher prices and reduced service.
In the context of privacy, there is concrete evidence to show that
existing law has more than sufficed to protect consumer interests. The
Federal Trade Commission has recognized that existing enforcement
authority deals with most violations of privacy law and opening the
door to private rights of action would simply create an environment
conducive to even more unnecessary lawsuits in an already clogged and
expensive legal system. I would also point out that under this bill,
the states would still have existing private rights of action and the
litigation authority already vested in them through the mini-FTC Acts.
Instead of creating a new private right of action, HR 4678 more
appropriately creates a Self Regulatory Organization (SRO) process in
which arbitration may be binding. This possibility of binding
arbitration is critical--otherwise the SRO process would represent
little more than yet another expensive layer of compliance.
Mr. Chairman and Members of this Subcommittee, HR 4678 is a
reasoned and measured step forward in the privacy debate, and the most
promising alternative currently pending in the Congress. We would like
to suggest, however, some potential sandtraps to avoid and some
drafting improvements to HR 4678, where possible.
For example, we would highlight the need to apply the opt-out
provisions of the bill to the use of information, rather than to the
collection of information, as the bill currently requires. Likewise,
our Coalition companies, who all deal in both the business-to-business
and the business-to-consumer environments, would like it to be made
more explicit that HR 4678 applies to business-to-consumer
relationships and not to business-to-business transactions. With regard
to remedies and enforcement, we believe that it would be helpful to
explicitly prohibit class action lawsuits. Finally, unnecessary access
provisions are best avoided because they could ironically create
perverse incentives for companies to centrally maintain exactly the
sort of customer profiles that we all seek to avoid.
Mr. Chairman and Members of this Subcommittee, once again, on
behalf of the National Business Coalition on E-Commerce and Privacy, I
would like to congratulate you on your leadership in successfully
moving the privacy debate forward and in drafting HR 4678. We believe
that with this legislation, you have taken a singularly positive step,
and that you have struck a prudent and sensible balance between the
privacy of the consumer and the needs of the business community. We
hope to be able to continue to work with you as the privacy debate
develops, and I would now be happy to answer any questions that you may
have.
Attachment
national business coalition on e-commerce and privacy
Member Companies: American Century Investments; AMVESCAP;
CheckFree; CIGNA; Deere & Company; Dupont; Fidelity Investments;
Fortis, Inc.; General Electric; General Motors; The Home Depot;
Investment Company Institute; MBNA America; Charles Schwab & Company;
and Six Continents Hotels
Mr. Stearns. Yes, thank you, John.
Ms. Whitener. Welcome.
STATEMENT OF REBECCA WHITENER
Ms. Whitener. Thank you, Mr. Chairman. It is a pleasure to
be here today to discuss H.R. 4678, the Consumer Privacy
Protection Act of 20020.
As Director of Privacy Services for EDS, I am responsible
for the global strategy, the service line offering development
and the methodology for EDS clients' focused privacy services.
Mr. Chairman, H.R. 4678 is a culmination of many hearings
and discussions with people of different points of view. You
have proceeded carefully and are to be commended for that
approach. Your bill understands that the protection of privacy
and data and the ability to share information are good for
business and consumers alike.
EDS's Chairman and CEO, Dick Brown, is chairman of the
Digital Economy Task Force of the Business Roundtable. That
task force has made several recommendations on how we should
proceed in ensuring that any legislative remedies do not impede
electronic commerce.
First, do not hinder self-regulation efforts of industry to
give consumers informed choice. By and large, industry has done
a good job. If a company decides to share information in a
perceived detrimental way, the market is pretty quick to act.
Second, ensure consistency and certainty in the marketplace
through a national standard in rules. Without strong Federal
preemption, there will be confusion among consumers, and
business will reconsider engaging in electronic transactions.
Next, have one Federal agency responsible for regulating
consumer privacy. Again, it is unrealistic to expect business
and consumers to coordinate with multiple entities.
Four, treat e-commerce as any other form of commerce. The
Internet is becoming so ingrained in business processes that e-
commerce should not be singled out for any special regulatory
treatment.
Fifth, keep a level, consistent playing ground between
government and business. Do not prohibit the selling of
information by ABC Book Company while allowing the Department
of Motor Vehicles to sell driver's license information.
Finally, there should not be any new private right of
action. It is just not necessary. The market and existing laws
and regulations will do the job.
Mr. Chairman, H.R. 4678 goes a long way to meeting those
requirements, and it encompasses much of what EDS has included
in its global privacy and data protection policies. We are
especially pleased to see that you have addressed security
concerns in your legislation. Cyber security continues to be a
growing problem and there are significant indications that more
should be done to protect data and networks.
The numbers are staggering. In 2000 computer, viruses
worldwide cost $17.1 billion in damages. EDS alone encounters
more than 650 attempted break-ins and three new viruses every
day on servers that it runs for 2,500 clients. A major virus
like ``Code Red'' or ``ILOVEYOU'' costs billions to eliminate,
the release last week of the President's National Strategy to
Secure Cyberspace is a step in the right direction. It
highlights many of the areas that must be addressed so that
consumers can be confident that their transactions and
information shared with government and businesses are secure.
Now onto some specific comments about section 105: In
paragraph a(2) we agree with your requirement that senior
management consider and improve an information security policy.
Security awareness needs to be raised in the consciousness of
senior management, and this will go a long way to that end.
Paragraph a(3)(B) makes a great deal of sense. Most
organizations have someone responsible for IT security, but in
many cases they aren't designated or there are unclear lines of
responsibility.
Paragraph b(1), there are a number of sources that can be
used for timely notification. We believe in flexibility as to
the source of a notification and a corrective action taken,
which is more clearly outlined in the exceptions in 105 b(2).
This will provide a broadened approach based on company policy.
Paragraph b(1), corrective action implies that there is an
effective process within an organization to monitor threat
warnings and know when to effectively apply remediation. This
is a critical security capability.
In paragraph c the process for how the Commission will base
the decision to hold the organization culpable in violating
section 105 is unclear. We agree on the importance of the role
placed on self-regulatory programs as defined in section 106.
In e, the requirement for regular compliance testing which
shall take place not less frequently than every 4 years ensures
self-reviews and self-certifications are accurate. Companies
should be given the choice of addressing this compliance
testing through their own internal audit programs, through
privacy consultants and through public accounting firms.
We would be glad to work with your staff on these points.
Mr. Chairman, we appreciate the opportunity to testify on
H.R. 4678. We want to continue working with you next year on
this legislation. If it becomes necessary to pass a consumer
privacy bill, then we want to make sure that it supports the
growth of additional economy rather than placing roadblocks in
the way and limiting those who can enjoy the benefits of the
new economy.
Thank you.
[The prepared statement of Rebecca Whitener follows:]
Prepared Statement of Rebecca Whitener, Director of Privacy Services,
EDS Security and Privacy Services
Thank you Mr. Chairman.
It is a pleasure to be here today to discuss HR 4678, the Consumer
Privacy Protection Act of 2002.
I am Rebecca Whitener, Director of Privacy Services for EDS. In
that capacity I am responsible for the global strategy, service line
offering development, and methodology for EDS client-focused Privacy
services. Prior to joining EDS, I was a co-founder and Chief Operating
Officer of Fiderus, a Security and Privacy Consulting firm, and before
that a Principal in charge of global privacy services at IBM. In my
career, I have worked with companies around the world to develop
business solutions for security and privacy. In 2000; I had the
privilege of serving on the Federal Trade Commission Advisory Committee
for Online Access and Security.
Privacy is one of those issues that generate a great deal of
passion in any discussion. We Americans have always viewed privacy as a
core principle of our society and democratic way of life. We hold
privacy dear and defend it with great vigor when we believe it is
threatened.
But the Digital Economy, with all its promises, poses interesting
dilemmas on our view of privacy. For instance, do we consider an online
bookseller sending us an e-mail about a release from our favorite
author an invasion of privacy or effective marketing? Do we feel that
the selling of information to a third party so that we can be made
aware of a new product is an abuse of consumer trust or an important
source of information?
Mr. Chairman, HR 4678 is the culmination of many hearings and
discussions with people of different points of view. You have proceeded
carefully and are to be commended for that approach. Your bill
understands that the protection of privacy and data and the ability to
share information, are good for business and consumers alike.
EDS' Chairman and CEO Dick Brown is chairman of the Digital Economy
Task Force of the Business Roundtable. That task force has made several
recommendations on how we should proceed in ensuring that any
legislative remedies do not impede electronic commerce.
First, do not hinder self-regulation efforts of industry to give
consumers informed choice. By and large, industry has done a good job.
If a company decides to share information in a perceived detrimental
way, the market is pretty quick to act.
Second, ensure consistency and certainty in the marketplace through
a national standard in rules. Without strong federal preemption there
will be confusion among consumers, and business will reconsider
engaging in more efficient, electronic transactions. Many states are
now pursing their own legislative remedies and the patchwork of laws
that may emerge will surely be a roadblock to the Digital Economy.
Next, have one federal agency responsible for regulating consumer
privacy. Again, it is unrealistic to expect business and consumers to
coordinate with multiple entities.
Fourth, treat e-commerce as any other form of commerce. The
Internet is becoming so ingrained in business processes that e-commerce
should not be singled out for any special regulatory treatment.
Unfortunately, there are those who seek to discriminate against this
way of doing business.
Fifth, keep a level, consistent playing ground between government
and business. Do not prohibit the selling of information by the ABC
book company while allowing the Department of Motor Vehicles to sell
drivers' license records.
Finally, there should not be any new private right of action. It is
just not necessary. The market and existing laws and regulations will
do the job.
Mr. Chairman, HR 4678 goes a long way to meeting these
requirements. And it encompasses much of what EDS has included in its
Global Privacy and Data Protection Policies.
There are, however, several specific issues I would like to
highlight in certain sections of the bill.
In Section 101, Privacy Notices to Consumers, subsection b (Forms
and Content of Notice), point two could also include a physical mail
address as an option for obtaining a privacy statement. In that same
subsection, point three would be strengthened if it read ``If the
notice is required under subsection (a)(2), a statement that there has
been a material change in the organization's privacy policy, and where
in the privacy policy the change(s) have occurred.
A comment on Section 109, Effect on Other Laws, subsection d. This
is most welcome as we see states passing inconsistent privacy laws. The
other thing we are seeing is that some counties and even cities are
contemplating passing laws because they don't think the state laws do
the right job. If cities start doing the same thing then we will never
know what law prevails. Preemption must be part of any legislation.
In the Improved Identity Theft Data section, a reflection of some
of the best practices that are starting to appear in the proposed state
measures may be useful, particularly as they relate to the use of
social security numbers.
In Section 304, Harmonization of International Privacy Laws,
Regulations and Agreements, the approach is on target. Businesses
should have the freedom to operate globally under harmonized laws.
Processes that leave the door open for a claim of inadequacy and that
continue a bilateral agreement do little to promote e-commerce.
We are especially pleased to see that you have addressed security
concerns in your legislation. Cyber security continues to be a growing
problem and there are significant indications that more should be done
to protect data and networks.
The numbers are staggering. In 2000, computer viruses worldwide
cost $17.1 billion in damages. EDS alone counters more than 650
attempted break-ins and three new viruses every day on servers it runs
for 2500 clients. A major virus like Code Red or ILOVEYOU costs
billions to eliminate.
The release last week of the President's National Strategy to
Secure Cyberspace is a step in the right direction. It highlights many
of the areas that must be addressed so that consumers can be confident
that their transactions and information shared with government and
business are secure.
As part of our education effort on the urgency of protecting our
economic infrastructure, we are submitting a high level security and
privacy checklist that can be used by companies, organizations and
governments. It may seem simple and straightforward but we find a
number of entities needing advice about the basic steps.
Now on to some specific comments about Section 105.
In paragraph a(2) we agree with the requirement that senior
management consider and approve an information security policy.
Security awareness needs to be raised in the consciousness of senior
management and this will go a long way to that end.
Paragraph a(3)(B) makes a great deal of sense. Most organizations
have someone responsible for IT security but in many cases they aren't
designated or there are unclear lines of responsibility.
Paragraph b(1): There are a number of sources that can be used for
timely notification. We believe that flexibility as to the source of
the notification and the corrective action taken, which is more clearly
outlined in the Exceptions in 105(b)(2). This will provide a broadened
approach based on company policy.
Paragraph b(1): Corrective action implies that there is an
effective process within an organization to monitor threat warnings and
know when to effectively apply remediation. This is a critical security
capability.
In Paragraph c, the process for how the Commission will base a
decision to hold the organization culpable in violating Section 105 is
unclear.
We agree on the importance of the role placed on self-regulatory
programs as defined in Section 106. In (E) the requirement for
``regular compliance testing which shall take place not less frequently
than every 4 years'' to ensure self-reviews and self-certifications are
accurate. Companies should be given the choice of addressing this
compliance testing through their own Internal Audit programs, through
privacy consultants, and through public accounting firms.
We would be glad to work with your staff on these points.
Mr. Chairman, we appreciate the opportunity to testify on HR 4678.
We want to continue working with you next year on this legislation. If
it becomes necessary to pass a consumer privacy bill then we want to
make sure that it supports the growth of the Digital Economy rather
than placing roadblocks in the way and limiting those who can enjoy the
benefits of the new economy.
I will be happy to answer any questions.
Thank you.
Mr. Stearns. Thank you.
Ms. Barrett.
STATEMENT OF JENNIFER BARRETT
Ms. Barrett. Thank you, Mr. Chairman.
Mr. Stearns. I also want to thank you. I think you came the
farthest to be here this morning.
Ms. Barrett. Thank you. I guess I did.
Thank you, Chairman Stearns and members of the
subcommittee. Thank you for the opportunity to again
participate in your hearings and today share the perspective of
three companies on Titles I and III of H.R. 4678. The companies
are Acxiom Corporation, a leading provider of innovative data
management services and technology; Experian Marketing
Services, a division of Experian North America, a leader in
enabling organizations to make fast, informed decisions to
improve and personalize relationships with their customers; and
third, Trilegiant Corporation, one of the Nation's largest
direct mail marketers and member service providers. Our clients
represent a who's-who of America's leading companies, and we
are always proud of the reputation for helping them sell better
products, smarter, faster and at a lower cost.
We strongly support a balanced approach to the use of
personal information. We believe that the inappropriate use of
information to defraud or discriminate must be illegal. At the
same time, the free flow of information this Nation enjoys
today has greatly contributed to our economic growth and
stability. Because of information sharing, consumers have
greater choice in variety, goods and services cost less, and
transactions are completed faster and more easily.
First, we want to commend the committee for the extensive
and thoughtful approach that it has taken in drafting this
legislation. This committee has studied the complex issues
involving consumer privacy to a greater degree than any other
body of Congress, and your understanding of these issues is
reflected in the bill.
One of the key questions in today's debate about privacy is
whether legislation should be specific to the on-line sector or
whether legislation should be particular, technology neutral,
covering both on- and off-line. It is difficult to argue that a
corporation's policies should be different in these two worlds
since every growth-oriented company inevitably combines data
from both. However, there are practical and important
differences in how notice can be delivered and choice can be
exercised.
In order to be fair to all mediums, the standard for
providing a policy must be upon request. The interactive nature
of the Internet allows a consumer to make an immediate informed
choice about information use. However, this interactive model
is difficult, if not impossible, to achieve in the off-line
world.
We believe section 101 of the bill is intended to recognize
and allow for these practical differences, and we want to
continue to work with the committee to ensure that this upon-
request distinction is clear in the law so that businesses have
the necessary flexibility to conduct successful marketing
campaigns in this difficult economic environment.
With regard to self-regulatory programs, section 106 of the
bill recognizes the important role that these initiatives have
played. Seal programs such as BBBOnline and TrustE, along with
the Direct Marketing Association's ``Privacy Promise''
represent effective self-regulatory standards for on-line, off-
line and telephone-based relationships. These practices have a
proven record of success and conform nicely to the provisions
in H.R. 4678, and we therefore support the bill's language with
regard to approved self-regulatory programs.
Enforcement is one of the most difficult aspects of privacy
that we have to deal with. We believe H.R. 4678 has proposed a
reasonable enforcement mechanism by building on existing proven
methods. Far too often legislation is simply not enforced for
one reason or another. However, an increasing number of recent
successful enforcement actions have been taken by the Federal
Trade Commission demonstrating its effectiveness in the privacy
area.
Furthermore, with the straightforward nature of the bill,
the three companies agree with the committee that the need to
prescribe regulations is not necessary to enforce this title.
Since there are in excess of 15 Federal privacy-related laws in
the U.S., it is critical that any broad-based piece of
legislation recognize and respect these existing laws and not
create conflicting requirements.
There are specific practices that need to be treated
differently from general information collected and used by
commercial entities, such as affiliate sharing of credit
information within a financial institution, as covered under
the Fair Credit Reporting Act, and the sharing of sensitive
information about children, covered under COPPA.
Section 109 recognizes these specific situations and
provides the right kind of harmonization with other existing
laws.
Section 109(d), Preemption of State Privacy Laws, is a
necessary requirement for both consumers and business. Nothing
will be more confusing to consumers than to have differing
privacy laws in each State or locality. As we have seen with
financial laws recently passed in North Dakota and the rush to
enact similar laws at the local level, such as those in Daly
City, Contra Costa County and Berkeley, California, a myriad of
conflicting State or local laws make it imperative that a
preemptive bill of this nature become law.
There are three risks if States and localities are
permitted to continue to enact their own privacy laws. First,
is that the State and local governments lack the dedicated
resources to conduct a thorough analysis of the issues that
this committee has done. And, in addition, privacy becomes a
very political issue.
Second, for consumers, understanding their rights and being
able to easily enforce them when an infraction occurs will be
extremely difficult, which in turn seriously diminishes the
effectiveness of the law.
And third, local law enforcement historically has not
focused on these kinds of issues, while the FTC has the
resources and needed expertise.
In short, without preemption, consumers will be confused
and the effectiveness of enforcement will be reduced.
Finally, I would like to comment on one aspect of the bill
that is not found, and this is the issue of access. We believe
that by not requiring--including the requirement for consumer
access, H.R. 4678 has properly recognized the inherent pitfalls
of such a requirement. Each of the four fair information
practices principles--notice, choice, access and security--must
be applied uniquely to strike a balance between the value
gained by consumers, business and society and the associated
cost.
The primary purpose of access is to assure that information
a company maintains about an individual is accurate. However,
access for the sake of curiosity is never justified. Today,
without even a legal mandate, companies provide consumers ready
access to current account information. Coupled with the
consumer's ability to opt out of having his or her name shared
for unrelated purposes and the underlying concern about privacy
and accuracy are thus satisfied.
In conclusion, while the three companies I represent today
might not agree on all the detailed provisions of H.R. 4678, we
believe Titles I and II represent a very balanced approach to
protecting consumers' privacy while allowing information flows
that bring value to the consumer. I do, however, urge the
committee to work closely with the credit bureaus and their
trade associations to make sure that Title II is effective in
preventing identity theft.
Mr. Chairman, thank you for the opportunity today to
testify on behalf of Acxiom, Experian Marketing Services and
Trilegiant. I request our formal statements be entered into the
record and am pleased to answer any questions.
[The prepared statement of Jennifer Barrett follows:]
Prepared Statement of Jennifer Barrett, Chief Privacy Officer, Acxiom
Corporation
Chairman Stearns, Ranking Member Towns, and members of the
Subcommittee, thank you for the opportunity to participate in this
timely hearing and to share the perspective of the Companies on Titles
I and III of H.R. 4678--the ``Consumer Privacy Protection Act of
2002''. The three corporations listed in the caption sheet strongly
support a balanced approach to the use of personal information.
Descriptive information on these companies may be found in the appendix
attached.
I will not make specific comments about Title II. Instead, I urge
the Committee to work closely with the Credit Bureaus and their trade
associations to make certain Title II is effective in preventing
identity theft and improves the remedies available for those whose
identity has been stolen.
Information products from our three companies fill an important gap
in today's business-to-consumer relationship. In our information-based
economy, companies succeed not just by meeting their customers'
expectations, but by exceeding them with superior products and services
of the highest quality. Businesses do not instinctively know everything
their customers want and thus need information to better understand
what consumers both want and need. Companies such as Acxiom, Experian
and Trilegiant are the vehicles by which businesses acquire or better
use this vital consumer information.
The efficient flow of consumer information to businesses has
significantly contributed to our nation's economic growth and stability
by (1) enhancing variety in consumer goods and services; (2)
facilitating lower domestic prices as compared to foreign markets; and
(3) accelerating the speed and ease with which transactions can be
completed. This flow should be permitted to continue.
Notwithstanding these successes, the inappropriate use of
information to defraud or discriminate against consumers should be
illegal. H.R. 4678 is a bill that makes every effort to balance these
concerns, and we are pleased to be here today to comment specifically
on a number of aspects of the bill.
Comprehensive Coverage of Both Online and Offline Practices
In the debate about data privacy, public policy makers are asking
some very good questions regarding whether legislation should be
specific to the online sector or technology neutral covering both
online and offline practices.
It is difficult to argue that a corporation's policies governing
the collection and use of personally identifiable information should be
different in the online and offline environments. Further, even if
legislation was focused only on online information, the offline
environment would be affected equally, since online and offline data is
inevitably combined at some point by every company.
Even so, there are practical differences in the online and offline
worlds that policy makers must carefully consider for legislation that
is technology neutral. Self-regulatory regimes already in place
recognize these practical differences, so policy makers should look to
these practices as the basis of any future legislation deemed
necessary.
Most of the clients of our three companies, as well as our data
sources, operate in multiple environments, too. For example, many
catalog companies have an online catalog, and many retailers are
becoming dominant forces on the Internet. In fact, only a very few
companies exist solely in an online environment today--and even these
companies depend on offline information, which they merge with online
information, to increase efficiency and to stay competitive.
However, there are important differences in how notice can be
delivered and choice exercised in the online and offline environments.
Understanding these differences is at the heart of the online/offline
debate because self-regulatory practices or legal standards must allow
enough flexibility to provide consumers effective notice and choice
across different media.
In order to be fair in all mediums, the standard for providing a
full statement of information practices, usually referred to as a
privacy policy, must be ``upon request.''
Online Notice
In an interactive online environment, an ``on-request'' standard
can easily be provided by a conspicuous link to a privacy policy. The
interactive nature of the Internet also allows a consumer to make
immediate, informed choices about how his or her information can be
used. In the marketing industry, ``opt-out'' is the standard for
informed consent, but the interactive nature of the Internet is also
allowing new voluntary methods of permission-based marketing to
flourish as well. This interactive nature has resulted in the wide
spread acceptance of online privacy standards like those proposed in
Title I. Nearly 100 percent of the 100 largest consumer websites have a
link to a privacy statement.
Offline Notice
However, this interactive model is difficult, if not impossible, to
achieve in the offline marketing context. In the telemarketing
environment, delivering the same kind of notice and gaining the same
kind of consent would be financially onerous, could destroy otherwise
successful marketing campaigns, and could result in very negative
customer relations.
In the offline environment, there must be flexibility to deliver
notice and choice, upon request, through the mail in paper form.
Alternatively, businesses should be able to direct consumers to a
telephone number or website to access a company's policy. Also,
retailers should be allowed to deliver notices at the checkout counter.
In other words, businesses must have the flexibility to adopt practices
that best meet the medium in which they are engaged, even though notice
and choice about marketing information should be the policy in all
mediums.
We believe Sections 101 (a) and (b) of H.R. 4678, Privacy Notices
to Consumers, Notice Required and Form and Contents of Notice, are
intended to recognize and allow for these practical differences in
collection, notice and choice methods that exist in the online, offline
and telephone environments. We want to continue to work with the
Committee to ensure this ``upon request'' distinction is clear in the
law, so that businesses have the necessary flexibility to conduct
successful marketing campaigns in this difficult economic environment.
Self-Regulatory Programs
Section 106, Self-Regulatory Programs, further recognizes the
important role of self-regulatory programs that have served both the
consumer and the business community well in areas of information use
where legislation has not previously existed.
Such programs as the online seal programs from BBBOnline and
TrustE, along with the Direct Marketing Association's ``Privacy
Promise,'' represent very effective self-regulatory standards for
online, offline and telephone based relationships. These practices
generally require companies to provide consumers choice through an
opportunity to ``opt-out'' of information sharing, to develop
appropriate guidelines to keep the information secure, offer the
consumer third party recourse for settling disputes, and the option to
go to the Federal Trade Commission under Section 5(a)(1) of the Federal
Trade Commission Act (15 U.S.C. 45 (a) (1)) where prior efforts to
resolve the conflict have failed.
All of these practices, which are in effect today and have a proven
record of success, conform nicely with the provisions in H.R. 4678, and
we therefore support the bill's language with regard to self-regulatory
standards.
Enforcement
We believe H.R. 4678 has proposed a reasonable enforcement
mechanism in Section 107, Enforcement, by building on existing and
proven enforcement methods. By doubling the amount of fines that may be
imposed, this approach to enforcement becomes an even more effective
deterrent.
Enforcement is one of the hardest aspects of privacy with which to
deal. Far too often, legislation is not enforced for one reason or
another. However, an increasing number of successful enforcement
actions have recently been undertaken by the Federal Trade Commission.
Such actions have demonstrated the effectiveness of the FTC in dealing
with privacy and security issues.
Furthermore, with the self-regulatory choices and the
straightforward nature of the provisions of H.R. 4678, the Companies
agree with the Committee that the need to prescribe regulations is not
necessary to enforce this title. The regulations in effect already
exist in the Federal Trade Commission Act.
Harmonization with Other Laws
Since there are in excess of fifteen (15) federal privacy-related
laws in the U.S., it is critical that any broad-based legislation, such
as H.R. 4678, recognize and respect these existing laws and not create
conflicting requirements that do not serve either the consumer or the
business community.
There are specific practices that need to be treated differently
from general personal information collected and used by commercial
entities, such as affiliate sharing of credit information within a
financial institution covered under the Fair Credit Reporting Act, and
the sharing of sensitive information about children under the age of 13
under the Children's Online Privacy Protection Act.
In Section 109, Effect on Other Laws, H.R. 4678 properly recognizes
these various laws and the requirements they each impose and offers the
right kind of harmonization.
State Preemption
Section 109(d), Preemption of State Privacy Laws, is a necessary
requirement both for the consumer and the business community. Nothing
will be more confusing to concerned consumers, nor create more
inefficiency to commerce, than to have differing privacy laws in each
state or locality. As we have seen recently in North Dakota, and at the
local level in Daly City, Contra Costa County and Berkeley, California,
there appears to be a rush to enact unduly restrictive financial
privacy laws. We suggest that these laws serve no other purpose than to
dramatize the need for federal preemption, which H.R. 4678 offers.
If states and localities are permitted to continue enacting their
own versions of privacy laws, several risks exist. First, in light of
the fact that no state or locality is likely to have the necessary
resources to conduct a comprehensive and thorough analysis of the
issues surrounding the use of information such as this committee has
conducted, plus the fact that the privacy issue is a very highly
charged political issue, legislation passed by states and localities
will almost surely result in serious unintended consequences. Second,
for consumers, to understand their rights and be able to easily enforce
their rights when they believe an infraction has taken place will be
extremely difficult, thereby diminishing the effectiveness of any
enforcement action. Third, local law enforcement has not historically
focused on these kinds of issues and the Federal Trade Commission has
more resources and more expertise to deal with consumer complaints
regarding privacy than any state or local authority. In short, without
state preemption, consumers will be confused and the effectiveness of
enforcement will be reduced.
International Issues
Title III--International Provisions--offers a good first step to
address the growing concern of companies doing business outside the
U.S. regarding the wide variety of privacy laws enacted in other
countries.
Dealing with information flows across borders is an extremely
complex issue and we have far too few facts on which to evaluate
effective solutions. The bill's requirement that the Comptroller
General of the United States conduct a study and make recommendations
regarding remediation of discriminatory activities should provide the
facts needed to identify solutions that will work.
Access to Information
Few would argue that the four Fa ir Information Practices
Principles--notice, choice, access and security--are not important
consumer rights. Unfortunately, these principles are usually recited
without considering their true complexity. Practical approaches such as
H.R. 4678--whether statutory or self-regulatory--recognize that each of
these principles must be applied in sensible ways appropriately
tailored for the purpose for which the information is used.
The application of each principle must strike a balance between the
value gained by consumers, businesses and society and the costs
associated with each. Sometimes that balance prohibits application of
one or more of the fair information principles. For example, under the
Fair Credit Reporting Act (FCRA), the nation's oldest privacy statute,
consumers do not have a choice about being included in the national
credit reporting system. If choice were an option, those who are lax on
paying their bills would probably choose not to have that information
disclosed to potential lenders which would result in increased lending
risk for creditors and increased credit costs for consumers. In effect,
there would be fewer financial service products for consumers.
The principle of access, arguably the most complex issue in the
debate about consumer privacy, must be thoughtfully applied because it
raises significant privacy, data security and cost considerations for
consumers, businesses, and society in general. Unfortunately, perhaps
because of the complexity of this issue, many legislative proposals
dispense with the access principle by simply citing the obscure
standard that ``reasonable access'' should be provided upon the
consumer's request. While sounding sensible on its face, such an
undefined standard delegates too much authority to regulators and the
courts to develop public policy about consumer access.
As explained below, we believe that, by not including a requirement
for consumer access, H.R. 4678 has properly recognized the inherent
pitfalls of such a requirement.
Allowing consumer access, by the very nature of the process, makes
the data less secure. As a result, appropriate authentication and
verification systems would have to be implemented. Providing access
also means that information held by an organization must be collected
into personal, comprehensive profiles, which raises new privacy
concerns. Finally, the costs associated with data collection, new
security systems for authentication, and customer service staff
necessary to administer disclosure, dispute and correction systems, can
be enormous.
The primary purpose of access is to make certain the information a
company maintains about an individual is accurate. For example, if a
company's use of inaccurate or fraudulent information could cause harm
to an individual through over-billing, or is used to make a decision
that could deny a consumer a benefit or service such as credit,
insurance or employment, then access should be provided. In these
cases, it is in the best interest of both the consumer and the business
to be sure the personal information about a consumer is correct.
However, access for the sake of curiosity is not justified when the
costs to society and the threat to personal privacy are significant. In
such instances, access should be discouraged if there is no legitimate
identified harm to an individual such as a denial of a benefit or
service.
Today, even without a legal mandate, almost every company provides
consumers ready access to current account information, the very
information which, if inaccurate, could result in a benefit or service
being denied. This kind of targeted access to personal information
reflects business' interest in accurate, up-to-date records for billing
purposes, as well as a customer-focused response to consumer demand.
Many Internet-based companies offer access not only to account and
billing information but also to customer-supplied information used to
predict consumer preferences.
Providing access to consumers would be of little benefit, and such
access likely would pose a greater threat to privacy than currently
exists. The nature of information in marketing databases would limit
identity authentication largely to name and address (which is widely
available in public sources, such as telephone directories) and,
therefore, would greatly limit the ability of businesses to validate
consumer identities for disclosure purposes. Accordingly, access
requirements should be constructed so as to balance the benefits to
consumers against the security risks to them, and the costs to
companies that hold the data.
Allowing access to marketing databases would be enormously
expensive. While that expense is justified and necessary with regard to
information governed by the Fair Credit Reporting Act, it is of
questionable value for data used only for marketing purposes.
A consumer's current ability to opt out of having their name shared
for direct marketing purposes satisfies the underlying concern about
privacy and accuracy without imposing undue and unnecessary costs to
businesses or risks to consumers that would result from access
requirements.
H.R. 4678 has rightly not included a provision for access in the
bill.
Conclusions
While Acxiom, Experian and Trilegiant do not agree on all the
detailed provisions of H.R. 4678, we believe the bill, in its current
form, and subject to the our comments herein, represents a well-
intentioned, balanced approach to protecting consumer privacy while
allowing information flows that bring value to consumers and to our
economy. We look forward to working with you to ensure these intentions
are realized throughout the legislative process.
Mr. Chairman, thank you for the opportunity to appear today on
behalf of these three companies, Acxiom Corporation, Experian Marketing
Services and Trilegiant. I am prepared to furnish any additional
information to the Committee, and answer any questions you may have.
APPENDIX
The Companies include some of the most prominent organizations in
the country involved in helping facilitate the appropriate use of
information in ways that bring value to both the consumer and the
business community.
Acxiom Corporation
For over thirty years, Acxiom Corporation has provided data
management services and technology. The company helps both large and
small businesses sell better products and services smarter, faster, and
at a lower cost. Acxiom's business includes two distinct components:
database management services and information products. Database
management services, representing almost 90% of the company's revenue,
assist businesses in better managing their customer information,
helping them save costs and secure a better return on their marketing
efforts. Acxiom's information products--directories, customer
enhancement and list products--provide needed intelligence to help
businesses overcome the time and distance of less-personal customer
relationships.
Acxiom has approximately 5,000 employees worldwide, has processing
centers in Arkansas, Illinois, Arizona and California, and has
operations in the UK, Australia, France and Japan.
Experian Marketing Services
Experian is one of the world's leading information solutions
companies. Experian Marketing Solutions enables organizations to make
fast, informed decisions to improve and personalize relationships with
their customers. This is done by combining decision-making software and
systems with some of the world's most comprehensive databases of
information about consumers, businesses, and property.
Experian Information Solutions is a consumer reporting agency that
enables businesses to make objective, safe, secure loans and minimize
other credit-related losses, while providing consumers instant access
to credit. Experian also provides reference services, analytic
services, and consulting solutions. Experian employs 6,500 people in
North America, with major facilities in Costa Mesa, CA; Allen, TX;
Denver, CO; Atlanta, GA; Mt. Pleasant, IA; Schaumber, IL: Lincoln, NE;
Parsippany, NJ; Albany, NY; New York City, NY; Rye, NY; and Rutland,
VT.
Direct Marketing Services
Experian direct marketing services help bring businesses and their
customers together. Businesses rely on Experian to help them better
understand their markets and the characteristics of the people who do
business with them. Understanding the marketplace makes possible
faster, more efficient product development and delivery, better retail
outlet and service center locations, improved customer service, more
cost-effective advertising, and lower costs for consumers. By
identifying the characteristics of consumers likely to be interested in
certain kinds of products and services, Experian helps marketers more
efficiently reach consumers who are most likely to be interested in a
business's products or services.
Credit Reporting
Experian and the companies from which it was formed have provided
credit reporting services for more than 100 years. Today, hundreds of
millions of credit reports are provided to lenders annually. The
ability of creditors to check a person's credit references in an
instant enables them to make rapid, sound, and objective lending
decisions. That ability helps consumers get the credit they need and
deserve faster and cheaper than anywhere else in the world.
Customer Relationship Management
Experian helps businesses establish and develop long-lasting
customer relationships through responsible information use. We help
businesses get a clearer picture of their customers across multiple
business units and market segments. We help companies understand why
certain kinds of people shop with them and what the customer needs.
With that clearer understanding, Experian then is able to provide
information services that help businesses initiate relationships with
new customers, assist the businesses in developing new, desirable
products and services, and aid in providing pleasant shopping and
effective customer service. The result is a better shopping experience
for consumers and more profitable operation for businesses.
Automotive Information Services
Experian Automotive Information Services specialize in the
collection and dissemination of vehicular data from each of the 51
United States jurisdictions. The information is utilized to provide
valuable services to auto dealers, manufacturers, consumers and
advocacy organizations, advertising agencies and internet information
sites, law enforcement and tollway authorities. Detailed vehicle
history reports enable consumers to make informed used-auto purchasing
decisions. Manufacturers rely on our services to manage recalls and
conduct market analysis to manage product supply and improve service.
Electronic Commerce Services
Experian's electronic commerce division helps businesses establish
a presence in the electronic marketplace, develop relationships with
online consumers, and ensure consumers and businesses enjoy positive,
safe transactions.
Individual Reference Services
Experian reference services help people, businesses, non-profit
organizations, government agencies, law enforcement, and other
organizations identify, locate, and verify the identity of individuals.
The most recognized individual reference services are the telephone
book and directory assistance--services you use every day. They usually
include only names, addresses and telephone numbers. More sophisticated
reference services may include information about whether you own a home
or rent an apartment, how long you have lived in the same location, and
if there are additional household members. Sensitive identifying
information such as your Social Security number, drivers license
number, and date of birth is included in some reference services. These
services, however, are limited to use by law enforcement, government
agencies, and other organizations with a legitimate and appropriate
need for such information.
Trilegiant Corporation
Trilegiant Corporation is one of the country's largest direct mail
marketers. Trilegiant offers consumers the opportunity to join various
membership clubs that provide valuable services, significant discounts
and other member privileges. Trilegiant's membership clubs provide a
wide array of financial and consumer-based individual services,
including those relating to shopping, travel, auto, personal finance
and other membership programs that make their lives more convenient and
secure. We were a pioneer in the direct marketing and membership
services business and have been active for over 27 years, and we
currently have over 23 million members in the U.S. who enjoy our
services. Trilegiant partners with many of the nation's leading
financial, retail and media entities to enable them to enhance their
customer loyalty and brand affinity and to generate additional revenue.
Each year, Trilegiant mails hundreds of millions of pieces of
consumer correspondence, receives tens of millions of inbound
telemarketing calls, and conducts millions of outbound telemarketing
calls. Trilegiant also is a major on-line marketer and partners with
many of the country's largest on-line businesses and markets its
services through hundreds of millions of on-line impressions.
Trilegiant has over 3,000 employees in facilities across the
nation.
Mr. Stearns. By unanimous consent, so ordered. And I thank
you.
Mr. Misener.
STATEMENT OF PAUL MISENER
Mr. Misener. Mr. Chairman and Mr. Boucher, Mr. Bass, thank
you very much for inviting me to testify today.
Amazon.com is the Internet's leading retailer. As I
described in detail in my testimony before this subcommittee
last year, Amazon.com uses consumer information to personalize
the shopping experience at our on-line store and thus help our
customers find and discover anything they may want to buy.
At the same time, Amazon.com is pro-privacy. We make ever
effort to provide our consumers outstanding privacy notice,
choice access and security.
Mr. Chairman, through your steadfast leadership and the
dedicated efforts of the members and extraordinarily talented
staff of your subcommittee and the full committee, you have
amassed what likely is the world's most comprehensive
legislative data base on consumer information privacy. You have
held now seven highly informative hearings and countless
meetings with company association representatives, public
interest advocates and academics. Your willingness to listen
impartially to all parties is well known and greatly
appreciated. It is not surprising therefore that you have
introduced, with bipartisan support, such an excellent bill,
H.R. 4678.
The essential purpose of your bill, if I may summarize it,
is to provide consumers a baseline of information privacy
protection regardless of the specific type of information
involved, regardless of the medium through which it is
collected and regardless of where a consumer is located in the
United States. This approach works very well with the existing
U.S. Privacy law, which provides additional protections for
particularly sensitive information, such as medical and
financial records and particularly hazardous situations such as
unsupervised children online.
As I will describe in detail momentarily, H.R. 4678
includes the three indispensable components about which I
testified in your subcommittee last year. H.R. 4678 goes even
further by addressing, head on, the issue consumers often cite
as their principal, quote, ``privacy concern,'' which is
identity theft. All in all, Mr. Chairman, H.R. 4678 is an
excellent bill.
I must explain, however, that Amazon.com is not actually
seeking privacy legislation. For several reasons, we believe it
would not be proper for us to do so. First, if we were to argue
that a bill must be passed, we might incorrectly be viewed as
suggesting that a bill is necessary in order to make our
company protect consumer privacy. But Amazon.com already
provides excellent privacy protections to our customers.
Second, Amazon.com's arguing that a bill must be passed
could be misinterpreted to mean that we want Congress to force
other companies to offer privacy protections at the level we
already do. Frankly, however, we think our companies neglect
consumer information privacy at their peril. The companies
simply must offer excellent privacy practices or else they will
lose business.
Third, if we actively seek passage of a Federal bill, it
might be said we merely wish to preempt State legislation in
this area. Although it is true that State-by-State legislation
of consumer information privacy easily could produce an
untenable and unconstitutional crazy quilt of rules with which
an on-line company might find it difficult or impossible to
comply. States, thus far, have heeded our warnings in this
regard.
Finally, by arguing that a bill must be passed, Amazon.com
might mislead some observers into thinking that we believe the
bill is necessary to improve consumer confidence on the
Internet. Although we are aware of intuitive and compelling
arguments that legislation is necessary to boost consumer
confidence, we are not nearly so sure this is true, just as in
the off-line retail world, consumers know there are both safe
and unsafe places to shop.
In sum, Mr. Chairman, we did not come before you today
requesting privacy legislation. Others have made a strong case
for a new law. But for the reasons I have just articulated,
Amazon.com is not prepared to make the same case. Nonetheless,
Mr. Chairman, if you and your colleagues determine that general
consumer information privacy legislation is needed, Amazon.com
fully supports H.R. 4678 to meet this need.
In my remaining time, I would like to offer our support in
particular for three essential aspects of H.R. 4678. Without
any one of these components, Amazon.com, and I suspect many
other companies, could not support this bill. First and
foremost, H.R. 4678 addresses consumer information privacy
holistically without regard to the medium through which the
information is collected. This parity among media is both wise
and fair.
It is wise because there is no reason for legislation to
treat, for example, the privacy of the person's mailing address
different if it were collected at an on-line Web site instead
of at a mall kiosk or over the phone.
Parity is fair to on-line business because the information
privacy practices of competitors that happen to operate through
different communications media would be treated the same. And
most importantly, parity is fair to consumers because it would
address 100 percent of their retail transactions, rather than
the mere 1 or 2 percent conducted online.
Amazon.com also supports H.R. 4678's national approach to
consumer information privacy. The inherent interstate nature of
Web-based commerce demands a national solution. Your bill
recognizes this fact by preempting relevant State law.
Finally, Amazon.com supports the bill's faith in the
consistency and balance of a public enforcement mechanism.
Consumers need a readable, not legalistic, privacy notice. Only
a regulatory body such as the Federal Trade Commission is well
positioned to balance the competing goals of legal precision
and readability.
Let me summarize by saying that although we are not
explicitly seeking privacy legislation, Amazon.com is, on
behalf of our company and customers, proud to support H.R.
4678, which wisely and fairly addresses consumer information
uniformly among all methods of collection, establishes a
national system that avoids a hodgepodge of State and local
rules and employs the consistency and balance of a public
enforcement mechanism.
Thank you again, Mr. Chairman, for your attention to the
facts and details of consumer information privacy. On behalf of
our company and customers, Amazon.com sincerely appreciates
your perspicacity.
And last let me thank you for inviting me to testify. And I
look forward to your questions.
[The prepared statement of Paul Misener follows:]
Prepared Statement of Paul Misener, Vice President, Global Public
Policy, Amazon.com
Chairman Stearns, Mr. Towns, and members of the subcommittee, my
name is Paul Misener. I am Amazon.com's Vice President for Global
Public Policy. Thank you very much for inviting me to testify today.
Amazon.com is the Internet's leading retailer. As I described in
detail in my testimony before this subcommittee last year, Amazon.com
uses consumer information to personalize the shopping experience at our
online store and, thus, to help our customers find and discover
anything they may want to buy. At the same time, Amazon.com is pro-
privacy: we make every effort to provide our customers outstanding
privacy notice, choice, access, and security.
Mr. Chairman, through your steadfast leadership, and the dedicated
efforts of the members and extraordinarily talented staff of your
subcommittee and the full committee, you have amassed what likely is
the world's most comprehensive legislative record on consumer
information privacy. You have held seven highly informative hearings
and countless meetings with company and association representatives,
public interest advocates, and academics. Your willingness to listen
impartially to all parties is well known and greatly appreciated.
It is not surprising, therefore, that you have introduced, with
bipartisan support, such an excellent bill, H.R. 4678. The essential
purpose of your bill, if I may summarize it, is to provide consumers a
baseline of information privacy protection, regardless of the specific
type of information involved; regardless of the medium through which it
is collected; and regardless of where a consumer is located in the
United States. This approach works very well with existing U.S. privacy
law, which provides additional protections for particularly sensitive
information (such as medical and financial records) and particularly
hazardous situations (such as unsupervised children online).
As I will describe in detail momentarily, H.R. 4678 includes the
three indispensable components about which I testified to your
subcommittee last year. Specifically, your bill would address consumer
information uniformly among all methods of collection; it would
establish a national system that avoids a hodgepodge of state rules;
and it would employ the consistency and balance of a public enforcement
mechanism. H.R. 4678 goes even further by addressing head-on the issue
consumers often cite as their principal ``privacy'' concern: identity
theft. It also wisely would begin the process of examining how best to
harmonize privacy protections worldwide. All in all, Mr. Chairman, H.R.
4678 is an excellent bill.
I must explain, however, that Amazon.com is not actually seeking
privacy legislation. For several reasons, we believe it would not be
proper for us to do so. First, if we were to argue that a bill must be
passed, we might incorrectly be viewed as suggesting that a bill is
necessary in order to make our company protect consumer privacy. But as
I briefly outlined earlier, and described in detail in my testimony
last year, Amazon.com already provides excellent privacy protections to
our customers. In fact, H.R. 4678 likely would not require Amazon.com
to alter its privacy practices in any substantial way: we simply do not
need a new law to force us to provide outstanding consumer privacy
protections.
Second, Amazon.com arguing that a bill must be passed could be
misinterpreted to mean that we want Congress to force other companies
to offer privacy protections at the level that we already do. After
all, it is a centuries-old tradition for market-leading companies to
seek regulations that mirror their current practices, if for no other
reasons than to impose additional costs on existing competitors and
market entry costs on potential competitors. Frankly, however, we think
other companies neglect consumer information privacy at their peril:
Companies simply must offer excellent privacy practices or else they
will lose business, regardless of whether a law requires it.
Third, if we actively seek passage of a federal bill, it might be
said that we merely wish to preempt state legislation in this area.
Although it is true that state-by-state legislation of consumer
information privacy easily could produce an untenable and
unconstitutional ``crazy-quilt'' of rules with which online companies
might find it difficult or impossible to comply, states thus far have
heeded our warnings in this regard. A national privacy scheme, based on
explicit preemption of state laws, is an essential component of any
federal legislation but, obviously, until state laws are passed, no
such preemption is necessary.
Finally, by arguing that a bill must be passed, Amazon.com might
mislead some observers into thinking that we believe a bill is
necessary to improve consumer confidence on the Internet. Although we
are aware of intuitive and compelling arguments that legislation is
necessary to boost consumer confidence, we are not nearly so sure this
is true. Just as in the offline retail world, consumers know there are
both safe and unsafe places to shop.
In sum, Mr. Chairman, we do not come before you today requesting
privacy legislation. Others have made a strong case for a new law but,
for the reasons I have just articulated, Amazon.com is not prepared to
make the same case.
Nonetheless, Mr. Chairman, if you and your colleagues determine
that general consumer information privacy legislation is needed,
Amazon.com fully supports H.R. 4678 to meet this need. This bill is an
excellent vehicle by which Congress could address the consumer
information privacy concerns various parties have raised, and
Amazon.com could continue to serve our customers well if it were
enacted.
In my remaining time, I would like to offer Amazon.com's support
for three particular and essential aspects of H.R. 4678. Without any
one of these components, Amazon.com--and, I suspect, many other
companies--could not support this bill.
First and foremost, H.R. 4678 addresses consumer information
privacy holistically, without regard to the medium through which the
information is collected. This parity among media is both wise and
fair. It is wise because the personal consumer information collected
offline (to the extent the terms ``offline'' and ``online'' have any
meaning in today's world of communications convergence) is as sensitive
as or, often, is more sensitive than, information collected online.
There is no reason for legislation to treat, for example, the privacy
of a person's mailing address differently if it were collected at an
online website instead of at a mall kiosk or over the phone.
This parity also is wise because online transactions often provide
more consumer privacy protections than offline transactions. Indeed,
brick-and-mortar retailers know their customers' physical
characteristics, including race, sex, weight, complexion, et cetera,
but online retailers cannot. And unlike their online competitors,
brick-and-mortar retailers also know their customers' geographic
location; we online retailers, on the other hand, do not know from
where our customers access our Website.
Parity also is fair to online businesses, because the information
privacy practices of competitors that happen to operate through
different communications media would be treated the same. And, most
importantly, parity is fair to consumers, because it would address 100%
of their retail transactions rather than the mere one or two percent
conducted online. Significantly, parity also would address the privacy
concerns of those persons on the unfortunate side of the digital
divide, not just those people who shop online. This bears repeating: an
online-only bill would have the perverse effect of providing no privacy
protections to those on the unfortunate side of the digital divide.
In sum, H.R. 4678 wisely and fairly addresses consumer information
privacy without regard to the medium through which it is collected.
Amazon.com also supports H.R. 4678's national approach to consumer
information privacy. It would be difficult or impossible for nationwide
entities such as our company to comply with a ``crazy-quilt'' of state
consumer privacy legislation. The inherent interstate nature of Web-
based commerce--a single Web page is viewable from anywhere in the
world--demands a national solution; your bill recognizes this fact by
preempting relevant state law.
Finally, Amazon.com supports the bill's faith in the consistency
and balance of a public enforcement mechanism. Consumers need readable,
not legalistic, privacy notices. Only a regulatory body such as the
Federal Trade Commission is well positioned to balance the competing
goals of legal precision and readability. Indeed, despite the bill's
emphasis on the readability of privacy notices, private litigants would
have no interest in protecting readability. If private enforcement were
authorized, companies like Amazon.com might be forced to adopt
Balkanized, legalistic privacy notices at the expense of consumer
accessibility. Only a public enforcement mechanism, such as that
included in H.R. 4678, would foster a tenable balance between the
competing goals of accuracy and readability.
Let me summarize by saying that although we are not explicitly
seeking privacy legislation, Amazon.com is, on behalf of our company
and customers, proud to support H.R. 4678, which wisely and fairly
addresses consumer information uniformly among all methods of
collection; establishes a national system that avoids a hodgepodge of
state and local rules; and employs the consistency and balance of a
public enforcement mechanism. As I mentioned earlier, it also sensibly
addresses consumer identity theft and the international aspects of
privacy policy.
Thank you again, Mr. Chairman, for your attention to the facts and
details of consumer information privacy. On behalf of our company and
customers, Amazon.com sincerely appreciates your perspicacity.
Lastly, thank you for inviting me to testify; I look forward to
your questions.
Mr. Stearns. Nice to see you again.
Mr. Rotenberg, you have the platform. You are probably one
that can enlighten us a little differently.
STATEMENT OF MARC ROTENBERG
Mr. Rotenberg. I have somewhat different views, Mr.
Chairman, yes. And I would like to thank you and Mr. Boucher
not only for the opportunity to be here this morning, but also
to recognize the extensive work that has been done by this
subcommittee and the members and the staff to tackle this very
difficult issue.
And I don't think anyone on the panel would disagree that
this is a difficult issue. At the same time, it is an important
issue, and I would certainly like to be able to join the other
witnesses this morning and say that we have a good bill and we
are ready to go forward. But that is not my view, and I don't
believe that is the view of other consumer privacy
organizations on the left or the right that have considered
this issue.
This is not just a concern, also, of the Washington policy
groups. I think the reason that these witnesses are here today
asking for this legislation is because over the last several
years, all across this country, Americans have said to their
elected officials, we need protections for privacy; we are
concerned about how companies are using our personal
information; we want to be able to do business, but we also
believe there should be some accountability.
And they have turned to the courts and the State
legislatures and the attorneys general, and even the counties,
to get some protection from privacy; and they are getting it
because the American legal system allows the States to protect
the interests of their citizens through law, through court
decisions, through the efforts of the attorneys general.
I think it is extraordinary that in North Dakota there was
actually a referendum on the question of opt-in and financial
privacy, and a referendum in that State passed because people
in that State feel very strongly about protecting the privacy
of their financial information. I think 10 years ago if you had
said ``opt-in'' to anybody in North Dakota or anywhere else in
this country, they would have no idea you were talking about
privacy. That is how strongly people feel about this issue.
Now the industry groups have come to Washington and they
have said to you, in effect, we can't take this avalanche of
privacy concerns. We can't face potential action in 50
different States. Of course, they never stopped to think that
consumers in the self-regulatory environment face not 50
different privacy policies, but perhaps 500 or 5,000, because
under the self-regulatory approaches that the bill endorses,
companies are free to create whatever policy they wish. And
every customer dealing with any company would have to consider
each single interaction, what that policy means and whether it
protects their privacy.
So let's look closely at the provisions in the bill and ask
the question, Is what people across the country are being asked
to trade, which are the rights and State laws and the
aggressive action of State officials, a fair deal?
The act provides no access to the personal information that
is acquired by companies on customers, and being acquired by
companies on behalf of other companies. Acxiom, for example, is
an extraordinary firm. I don't mean to single them out, but
they are here this morning. They provide what they call a 360-
degree view of customers. They want to know everything about
you. And they will make that information available not only to
businesses like Citibank for e-mail solicitation, which the
Wall Street Journal--the Wall Street Journal recently raised
questions about; they also now make it freely available for the
FBI to do intensive data mining on American citizens.
Commercial information is now being provided by Acxiom
routinely for criminal investigations.
And I would like you to at least consider on this access
question--perhaps you or members of your staff would make a
request to Acxiom and ask them to provide you the information
that they have about you and your family members, that they are
providing to law enforcement and other businesses.
There is nothing in the bill that prevents that current
practice. There is no private right of action, of course, in
the bill, which many of the witnesses here this morning are
very pleased about. Because, of course, that means that there
is no real accountability.
Every single privacy complaint under this bill must go
toward the Federal Trade Commission which even--even if it were
more extensively staffed and really, you know, up to taking on
individual consumer privacy complaints, couldn't begin to
address the range of concerns and issues that Americans have
expressed about the privacy issue.
And the bill provides no remedies to consumers. In other
words, once consumers have gone through all the steps of the
self-regulatory program--of the appeal within the self-
regulatory program of the complaint to the FTC, at best, the
FTC might decide that the company is no longer eligible to be a
member of the self-regulatory program. And in my opinion that
is an inadequate remedy.
I think we need real privacy protection. I think American
consumers are asking for real privacy protection, and I think
over the long term it will benefit American businesses and
allow commerce both online and offline to thrive. But
regrettably, I don't think this is a bill that would do it; and
I am sorry to say that because I know we have spent a lot of
time on this one, and we would certainly like to see a bill
that would provide that protection.
So thank you very much.
[The prepared statement of Marc Rotenberg follows:]
Prepared Statement of Marc Rotenberg, Executive Director, Electronic
Privacy Information Center
My name is Marc Rotenberg. I am the Executive Director of the
Electronic Privacy Information Center in Washington. I am on the
faculty of Georgetown University Law Center, where I have taught
Information Privacy Law since 1990. I am co-author of a forthcoming
casebook with Professor Daniel J. Solove on Information Privacy Law
(Aspen Publishing). I have also recently been named chairman of the
American Bar Association Committee on Privacy and Information
Protection, though my comments today reflect only my views and not
those of the ABA.
I appreciate the opportunity to testify before the Subcommittee
today on HR 4678, the ``Consumer Privacy Protection Act of 2002.'' I am
well aware of the extensive work of the Subcommittee on privacy issues
during this Congress. Therefore it is with some misgivings that I say
to you today that this bill will have little support among consumer or
privacy organizations, privacy experts, or the general
public.1 In many respects it seems crafted to protect
privacy violators from legal accountability. On almost every key
provision it favors industry over the consumer, the invasion of privacy
over the protection of privacy. While it is true that is a sweeping
measure in the sense that it applies to all data collection
organizations, both off-line and on-line, the intent appears to be to
insulate companies from any real accountability for what they might do
with the personal information they acquire. Given the important
tradition in the United States of safeguarding privacy as new
technologies emerge, as well as the testimony provided by several
witnesses on the need to protect privacy going forward, I can only hope
that a better bill will be introduced in the future.
---------------------------------------------------------------------------
\1\ The bill appears to ignore the testimony of every public
interest advocate appearing before the Subcommittee. My own testimony
of June 21, 2001 advocated a system of rights similar to the Cable
Communications Policy Act of 1984, one that includes notice, opt-in,
access, and a private right of action. Ed Mierzwinski's testimony of
April 3, 2002, on behalf of the US Public Interest Research Group,
called for a law that incorporated a system of FIPs. Specifically, Mr.
Mierzwinski testimony called for collection limitations, comprehensive
notice, opt-in, guarantees of accuracy and security, no preemption, and
a private right of action. Frank Torres' testimony of April 3, 2001, on
behalf of Consumers Union, broadly outlined current problems in HIPAA
and the GLBA. Mr. Torres recommended comprehensive notice, full access
and correction rights, and opt-in consent. More than thirty
organizations across the political spectrum endorsed a set of principle
at the beginning of this Congress on which to base federal privacy
legislation:
1. The Fair Information Practices: the right to notice, consent,
security, access, correction, use limitations, and redress when
information is improperly used,
2. Independent enforcement and oversight,
3. Promotion of genuine Privacy Enhancing Technologies that limit
the collection of personal information,
4. Legal restrictions on surveillance technologies such as those
used for locational tracking, video surveillance, electronic profiling,
and workplace monitoring, and
5. A solid foundation of federal privacy safeguards that permit the
private sector and states to implement supplementary protections as
needed.
Many good proposals from leading US academics were apparently also
ignored. Professor Joel Reidenberg, testifying on March 8, 2001, said
that the ``United States is rapidly on the path to becoming the world's
leading privacy rogue nation.'' Reidenberg recommended that the
Congress promote the negotiation of a ``General Agreement on
Information Privacy.'' As for public opinion, polls consistently find
strong support among Americans for privacy rights in law to protect
their personal information from government and commercial entities. See
EPIC, ``Public Opinion and Privacy'' (http://www.epic.org/privacy/
survey/default.html)
---------------------------------------------------------------------------
``Protection of Individual Privacy in Interstate Commerce'' (Title I)
The substantive provisions of the measure are set out in Title I.
Simply stated they require a company to adopt a privacy policy that can
say virtually anything and can be changed at any point in time to say
anything else. Under Title I of the Act, if a company states that it
takes sensitive personal information and puts in on the Internet for
all to see, it will be in compliance with the Consumer Privacy
Protection Act. A company can adopt a policy that states that it will
zealously protect sensitive personal information, acquire customer
data, then change its mind, and post it on the Internet. It too will be
in compliance with the Consumer Privacy Protection Act.
There is an interesting section that attempts to limit the sale of
personal data to third parties, but this provision is easy to defeat by
simply offering the consumer a benefit, such as the service originally
sought. A companion provision that seeks to limit ``other information
practices'' is also almost meaningless because consumers will not have
access to any relevant information to make an informed decision and
even if they go to the effort of exercising this right, the company can
exercise its right to ``terminate its compliance with the limitation''
on thirty days notice. (This section might be called the ``Now you see
it, now you don't'' privacy provision.)
The Act would create policies for policies--a form of bureaucratic
red tape for consumers--without ever giving a consumer access to
personal information held by the company. Does a company have
inaccurate information about you? You'll never know. Does it
discriminate against you because of confusion about names, incorrect
addresses, or bad information provided by a third party? You'll have no
idea. There is nothing in the bill that even attempts to hold companies
responsible for the accuracy of their information on consumers.
The bill places enormous confidence in self-regulatory programs. It
imposes only the most modest obligations on these consulting firms. The
generous eight-year certification period for self-regulatory companies
contrasts sharply with the thirty days notice provided to consumers
about material changes in privacy polices permitted under the Act. This
deference to self-regulation is extraordinary, considering not only
that Truste continued to approve Microsoft even as its Passport service
was found to violate the FTC Act, as well as the clear experience in
this last few years of abuse stemming from industry self-policing.
The Act noticeably creates no safeguards on disclosure of
personally identifiable information to law enforcement agencies. In
other words, individuals who provide information to businesses will
have no protections against fishing expeditions by the police.
Virtually every other privacy law in the United States sets out a
Fourth Amendment standard to regulate police access to personal
information held by third parties. The purpose is not to prevent law
enforcement access or to frustrate criminal investigations, but rather
to ensure that when police go to a private business in search of
information about customers or clients they do so with something that
approaches probable cause or reasonable suspicion that a crime has been
committed. Under the ``Consumer Privacy Protection Act'' there will be
no new safeguards established to protect consumers from searches that
might otherwise be overly board, intrusive or unlawful. Under this
approach, video rental records will remain protected under a 1988 Act,
but there will be no similar protection for new services offered over
the Internet or the extensive record of purchases and interests
collected and maintained by Amazon.
The Act forcefully creates no private right of action. This goes
far beyond any reasonable concern about large damage awards. There are
any number of alternative approaches that would preserve a private
right of action. It is possible for example, to allow individuals go
into small claims court and seek relief as they do currently and
effectively under the Telephone Consumer Protection Act. Alternatively,
the state attorneys general could be empowered to enforce rights
created by the federal statute as others have proposed, or damage
awards could be capped. The point is that there are many ways to make a
private right of action work.
The absence of a private right of action is all the more
problematic because as the bill is currently structured there are no
procedural rights for consumers who file complaints at the FTC nor are
there any formal means of reporting or appeal if the FTC fails to act
on a complaint. What happens, for example, if a drug company discloses
the names of Prozac users on the Internet, a complaint is filed, and
the FTC chooses not to act? It is clear that that the company's action
violates the FTC Act as the FTC has already found, but if the
Commission chooses, for whatever reason, not to pursue the complaint,
that is the end of the matter. This grants the agency unprecedented
discretionary authority.
Having constructed a bill that effectively provides no substantive
rights for consumers, the Act preempts states that are seeking to
provide greater protection to their citizens. It even preempts state
common law which is an extraordinary step for the Congress. Has this
Committee concluded that there should be no state remedies anywhere in
the United States for breaches of privacy committed by an organization
that collects personal information? That would be an extraordinary
assault on both the common law and our federal form of government.
International Provisions
The purpose of Title III is apparently to raise questions about the
enforcement of the Safe Harbor Arrangement and other international
agreements that the United States has pursued to support the protection
of privacy. As currently drafted, the section asks the Comptroller
General to review these various arrangements to determine whether such
laws, regulations or agreements ``result in discriminatory treatment of
United States entities.''
Members of the Subcommittee should realize that the Safe Harbor
Arrangement addresses concerns that European governments have raised
about privacy protection for their own citizens. Safe Harbor came about
to assist US businesses who had complained that it would be difficult
to comply with privacy law in Europe. The concerns of European
officials about US practices have been substantiated in the United
States by both state attorneys general and the Federal Trade
Commission. For example, European privacy officials raised concerns
that the Microsoft Passport service violated European law, but it was
ultimately the US Federal Trade Commission that found that Microsoft
violated Section 5 of the FTC Act. Earlier, European officials asked
the Doubleclick company to modify its Internet advertising practices to
comply with European privacy laws, but it was US officials who
ultimately clamped down on the company's plans for invasive profiling
of Internet users.
Do we really want to be in the position of objecting to the efforts
of foreign governments to safeguard the privacy rights of their own
citizens when US officials have expressed similar concerns? This is not
a wise or forward-looking policy.
I'd also like to bring to the attention of the Committee the
important role that the United States has historically played in
helping to enforce international standards for privacy protection. The
Department of State, under both political parties, has supported the
international human rights community by monitoring compliance with the
International Covenant of Civil and Political Rights. The ICCPR
includes a critical provision on unlawful surveillance and police
practices that threaten political freedom all around the world.
As the web site of the Department of State currently notes:
The protection of fundamental human rights was a foundation
stone in the establishment of the United States over 200 years
ago. Since then, a central goal of U.S. foreign policy has been
the promotion of respect for human rights, as embodied in the
Universal Declaration of Human Rights. The United States
understands that the existence of human rights helps secure the
peace, deter aggression, promote the rule of law, combat crime
and corruption, strengthen democracies, and prevent
humanitarian crises.2
---------------------------------------------------------------------------
\2\ Department of State, ``Human Rights,'' http://www.state.gov/g/
drl/hr/ (last visited September 21, 2002)
---------------------------------------------------------------------------
Section 1, paragraph f in the annual report prepared by the State
Department addresses specifically ``Arbitrary Interference With
Privacy, Family, Home, Correspondence.'' For example in the 2002 report
on China, the State Department notes that:
The Constitution states that the ``freedom and privacy of
correspondence of citizens are protected by law.'' Despite
legal protections, authorities often do not respect the privacy
of citizens in practice. Although the law requires warrants
before law enforcement officials can search premises, this
provision frequently has been ignored; moreover, the Public
Security Bureau and the Procuratorate can issue search warrants
on their own authority. Authorities monitor telephone
conversations, facsimile transmissions, e-mail, and Internet
communications. Authorities also open and censor domestic and
international mail. The security services routinely monitor and
enter the residences and offices of persons dealing with
foreigners to gain access to computers, telephones, and fax
machines. Government security organs monitor and sometimes
restrict contact between foreigners and citizens. All major
hotels have a sizable internal security presence.3
---------------------------------------------------------------------------
\3\ Department of State, ``China (includes Hong Kong and Macau),''
http://www.state.gov/g/drl/rls/hrrpt/2001/eap/8289.htm
---------------------------------------------------------------------------
Now I agree that the United States should look more carefully at
some of the current international agreements that impact privacy, but
the commercial agreements such as Safe Harbor, which are intended to
safeguard privacy and facilitate trade, are the wrong place to start. I
would urge the Comptroller General to consider whether such proposals
as the Council of Europe Cybercrime Convention would violate the
privacy rights of American citizens that would otherwise be protected
under US law and the US Constitution.4 That proposal, which
some in the Administration continue to promote as if it were national
law, even though it has never been introduced in the Congress let alone
ratified by the United States, contains many provisions that deeply
implicate American Constitutional values.5
---------------------------------------------------------------------------
\4\ Council of Europe Committee of Ministers, 109th Sess,
Convention on Cyber-Crime (adopted Nov 8, 2001), available online at
http://conventions.coe.int/Treaty/EN/WhatYouWant.asp?
NT=185.
\5\ See, e.g., id. Arts. 2-11 (requiring member country statutory
criminalization of offenses such as hacking, the production, sale or
distribution of hacking tools, and child pornography, and an expansion
of criminal liability for intellectual property violations. The
treaty's intellectual property provisions significantly expand criminal
liability for intellectual property violations and tilt copyright law
away from the public interest: U.S. intellectual property law contains
a delicate balance between the rights of intellectual property holders
and the rights of the public through the First Amendment and the law of
``fair use'' of copyrighted materials, but the Cyber crime Convention
criminalizes copyright infringement with no mention of fair use); id.
Arts 16-22 (requiring participating nations to grant new powers of
search and seizure to its law enforcement authorities, including the
power to force an ISP to preserve a citizen's internet usage records or
other data, and the power to monitor a citizen's online activities in
real time--while including no provisions to protect citizens' privacy.
In the United States, the treaty requires the U.S. to authorize the use
of devices like Carnivore, the FBI's ``Internet-tapping'' surveillance
system.); id. Arts 23-35 (requiring law enforcement in every
participating country to assist police from other participating
countries by cooperating with ``mutual assistance requests'' from
police in other participating nations ``to the widest extent
possible.'' This obliges American law enforcement to cooperate with
investigations of behavior that is illegal abroad but perfectly legal
in the U.S.). The Administration has stated that ``The Convention will
help us and other countries fight criminals and terrorists who use
computers to commit crimes . . .'' Promoting Innovation and
Competitiveness: President Bush's Technology Agenda, at http://
www.whitehouse.gov/infocus/technology/tech3.html.
---------------------------------------------------------------------------
It is the Cybercrime Convention, not the Safe Harbor arrangement,
that poses a direct threat to the interests of the United States and
American citizens. It is that proposal that should be given careful
scrutiny by the Congress.
Conclusion
This has been a difficult year on the privacy front. The country
faces new challenges after September 11. Even so, many of us have been
heartened by the efforts of government officials to safeguard this
essential American value. A secretive federal court has spoken out
against the misuse of the Foreign Intelligence Surveillance Act. The
House leadership has taken strong stands on such issues as Carnivore,
TIPS, and video surveillance. The White House has indicated its
reluctance to endorse a national identity card. The Federal Trade
Commission has issued important orders on Microsoft, Eli Lilly, and
proposed a new rule on telemarketing. The state attorneys general have
acted to protect consumers against egregious practices that have led to
the disclosure of medical records, financial information, and the
misuse of student records.
Even the President's Critical Infrastructure Protection Board,
charged with safeguarding the nation against future terrorist threats
said in the recent report on the National Strategy to Secure
Cyberspace:
The nation's Strategy must be consistent with the core values
of its open and democratic society. Accordingly, Americans must
expect government and industry to respect their privacy and
protect it from abuse. This respect for privacy is a source of
our strength as a nation; accordingly, one of the most
important reasons for ensuring the integrity, reliability,
availability, and confidentiality of data in cyberspace is to
protect the privacy and civil liberties of Americans when they
use--or when they personal information resides on--cyber
networks. To achieve this goal, the National Strategy
incorporates privacy principles--not just in one section of the
Strategy, but in all facets. The overriding aim is to reach
toward solutions that both enhance security and protect privacy
and civil liberties.6
---------------------------------------------------------------------------
\6\ p. 43 (emphasis added).
---------------------------------------------------------------------------
This was an extraordinary statement coming from an organization
tasked with protecting the country from cyber warfare and future acts
of terrorism. Still, they seemed to leave little doubt that the
protection of privacy could not be sacrificed even as the country works
to strengthen cybersecurity. Certainly, there could be a similar
commitment to protect privacy in less critical circumstances.
Thank you for your attention. I would be pleased to answer your
questions.
Mr. Stearns. Thank you Mr. Rotenberg. I mean we have, we
are interested in people that don't agree with the bill
obviously too. And so we appreciate your comments.
I would ask unanimous consent to put in the record the
support we have got, a letter from Acxiom and Computer Systems
Policy Project and National Business Coalition on E-Commerce
Privacy. Without objection, so ordered and we will make it part
of the record.
[The information referred to follows:]
ACXIOM
Little Rock, AR
August 1, 2002
The Honorable Cliff Stearns
United States House of Representatives
2227 Rayburn House Office Building
Washington, DC 20515
I just want to take this opportunity to thank you for the hard work
that you and your staff have put into coming up with a balanced
approach to a key aspect of the privacy issue. Your work helps to
ensure consumer privacy, while protecting the economy, by allowing the
exchange if critical data while not compromising personal information.
I believe that your legislation, H. R. 4678, weighs competing concerns,
in an extremely difficult environment, and gives privacy advocates, the
business community and regulators the capacity to work through many of
the problems raised without undue burdens on the consumer.
While we might recommend some adjustments, it does provide a
workable framework that is fair and will not result in the curtailment
of critical data flows that are essential to our nation's economy.
Without a doubt, a competing version currently moving in the Senate
will have broad, unintended ramifications that will ultimately hurt
both consumers and businesses.
Therefore, I want to express my support for H. R. 4678 and again
thank you and your staff, particularly Ramsen Betfarhad, for the
tireless effort given in crafting this balanced and effective piece of
legislation.
Sincerely,
Charles Morgan
Company Leader
______
High-Tech Leaders Praise Stearns' Privacy Bill;
cspp says legislation ``strikes the right balance''
Washington--The Computer Systems Policy Project (CSPP), a coalition
of CEOs from the nation's leading high-tech companies, offered its
support for bipartisan information privacy legislation unveiled today
by House Energy and Commerce, Trade and Consumer Protection
Subcommittee Chairman Cliff Stearns (R-Fla.).
``The issue of privacy is of paramount importance to CSPP
members,'' said Phil Servidea, vice president of government affairs for
NCR and co-chair of the CSPP Networked World Committee. ``The bill
proposed by Chairman Stearns is a step in the right direction, offering
a baseline of protection to Americans doing business both online and
offline, as well as effectively balancing consumer and business
interests, and state versus federal jurisdiction.''
``CSPP is grateful to Chairman Stearns for his thoughtful
consideration of this complicated issue,'' said Ken Kay, executive
director of CSPP. ``We look forward to continuing to work with Chairman
Stearns and Congress on privacy legislation that protects consumer
privacy in accordance to the principles supported by our member
companies.''
The goals of the Stearns' legislation, the Consumer Privacy Act of
2002, are in-line with many of the principles for privacy legislation
articulated by CSPP last year. The legislation applies to both online
and offline transactions, builds on industry's existing self-regulatory
programs, establishes a national legal framework assuring protection,
and enables consumers to control how their information is used. It
calls for Federal Trade Commission (FTC) enforcement and penalization
for privacy violations, as opposed to creating new opportunities for
litigation. The legislation would double existing FTC fines for such
transgressions. Finally, the Stearns bill calls for organizations to
implement security policies to prevent the unintended compromise of
personally identifiable information.
CSPP believes that consumers will be well served by a privacy
protection regime that includes such industry best practices, vigorous
FTC enforcement and baseline federal legislative protection. The CSPP
companies have labored for several years at defining privacy risks and
identifying legislative requirements.
Founded in 1989, CSPP's current members are: Michael S. Dell,
chairman and chief executive officer of Dell and chairman of CSPP;
Craig Barrett, CEO of Intel Corporation; Carleton S. Fiorina, chairman,
president and chief executive officer of Hewlett-Packard Company;
Christopher B. Galvin, chairman and chief executive officer of
Motorola; Louis V. Gerstner, Jr., chairman of IBM Corporation; Lars
Nyberg, chairman and chief executive officer of NCR Corporation; Joseph
Tucci, CEO of EMC; and Lawrence A. Weinbach, chairman and chief
executive officer of Unisys Corporation.
______
National Business Coalition on E-Commerce and Privacy
June 18, 2002
Honorable Cliff Stearns
Chairman
Subcommittee on Commerce, Trade and Consumer Protection
U.S. House of Representatives
2227 Rayburn House Office Building
Washington, D.C. 20515
Dear Mr. Chairman: On behalf of the National Business Coalition on
E-Commerce and Privacy, we would like to take this opportunity to
express our views regarding HR 4678, the Consumer Privacy Protection
Act of 2002.
The Coalition is comprised of major U.S. corporations from diverse
economic sectors that strongly support a balanced and uniform national
policy pertaining to electronic commerce and privacy. Our member
companies are top competitors in the e-commerce marketplace and
actively use the Internet to deliver goods and services to our
customers. We are committed to ensuring the privacy and security of the
information gathered from our customers, both on-line and off-line.
Mr. Chairman, we congratulate you on your leadership in
successfully moving the privacy debate in a more positive and useful
direction, and we thank you for your impressive effort in holding a
series of important hearings on the various aspects of the privacy
issue.
As you know, the Federal Trade Commission has stated that there is
no need for the Congress to pass general privacy legislation. While
Federal legislation is not necessary at this time, this situation would
change dramatically if the states begin to pass legislation. If Federal
legislation becomes necessary to preempt a patchwork of conflicting
privacy laws at the state level, then HR 4678 certainly represents a
reasonable and measured step forward in the privacy debate for the
following reasons:
By effectively providing a uniform privacy standard across the
nation, HR 4678 would avoid the danger of a fragmented e-
commerce market, with all of the ultimately unworkable
administrative requirements that would imply. The preemption of
state laws is absolutely critical to the continued growth of e-
commerce. Having to adapt to as many as fifty different state
laws would be enormously burdensome and would be a significant
deterrent to the further development of e-commerce.
HR 4678 properly emphasizes providing notice of privacy
policies to consumers and allowing customers to opt-out of
having information about them shared with others. We believe
that this represents a reasonable and practical balance between
consumer rights to the privacy and security of their data and
transactions, and the legitimate uses of information by
business to improve the quality, efficiency, and cost
effectiveness of products and services that consumers desire.
And requiring companies to prepare and implement information
security policies will help assure consumers that the
information about them is secure.
HR 4678 recognizes the importance of treating all business-to-
consumer information in a similar manner--regardless of whether
the information is acquired on-line or off-line. As a general
rule, business makes little distinction between information
that it gathers on-line as opposed to that gathered off-line.
To treat these two types of information differently would
result in significant administrative burdens and legal
liabilities--the costs of which business would be forced to
pass on to the consumer.
HR 4678 avoids private rights of action and the potential for
frivolous lawsuits. As the FTC has recognized, existing
enforcement authority is sufficient to deal with most
violations of privacy laws and opening the door to private
rights of action would simply create an environment conducive
to unnecessary lawsuits. The only qualification we would add is
that we would like to see class actions expressly banned.
Finally, it is important that HR 4678 addresses the issue of
foreign privacy laws, especially since such laws may
effectively be barriers to free trade. Harmonization of
national privacy laws is essential if the free flow of
information that benefits businesses and consumers alike is to
be maintained. A thorough study of the consequences of foreign
laws like the European Union Privacy Directive, as well as
their impact on U.S. competitiveness, is a critical first step
to furthering e-commerce in a way that is fair to American
business.
By adhering to the principles outlined above, HR 4678 is, on the
whole, a fair and balanced approach and the most reasonable alternative
currently pending in the Congress. As you know, we strongly oppose
other proposed legislation, S. 2201, that is not consistent with these
principles, and we are unable to support any bill that goes beyond what
is now contained in HR 4678. We look forward to working with you to
further refine and clarify HR 4678 if Federal legislation becomes
necessary (for instance, in order to preempt incompatible state laws or
to regulate unscrupulous actors).
We appreciate your willingness to work with us on this issue, and
also very much appreciate the time your staff has taken to talk with us
about this important subject. If you have any further questions, please
contact John Schall at (202) 756-3385.
Sincerely,
John Schall,
Executive Director
Susan Pinder,
Chair
Coalition Members: American Century Investments; AMVESCAP; CheckFree;
CIGNA; Deere & Company; Dupont; Fortis, Inc.; General Electric; General
Motors; The Home Depot; Investment Company Institute; Charles Schwab &
Company; and Six Continents Hotels.
Mr. Stearns. In this debate we are going to have a lot of
people that support it and a lot of people who don't. And I
think everybody who is on this subcommittee, including the full
committee chairman, is on the bill except one. So these folks
have a different approach.
So there is going to be a lot of debate here and we welcome
that and we appreciate your comments. We may not necessarily
agree, but we like to hear your comments.
As all of you know there is a bill in the Senate, and what
I would like to do is start from my left to right and say the
bill that we have, which is H.R. 4678, how does it compare with
the comprehensive legislative proposals in the 107th Congress.
What I am trying to do through this hearing is establish a
baseline so we can say this is what is good about the bill,
perhaps this is where the controversy is; so then I can go back
to those folks who don't agree and be prepared to convince them
to come on board and to show why they should.
So perhaps you could help me with actually making a
comparison of my bill with perhaps Senator Hollings, Fritz
Hollings' bill, and say what you are concerned about. Now, Mr.
Rotenberg is going to say Mr. Fritz Hollings' bill--he is going
to praise it. But I would like to, if I could, to put you all
on the spot and ask that you tell me this morning about my bill
or that bill or any bill that is in Congress, how it compares
and why ours is better or not from your standpoint, because
then what I would do is take the coalition of people that
support it and say why we think this is better. Is that
possible for you folks to take a shot at?
Mr. Palafoutas. If you want this, Mr. Chairman, you are
going to get it. I happen to go back to Mr. Rotenberg's comment
about your bill and the private right of action, and I will
just mention one thing about the Hollings bill. The private
right of action does cause us a great deal of problems, and
while there may be----
Mr. Stearns. And I am not here to--you know, on the House
floor you can't say anything negative about the Senate. You are
called out of order. And I am not here to talk in a way that is
negative, but just to say that from a policy perspective that
this is something we are concerned about and why, you know.
And--all seven of you are going to have a different opinion,
but that would put on the record our sticking points, because
Senator Conrad Burns over there is the ranking and he has
supported the bill. So Republicans and Democrats are not going
to agree on this, as I said earlier.
Mr. Palafoutas. Well, I too am not going to say anything
negative about Chairman Hollings. I think one of the concerns--
and I will pass the microphone down--is the private right of
action. Mr. Rotenberg makes a good point about the Federal
Trade Commission, and I think the Federal Trade Commission is
the proper place to do it. They may need some beefing up on
this. I know some members of their staff are here, and I won't
say anything negative about the Federal Trade Commission
either. But that is a concern for us in the bill, and we
appreciate your bill puts the enforcement action in the bill.
Mr. Servidea. Mr. Chairman, I am pleased to answer this
question because I think until you decide what it is you are
trying to regulate, what it is trying to legislate about, you
basically have nothing. And I think the biggest single
deficiency with respect to Senator Hollings' bill is the fact
that the scope is so narrow as to apply only to on-line
transactions. I think to pass that kind of legislation would be
disingenuous as far as the American consumer is concerned.
American consumers' personal data is their personal data.
Doesn't matter where it is, doesn't matter how they released
it, they should be protected.
Unfortunately, at the very end of the day, Senator Hollings
put sort of a Band-Aid kick-off to the Federal Trade Commission
to study offline. But the bill is basically an Internet
regulatory bill. That is the biggest deficiency, frankly, is
the scope of the bill. Second, I would comment that there is
more than one privacy bill in the Senate, and Senator
Feinstein's bill is an excellent bill.
Mr. Schall. Mr. Chairman, I would point out that the
National Business Coalition on E-Commerce and Privacy actually
sent a letter of opposition to Chairman Hollings on S. 2201 and
we would be happy to furnish that to this committee because it
delineates our five points of opposition. I will mention them
here. First of all, S. 2201 is confusing in that it really
creates four different categories of information: There is
sensitive information, nonsensitive information, and there is
not quite so sensitive information. I don't know if anyone can
make sense of those.
Second, the point made already is online only. I think it
is a disservice to the American economy to only focus on what
is 1 or 2 percent of consumer transactions in the economy, and
also keeping in mind the logistical problem that companies
really don't sort information by where it comes from.
The third point is that S. 2201--and I don't know if it is
intentional or inadvertent, it really empowers ways to revisit
laws existing on the books in terms of GOB and HIPAA. I think--
why, even some Democrat Senators on the committee--Senator
Breaux raised some concerns about the bill. I am not sure one
wants to take an on-line privacy bill, as S. 2201 would be, and
have that revisited.
The fourth point is really remedies. There is far too much
private rights of action. We have concerns about the strict
liability and liquidated damages provisions.
Last, the preemption provisions in S. 2201 are truly
inadequate, and I would hope when the Senate Commerce Committee
revisits it, it looks at the model this committee used in H.R.
4678, because the preemption provisions are so much more
sensible in this bill.
Ms. Whitener. I would like to go back to a letter that was
sent by our CEO in his role as chairman of the Digital Economy
Task Force, Business Roundtable, outlining some concerns with
this particular legislation, and I will just kind of summarize.
The creation again of that new private right of action when
sensitive information is compromised is considered unnecessary
and will have many unintended and negative consequences. The
provision will open a Federal class action floodgate that will
hinder further innovation by businesses that fear any change in
their on-line information management practices will be met with
lawsuits. S. 2201's mandating opt-in for sensitive information
could place improper burdens on consumers. Mandating opt-in may
be intrusive and inconvenient and could remove opportunities
for consumers.
The legislation ignores the significance of providing
consumers with effective and credible options to make informed
choices regarding the use of their information. S. 2201's
access requirement will increase costs for businesses while
reducing consumer information security. Though the provision
mandates more consumer access to private records, the result
could actually reduce consumer information security requiring
simultaneous reasonable access, and security could increase
identity theft and place obstacles in front of the companies
desiring to take innovative security steps.
S. 2201 inadequately preempts inconsistent State laws. The
bill's preemption language would only impact personally
identifiable information which is collected and used online.
The legislation does not effectively address the problem of
inconsistent legislation and legislation imposed by State
governments in a meaningful way.
S. 2201 on-line and off-line information collection is
technically infeasible and economically unreasonable. Companies
that digitally collect personal information will be held to a
different and higher standard than those in more traditional
businesses. The bill creates separate but unequal burdens and
regulations, and conflicting privacy standards particularly, in
which consumer information is collected both online and
offline.
In summary, the Digital Economy Task Force of the Business
Roundtable summarized the legislation to be fundamentally
flawed, overly burdensome, and promises to impede technological
innovation and electronic commerce, plus it will raise the cost
of compliance and encourage endless litigation and force many
of the most innovative traditional electronic commerce
companies which are usually small businesses, to abandon the
promise of a digital economy.
Ms. Barrett. Thank you, Chairman. I think there are seven
key differences between your bill and the Senate bill, and I am
not going to go back over all. Obviously the on-line versus--
on-line/off-line nature of the bill. The second is the private
right of action. The third is the preemption. And I think in
preemption, we really do need to look at it both from the
business community's perspective as well as from the consumers'
perspective and how confusing it is for the consumer who works
in one county and works in one State and lives across the State
line to deal with a myriad of privacy laws. The fourth is
enforcement and self-regulatory efforts, which I commented on.
The fifth is harmonization with other laws where we have
specific laws recently enacted.
Mr. Stearns. Particularly with international.
Ms. Barrett. International, health care, financial
services, children, the list goes on and on. And I think it is
critical that we recognize the appropriateness of those laws.
The notice and choice provisions of your bill do work in an
on-line and off-line environment. And I think it is important
that we look at notice and choice across mediums. I don't think
we can sit here today and foresee where technology will take us
and what new mediums we may be dealing with. And when we look
at legislation which is specific to one medium, I think we have
serious unintended consequences down the road when the
technology changes. And the last is the access provision which
I commented on in my testimony.
Mr. Misener. Mr. Chairman, I agree that the biggest concern
with where S. 2201 began was with the focus exclusively on on-
line transactions. And then in April's hearing, at which I also
testified, I believe the committee frankly was moved by some of
the testimony which described how the bill would only touch 1
or 2 percent of consumer transactions and could do nothing for
those on the unfortunate side of the digital divide.
By the end of the hearing, every member of the committee
had spoken in favor of looking at off-line privacy as well. So
I would like to think that there is movement to sort of
coalescing around an agreement which incorporates a holistic
view of consumer information privacy.
Mr. Rotenberg. Mr. Chairman, I think it is important to
understand first of all that Senator Hollings' bill in the
107th Congress S. 2201, is very different from the bill in the
106th Congress, and that a lot of progress was made to try to
resolve some of the differences between consumer groups and
business. And, frankly, we agreed to a lot of things which I
felt was possibly going too far on many of the key issues.
On the opt-in issue we said maybe for most transactions
opt-out was more sensible if it could be made to work. On the
private right of action we recognized that there had to be some
limitations. And, frankly, we are not in favor of creating a
private right of action that enriches lawyers. We would much
rather see consumers' interests protected, and that is the
issue that we focused on. On the preemption issue there was
also some effort to allow some action for States, and at the
same recognizing a need for national standards.
So my sense about S. 2201, in fact it was a sensible
compromise where both sides gave up something--and I am trying
to figure out on the spectrum where we would put 4678. It seems
to be the counter position from the Hollings bill in the 106th
Congress.
Mr. Stearns. That is how you would put it in the spectrum?
Mr. Rotenberg. Yes, sir, I think I would. Because as I
said, there are two very different bills that have come out of
that committee, and the current one is not the one that was in
the previous Congress. The other point----
Mr. Stearns. Do you support the one in the 106th?
Mr. Rotenberg. Yes.
Mr. Stearns. That was better from 107th?
Mr. Rotenberg. From a privacy viewpoint, yes. It gave more
rights to consumers. The bill that was reported out of the
Senate Commerce Committee, as I said, was significantly scaled
back. It did not include a lot of the provisions.
Mr. Stearns. But your organization supports the Senate
bill.
Mr. Rotenberg. Well, I testified on that bill, and I think
we said largely that it could be made to work.
Mr. Stearns. With some minor changes, you would support,
your group would support that bill.
Mr. Rotenberg. I think if enforcement is serious and there
is a cooperation on both sides, it could be made to work. But
it is a very different bill from the one we were looking at a
couple of years ago. The other point----
Mr. Stearns. Do you think he should have dealt with off-
line and on-line privacy the same?
Mr. Rotenberg. This is the point I wanted to get to. And I
have to say as the debate has progressed, I think the case has
been made particularly well, you know, on this side that off-
line does need to be addressed. And I think in this respect,
you know, the Senate bill probably does come up short, and I
imagine from the business perspective it doesn't seem like a
sensible distinction.
I have to say our concern on the Senate side is that many
who said, if you are going to pass a privacy bill you need to
do both, was that the people who took that position really
didn't want a privacy bill. And my view is if you are going to
take the position you need to do both, I think you have to be
prepared to back the bill. You can't say let's make the problem
so large we can't solve it. That is not an approach to finding
a solution.
Mr. Stearns. Mr. Schall mentioned two local communities in
California now have passed privacy bills. Are you concerned
about the balkanization in this country--different States and
communities having different thoughts?
Mr. Rotenberg. I am primarily concerned about the
protection of privacy in America. And what is extraordinary to
me is how hard people across this country are working to
protect their privacy. I haven't seen an issue in the last 10
years that has generated this type of activity at the local
level. And I think that should send a message to the Congress
that people want a strong bill.
Mr. Stearns. I thank my colleague for his patience and
recognize the gentleman from Virginia.
Mr. Boucher. Thank you, Mr. Chairman, and I want to express
my appreciation also to the witnesses who testified today. You
have prepared thoughtful testimony and you have delivered it
well and we appreciate your contributions to this ongoing
discussion.
I want to direct my question to the international
provisions that are contained in the bill and get the views of
witnesses with respect to those. Several years ago there was a
carefully negotiated safe harbor achieved between the United
States and the European Union. It was designed to enable the
continued flow of data between the European operations of
American companies and their American operations,
notwithstanding the fact that American law does not contain the
formal privacy requirements that are extended by the European
Union, which has very thorough privacy guarantees, well beyond
what American law provides and beyond in fact what this bill
provides.
It was a carefully negotiated agreement. Many Members of
the U.S. Congress were involved in the discussions that led to
that agreement. In fact, Mr. Goodlatte and I, the co-chairs of
the Congressional Internet Caucus, testified before the
European Parliament at one point, urging support for and
implementation of the safe harbor. And it was implemented. I am
sure our testimony had little to do with that result, but we
were very pleased when that result was achieved.
My general reading is that this safe harbor arrangement has
been working well, and we now have more than 240 American
companies that have registered under it and have agreed to the
conditions that are contained in the safe harbor. And I think
people on both sides of the Atlantic are relatively pleased
with the results of that arrangement.
The last thing that I would like to see is something
contained in this bill, were it to achieve passage, to
adversely affect the safe harbor arrangement. And I would like
your views about whether or not these international provisions
might do that. The international provisions are designed to
address the concern that some companies have voiced that there
are other European policies that have a discriminatory effect
with respect to American companies that adversely affect
American companies in comparison with their European
counterparts. Some have suggested that some of these European
policies are intentionally designed to favor the European
companies, that these are not inadvertent consequences of the
implementation of the European policies.
So there is a level of concern about this discriminatory
effect on the part of some American companies. That concern has
been reflected in the international provisions in this bill,
which are quite explicit about what American agencies are
supposed to do in the event that the U.S. Administration finds
that there is a discriminatory effect. And point in fact: At
one point the bill even says that no Federal agency may
continue any action to enforce even agreements that the United
States has entered into if those agreements lead to some
discriminatory effect.
Now, bearing in mind that the safe harbor arrangement
continuation depends entirely upon the voluntary willingness of
the European Union to continue it, I am wondering how
irritating you think this provision might be and whether it
might at some point--would lead the European Union to suggest
that----
Mr. Stearns. Will the gentleman yield?
Mr. Boucher. Let me just finish the question and then I
will yield.--to suggest that perhaps if we are going to behave
this way, we are going to have some different view of whether
the safe harbor ought to be continued.
I would be happy to yield.
Mr. Stearns. I am going--we are going to take a 5-minute
break. I have to make one call and a lot of the members haven't
come in. We don't have votes until late tonight. We are going
to take a 5-minute break and we will be right back and that
will give you a chance to ponder his question.
[Brief recess.]
Mr. Bass [presiding]. Sorry for the momentary interruption.
We are all playing musical chairs. The chairman had to go down
to make an opening statement. I am not sure he mentioned that.
If he did, we certainly apologize for the interruption, and I
would continue to preside until he runs. My understanding is
that Mr. Boucher asked a question and we were waiting for a
response.
Mr. Boucher. Mr. Palafoutas, let us begin with you.
Mr. Palafoutas. To say we have a concern is to say just
that, and the bill recognized that, in that the Secretary of
Commerce has the responsibility, if the bill is enacted, to see
if this harmonizes. Our concern is predicated in some respect
on the meeting Chairman Stearns had with the privacy officers
of the EU back in January. And they have a different view of
what is going on in terms of privacy. And as you mentioned, I
think the number is 242 companies have signed up under the
directive, and we are not sure how the Europeans will respond.
From our standpoint we just don't know. I am sure others have
other opinions.
Mr. Boucher. When you say you don't know, let me plumb that
a little more deeply. Are you a little bit apprehensive if we
enact this provision into law that the Europeans could
potentially respond by being less interested in the
continuation of the safe harbor provision? It is purely
voluntary on their part.
Mr. Palafoutas. Yes.
Mr. Servidea. I think to start out, I would say, yes, we do
share the concern that perhaps it could disrupt what we think
is probably an arrangement that is working well at the moment.
As you pointed out, there are over 240 U.S. Multinational
companies who have decided to voluntarily certify into safe
harbor. And I think we have to start from the premise that the
European governments have certainly the right to protect their
individual citizens' privacy just as you do, you know, U.S.
Citizens. And we can do that with them under individual legal
contracts with each of the data protection ministries or we can
do it under the Safe Harbor Agreement. The Safe Harbor
Agreement happens to be a much more efficient way to do that
instead of having to deal with 15 different data protection
directives on perhaps a very specific--sectoral-specific
contracts. We can certify under the safe harbor to all of that
and have the U.S. Regulatory agencies being the enforcement
mechanism. We think it is working well and we would not like to
see it disrupted. We think sections 302 and 303 possibly could
do that. Section 304, which calls on the Secretary of Commerce
to work on harmonization, we think is probably worthwhile.
Mr. Boucher. I share the view you have expressed, and I
would hope as we examine these provisions once again in
anticipation of enacting the measure during the next Congress,
we could revisit these international provisions. And if you
would be so good perhaps as to communicate this view somewhat
more persistently during the drafting process, I think that
would be beneficial to all parties concerned.
Mr. Schall.
Mr. Schall. I am glad you brought up the international
provisions, because I think the whole international question is
important to this debate and you should be commended for your
leadership with our European counterparts on this issue and
also for going the extra mile with some of our companies in
talking through how some of this works.
With respect to the safe harbor--and I must say over the
course of the history of the National Business Coalition on E-
Commerce and Privacy, we have had some companies who are in the
safe harbor--lots of companies who decided not to be in it.
What we are concerned about is there is a level playing field
between us and the Europeans. And I think that is why the call
for the study in here is probably worth doing. In fact, it is
sort of perhaps surprising that a study of this sort wasn't
done before when we first entered into the safe harbor during
the previous administration.
Clearly, we all need to remember you are dealing with a
whole different culture over there in terms of both enforcement
and litigation, much more haphazard enforcement on the European
side than we see over here, and a very important distinction in
the litigation culture where, by and large, loser pays over
there. Tremendous disincentive to bring lawsuits. Obviously, we
don't benefit from that approach over here. Perhaps if we did,
we would have a different view.
A lot of the companies decided not to pursue the safe
harbor, hoping that model contracts would end up being better,
and then we of course subsequently discovered that the model
contract that the Europeans decided to draw them out were not
better, in fact were worse, and you have been a part of that
discussion as well.
I would, however, share your concern with the particular
provision in this bill that has Congress dictating to the
Secretary of Commerce on how to enforce those provisions. I
think that would probably raise a constitutional concern, so I
think that is worth looking at, though I think the study itself
would simply benefit everybody.
Mr. Boucher. Anyone else care to comment on that?
Ms. Whitener. I won't restate some of the comments made
here. I would like to point out in section 304 we believe the
approach is on target. Again, some of the issues that have been
raised we certainly do feel would warrant perhaps some
additional discussions. But in general, we believe that
businesses should have the freedom to operate globally under
harmonized laws, and if you have processes that leave a door
open for a claim of inadequacy, that it does little to promote
e-commerce.
Mr. Boucher. Section 304 just deals with the general
efforts to provide notice to other countries about problems
that we have and generally would be in pursuance of
harmonization. That is not the more troubling section that
actually would inhibit enforcement of agreements we already
have in place. Anyone else care to comment?
Ms. Barrett. I would like to say I am commenting on behalf
of Acxiom and not the three companies that I testified. Acxiom
is a member of safe harbor, and we do business in almost all of
the European countries and have found it to be extremely
beneficial in facilitating relationships both within Europe--
global companies working with information flows across those
borders. We certainly would not want to approach any kind of
study with a ``let's find problems'' kind of attitude. If it is
a balanced study and it does get to the facts and identifies
any issues or any problems that exist, we think it might be
very appropriate. But we need to be cautious about the tone in
which we approach it.
Mr. Boucher. I think we agree, and I detect a consensus
everywhere and I share this, that we ought to have the study
provisions. The real troubling provisions are those that would
inhibit enforcement of agreements already in place, and perhaps
we could do without that, while promoting harmonization and
promoting a study of the effect the policies that Europe has
with respect to American companies. And if there is
discriminatory effect, we ought to talk about it and try in a
persuasive way to remedy those problems.
Thank you very much for your comments on this. Mr.
Chairman, I don't have any other questions. Let me simply say--
the other chairman is not here, but let me again say that I
think Mr. Stearns has done an outstanding job in plumbing the
depths of a very complex subject. The hearings he has held are
unprecedented in our Congress on the question of privacy
assurance. We have built a tremendous committee record on this
subject and I think we are ready to act in the next Congress.
And with the support of those at this table and with good
consultation from those who may not agree with all of the
provisions, Mr. Rotenberg, hopefully in the next Congress we
can achieve the enactment of a measure that assures for
American consumers greater privacy protection.
Mr. Bass. Thank you, Mr. Boucher. I am sure that the other
chairman will appreciate your kind remarks.
I was wondering if each of you could comment on the
cybersecurity provisions of the bill.
Mr. Palafoutas. The short answer is we appreciate those
provisions and we think that they need to be in the current
form, because people are concerned about the things that come
up about their identity and the security of personally
identifiable information. So from my company standpoint, these
provisions are good.
Mr. Servidea. I will take a pass on that, if I can.
Mr. Schall. We are glad there is a security component in
the bill. You know, it is funny; we all bandy about the word
``privacy'' in this debate. But in a very real way, privacy is
a misnomer, in that in the most fundamental sense this is a
debate about data management and security. And I think a lot of
the concerns that real people genuinely have when they think in
the world of privacy are really security concerns about their
data, how it is stored, and how it gets used.
So I have to commend Mr. Stearns and the staff and the
members for putting in a security component in the bill,
because in fact I think the terms do get conflated in some
sense, and it is important to realize that a lot of what we
talk about when we are talking about privacy, we really mean
security. And for there to be a security component in the bill
I think draws it out in a very important way.
Ms. Whitener. Well, certainly in the testimony that I gave,
I sort of concentrated a little bit on this area of security--
because, again, in viewing the importance of security, it is
critical--is the underlying actual foundation of being able to
enable your privacy policies. We work together with clients
when we are looking at security, and we are looking at privacy
issues certainly to look at the security in place, and it is
critical.
We believe that what is built into this bill from the
standpoint of the development of a policy, that consideration
of a policy and the approval of the policy by senior management
is also very critical because that does raise the awareness to
the levels at which a company can begin to realistically assess
the risk associated with the security within the organization
and begin to make decisions about generally the costs and the
benefits and how to mitigate the risk and to how to best absorb
the risk, transfer the risk, or how to deal with it just as any
other business risk. But it is critical that senior management
understand and appreciate the risk that security brings to
their organization, and so we certainly support that.
We also support the fact of a designation of someone within
the organization to have that as a responsibility. As I
mentioned, many organizations have someone within their IT or
within the organization that has either a part-time or some
role centered around security. But it is very important within
a company for there to be a channel, a point person for when
there is an incident; that someone knows who to go to to report
it to, and someone who has ultimate accountability for the
security programs. So we are in support of the security that is
within this bill.
Mr. Stearns. I don't know--I guess--let me ask Mr.
Rotenberg a question. You mentioned something about the sharing
of information dealing with law enforcement agencies. And is
there any prohibition dealing with marketing information?
Mr. Rotenberg. I am sorry?
Mr. Stearns. In other words, you are concerned and want
that there should be more prohibition in dealing with law
enforcement agencies. You mentioned Acxiom and how they are
sharing their information.
Mr. Rotenberg. I didn't say prohibition, Mr. Chairman. In
my testimony I tried to explain that typically what is done in
a privacy law is to create a fourth amendment standard, so if
there is probable cause or reasonable suspicion, the police
will get access to records that are held by the business. And I
think that is the appropriate standard and that is the
traditional standard. There is--my concern here is that first
of all there is no standard for law enforcement access in the
bill.
Mr. Stearns. You would like us to incorporate some
standard, then?
Mr. Rotenberg. Yes. As I said, it could be borrowed from
almost any privacy law. It is done in everything from video
rental records and e-mail to cable subscriber and financial
that could be done here.
Mr. Stearns. I guess Acxiom--maybe your comment, too, about
what he just suggested.
Ms. Barrett. Well, we certainly agree that the use of
information by law enforcement when it is warranted cause is
appropriate. And I am speaking on behalf of Acxiom. We do not
believe that, you know, law enforcement should have unfettered
access to all kinds of commercial information, nor do we
provide or participate in such practices.
Mr. Stearns. Mr. Bass, would you like to----
Mr. Bass. One last question briefly. How will the
provisions of the bill that we are deliberating on relate to
provisions passed in Gramm-Leach-Bliley and other privacy-
related aspects of HIPAA?
Mr. Servidea. I think the bill does a pretty good job of
specifying that the existing legislation that deals with
specific sectors such as health care and financial services,
that those bills take precedence over this bill. And I thought
that the statement of the, if you will, preemption of those
bills was pretty explicit and the list is pretty thorough. So--
and we support that.
Mr. Bass. Any other comments?
Thank you, Mr. Chairman.
Mr. Stearns. The gentleman from Oregon.
Mr. Walden. Thank you very much, Mr. Chairman. I wanted to
ask, following up on Mr. Palafoutas' testimony, this issue of
the EU safe harbor provisions, can you give me a little better
understanding in terms of what we might need to do in this bill
to make that work?
Mr. Palafoutas. As we discussed before, ours is a concern
about the EU and their response to this particular bill. I
think it is a matter that we want to rise to the level of
conversations with members of the privacy officers and the
various customers to see how they react to that, because it is
a problem in that there is uncertainty there. And that is the
only problem there is the uncertainty.
Mr. Walden. Do you think you can get over that issue? What
does it take to get over that?
Mr. Palafoutas. I think the bill provides for some of that,
with the Secretary of Commerce taking a look at this. And even
preliminary discussions, the chairman has had these discussions
in the past with the DPAs. I have had them in here in January
and we had some pretty open discussions at that time. They are
willing to talk about it because this is of great importance to
them, although they have a different perspective on privacy
from what we do in the United States.
Mr. Walden. Anyone else want to comment on that issue?
Mr. Servidea. I would like to say that Congressman Boucher
really kind of hit the nail on the head. Certainly a study, an
effort to determine where we don't have harmonization, could be
valuable. I think the difficulty with this is that it kind of
puts down the gauntlet and says if we can't get harmonization,
then we are going to stop enforcing the Safe Harbor Agreement.
And I think throwing down that gauntlet is extremely
unfortunate. So I would suggest taking out that provision of
the bill which is section 303, would be very helpful and
probably would avert a problem with the European Union, and God
knows we have enough problems with those folks already. This
seems to start us down the road of where we went with FSC. We
put the threat down and then it just becomes increasingly a
problem. And I think for most American corporations right now,
safe harbor is a working option and we would not like to see it
disrupted.
Mr. Schall. If I could jump in there, I think one thing
important not to lose when we are looking at how we interact
with the EU is some sort of holistic approach of how this comes
together. And I think that is what is to be credited in this
bill in asking the GAO to look at it, because we have only ever
looked at pieces. The 15 major companies in my coalition, all
are multinational and almost all deal in Europe, including
actually America's biggest employer in Europe, General
Electric. Because of the difference in the enforcement culture,
because of the difference in the litigation culture where loser
pays over there, it is a very different environment. And I
don't think anybody has walked through yet how those
differences impact our companies in operating with that data.
And also remember, too, we only ever looked at a piece of
it. Safe harbor which frankly has not really been huge
companies--240 companies is obviously much fewer than the
Department of Commerce would have ever predicted and many fewer
than the Europeans would have hoped, you know; even safe harbor
doesn't include financial services companies that are still
hanging out there because the Europeans refuse to accept the
fact that Gramm-Leach-Bliley as passed by the Congress and
signed by the President is American law and ought to be deemed
adequate for EU purposes. So there are always still financial
companies still hanging out there. They don't have a safe
harbor to go into. And I have both financial and nonfinancial
companies in our coalition. I think what is important not to
lose here is the bill, asking someone let us finally do this
work that we probably should have done 4 years ago that tries
to get a holistic look and evaluation of this situation.
Mr. Walden. Anyone else have a comment on that? Mr. Schall,
can you explain your understanding of what is being considered
in San Mateo, California, and is this permissible under other
privacy laws such as the privacy protections within Gramm-
Leach-Bliley?
Mr. Schall. What we see happening in California right now,
San Mateo County and Daly City have already both passed their
own separate opt-in privacy laws. They took us a model bill
that was in the California legislature statewide and did not
pass in the California assembly. So these local jurisdictions
have begun to pass it. Actually five other counties and cities
in that area will do so in the coming weeks. Those bills
actually differ from one to the other, even though they are
generally sort of similar in opt-in, but they have different
remedies, different enforcement provisions.
Actually it is an interesting situation. Daly City is in
San Mateo County and San Mateo County passed a bill and then
Daly City passed a bill and they are not identical. What we see
is now with the potential of who knows how many local
jurisdictions passing conflicting privacy laws, I don't know
how you comply with that. Certainly there is a court challenge
already to those under both the National Bank Act and the Fair
Credit Reporting Act. I think the Fair Credit Reporting Act
challenge is a strong one, but the Fair Credit Reporting Act
would only apply to sharing with affiliates so it would not--
even if it was found valid by the courts--would not throw out
the entire law. And I think because of that, what you are going
to see is a lot of these popping up.
I think under recent Supreme Court rulings you would have
to come to the conclusion that Gramm-Leach-Bliley may well not
preempt them. Unless there is a specific prohibition on
jurisdictions within States, then you probably haven't
preempted locals from doing that. I think now we have this
situation and I think that is frankly why we are going to need
a bill because you have already seen some localities passing
bills.
Mr. Walden. Given--do you believe that this bill's
provision's banning private rights of action and preempting
State action can be interpreted to permit or allow class action
lawsuits in States?
Mr. Schall. Right now?
Mr. Walden. No. Under this legislation.
Mr. Schall. I don't see anything under this legislation, on
the advice of counsel--and perhaps others know better--I don't
see anything in this legislation that changes what is existing
private-rights-of-action State AG authority under existing
mini-FTC acts passed by each of the 50 States and District of
Columbia. I don't think anything here changes what is already
existing in terms of what can be done at State and local levels
in terms of enforcement under mini-FTC acts.
Mr. Walden. That is all the questions I have.
Mr. Stearns. I thank my colleague. Let me just before we
wrap up, just touch a little bit, Greg, on what you just talked
about, which I think is going to be the hard fight, because you
have a lot of policy decisions but then you come down with one
or two political ones. And this banning the private right of
action and preempt State action is going to be the political
fight, because there are people who fundamentally think they
should be able to go to the Federal courts and be able to sue.
And so that might be an area where we are going to have to find
some kind of compromise to get this through. As you know, with
a political consensus issues work through themselves
successfully and that is why we have the ballot instead of the
bullets. So it is really a remarkable process so I am very
sensitive to that.
I guess a question, Mr. Schall just touched on--I will go
back to you--if we have in the bill this banning private right
of action and preempting State action and maybe someone else--
Mr. Rotenberg, you can help me out, too--would that eliminate
class action suits at the State level? Could that eliminate all
possibilities of States attorneys general getting together and
working to do something? I am not a lawyer, but it would seem
to me that we are trying to keep it on the State level and not
on the Federal level. But there might be ways for attorneys
general in class action suits to get together.
Mr. Rotenberg, let me have you start, because you are
probably more supportive of this.
Mr. Rotenberg. I appreciate your comment, Mr. Chairman, and
I really do want to emphasize that my position and the position
of the privacy community generally is not to enrich lawyers.
Mr. Stearns. Oh, no.
Mr. Rotenberg. And I want to make sure how strongly we
believe this. I went up to New York to participate in a Federal
Court proceeding as an intervenor to object to a settlement in
a case where the lawyers were getting paid and nothing was
being provided to the consumers for a breach of privacy, and I
said to a Federal judge I thought this was not appropriate. So
I would look for approaches that address the concerns of the
business community about not being exposed to class action
liability. I think you know the opportunity under the Telephone
Consumer Protection Act, for example, which allows people to
get damages of $500 if they go through all the steps of
notifying the company first and then going to small claims
court is not about approach for privacy issues. And I think
there are also ways in terms of the State attorneys general to
allow them to enforce rights set out under Federal statute,
which was the approach that was ultimately settled upon in the
revised Hollings measure.
So I think there are ways here in the middle area to
address concerns on both sides, but I believe very strongly the
flat prohibition on private action joined with this very strong
preemption is really shutting the door on privacy claims.
Mr. Stearns. Well, I am sensitive to that. We have this and
we support it, but I am looking for possibilities, if I can get
a markup out of my subcommittee and get it to the full
committee. I mean, to get a lot of the Democrats on board is
going to require some compromise in that area, and I see that
as one of the problems, early on problems, so any solution that
you have.
Mr. Schall, I will let you answer first.
Mr. Schall. Well, I am glad Mark Rotenberg and I agree that
this should not be a trial lawyers enrichment act. As we read
the bill, there is nothing in your bill that bans class
actions. So no, they would not----
Mr. Stearns. They could go to the States?
Mr. Schall. Absolutely. And that point is definitely worth
underscoring. States still have the opportunity to act under
this bill through mini-FTC acts that have been passed by all 50
legislatures and the District of Colombia, and indeed if States
want to go back and revisit mini-FTC acts that they passed,
they are free to do that as well. So State attorneys general
have the ability to act in private rights of action at local
levels.
What this bill does not do, and I think exactly is the
right decision, is not create some new Federal private right of
action for this bill, leaving the enforcement authority to the
FTC where I think it legitimately belongs. So nothing in this
bill changes what is already there in terms of class actions
and State attorneys general under mini-FTC acts.
Mr. Stearns. Mr. Misener.
Mr. Misener. Mr. Chairman, we have testified on a number of
occasions that we oppose private rights of action in this new
kind of a privacy law. And certainly we would also oppose class
actions. To us it is a subset of private rights as a specific
type of action, and we ought not have newly granted private
rights under this kind of a bill. This isn't though, however, a
traditional case of businesses just being afraid of the trial
bar and issuing any kind of private rights for fear of large
judgments and that sort of thing. It really goes to the
ultimate goals of this legislation. And it seems to me that the
ultimate goal is giving consumers informed choice about their
private information: what they have done with it, where they
provide it, where it goes thereafter. And that kind of informed
choice relies on information and having the consumer truly be
informed of what is going on.
I think it would be easy for companies, responsible
companies like the ones that come and testify before your
subcommittee, my company certainly, to write a very thorough
legalistic privacy notice that would withstand any kind of a
private challenge. It would hold up and it would be 5, 15, 20
pages long, small type, and all those sorts of things, but the
fact of the matter is consumers will never read that. What they
want to read is something really clear, bullet points, couple
pages long, that is understandable and in English.
Mr. Stearns. Or their lawyer can read.
Mr. Misener. And so I guess our concern, Mr. Chairman, is
if we are subjected to the class action bar, to the plaintiff's
bar in general, what we will find is that companies will back
off and make their policies a lot less readable for the sake of
legal defensibility. It seems to me a public enforcement
mechanism, such as through the Federal Trade Commission, could
take into account those competing goals of precision and
readability.
Mr. Stearns. Anyone else wish to comment on that? I will
close with asking each of you perhaps just the cost of
implementation of H.R. 4678; you know, do you see any large
costs for implementation of this bill? And you might just say
what you would foresee if you had to implement the one on the
Senate side, just to give me an idea of some--I don't know if
you can quantify it, but you might be able to speak in broad
terms--is this going to cause an enormous additional cost for
you and your companies?
Mr. Palafoutas. As you know, Mr. Chairman, the most visited
Web sites already have a clearly defined privacy policy and do
all that they can to protect consumers' privacy. I think in
terms of cost to the companies, I don't see a great cost. I
think it is of great importance to consumers that they do this
certainly across State boundaries; and that is the biggest
thing that this bill does, just to make it seamless. You take a
look at the local municipalities--now the States, consumers can
have certainty on interstate commerce. This is going to
continue. The one big cost that consumers talk about is they
want a free Internet. We don't talk about that other side.
If you were to do a survey of everybody here on the panel
and ask are you concerned about privacy on the Internet, of
course we are concerned about it. But as Mr. Rotenberg said
earlier, there is a tradeoff, and part of the tradeoff is still
get my name, address, and telephone number for certain uses.
But I think your bill brings certainty into the marketplace,
and anytime there is certainty in the marketplace, that is a
good thing and a plus for industry and a plus for consumers.
Mr. Servidea. Mr. Chairman, I don't--speaking for NCR and
for the rest of the companies--I don't really foresee a great
expense involved in implementing H.R. 4678. I think most of the
companies have already put in place the provisions that you are
asking for here. I think with respect to the Senate bill, I
think because of the fact that it differentiates so much
between different types of information, as was pointed out--
sensitive information, insensitive information, on-line
information versus off-line information, whereas most of our
systems, most of our practices and procedures, are to treat
data--as I said, data is data and we treat data pretty much the
same way. If we had to go back and try to refigure out how we
are going to treat it, that is where the cost would come from.
Mr. Schall. Sure, there are costs, and I would suspect we
will all find they are much higher than we think, but we
consider them to be legitimate costs. But I will give one
example. One of our coalition companies, Check Free--California
passed the law that this is how you deal with Social Security
numbers in terms of financial transactions--required a change
in the management system, $250,000 just in that State. One
State, one company, and multiply that by every company in every
State, sure the costs add up. But we considered the costs that
would be associated with the changes outlined in this bill
obviously are far lower than what you would see in the approach
in S. 2201; higher costs which frankly wouldn't result in any
added benefit to consumers, and I think that is the real
problem.
And then to underscore the other point, what would be most
expensive for us and, of course, possibly impossible to comply
with and no benefit to consumers, is to have some patchwork. We
have to have any number of information systems to meet those
particular regulations.
Ms. Whitener. I think most companies, as we look back at
the ones who have been out front in this issue and have been
moving forward with very effective security and privacy
practices, have found that their investment in these practices
has actually been creating returns, and that it can be used as
a business enabler.
Mr. Stearns. Cost of doing business.
Ms. Whitener. It is a cost of doing business today.
Companies need to understand what their customers and consumers
are asking for, what their needs and expectations are, and they
have got to be able to respond quickly to those needs and
expectations. And certainly privacy and security are certainly
two of the demands that they are facing. So if you take away
any type of compliance-driven initiatives, many companies today
are working to meet their customers' expectations for security
and privacy, and they are finding that as they implement
effective information handling and security behind that, that
that is enabling business processes and content sharing and
more effective opportunities for revenue enhancements than it
had before. So if we look at the costs there, I do believe that
you can see some rationalization of the costs as an investment
and very proactive business practices.
Ms. Barrett. On behalf of Acxiom Corporation, the costs are
minimal to implement this bill. Most of the provisions are
already industry practices and certainly practices that we
think are appropriate practices and that build consumer
confidence. And I would echo the comments just previously made,
that it is really about trust and not about compliance when it
comes to building relationships with consumers.
I think that where the cost of this bill may be borne by
companies that have not participated in self-regulatory
programs or other programs and activities, then they will have
the costs to implement the kinds of notices, choices, and
security practices that many of us have had in place for a
number of years.
Mr. Misener. Mr. Chairman, it is unlikely that H.R. 4678
would cause us to expend much and many resources to comply. It
is not going to cause us to change our practices in any
substantial ways. In fact, it is not even clear that S. 2201
would have those direct material costs on a company like
Amazon.com, which already has had excellent privacy practices
in place for quite some time. The costs of S. 2201 are not in
the implementation side but more in the litigation side,
defensive side. Defensive in two senses: One is defense from
the litigators, and Mark will tell me who are consumers and not
litigators.
But the point is that consumers don't view privacy as a
vector, nor should they. Otherwise, we would wall ourselves off
in cinderblock. They want a combination of privacy,
convenience, selection, personalization, all the things that go
along with that. And our goal is to try to serve the overall
customer desire for shopping.
The other aspect of this, of S. 2201's potential costs on
us, would simply be the competitive costs. If we are competing
with on-line retailers, including the largest company in the
entire world, if the same regulations are not applied to them
as would be applied to us, we can see substantial competitive
risks as well.
Mr. Stearns. I assume you will send a letter of support for
the bill then? We will use your testimony as an endorsement
somewhat.
Mr. Rotenberg. I am still working on my letter, Mr.
Chairman.
Mr. Stearns. We will be waiting.
Mr. Rotenberg. I think it is very important to keep in mind
costs to consumers, because ultimately when you are talking
about the protection of privacy, you are talking about the
concerns that consumers have about the loss of privacy. And
there can be hard costs in identity theft, which State
attorneys general say now is the No. 1 white collar crime in
America. There can be soft costs in the sense that the
businesses you are dealing with in trying to establish
relations of trust are routinely taking your personal
information and selling it to third parties for other purposes.
Now, it is hard to put a price tag on that, but it is very
real--I think the large problem here that needs to be solved.
But I think what unites the consumer groups and business
groups is the belief that the cost to consumers to participate
in new services should not be their loss of privacy. They
should not be asked to trade their privacy to be able to take
advantage of opportunities in the marketplace. And so I think
we need a bill that minimizes that cost and lets people
participate and safeguards their privacy.
Mr. Stearns. I thank all of you for attending our hearing.
And as we move forward, any of you who have not written a
letter of support, we would appreciate it because that works in
getting Members to come on the bill.
The second point I would make is that what Mr. Shaw
mentioned in California, there is going to be much more of an
impetus to this get bill marked up and get it to be visible. I
invited the chairman up. He is down in an oversight hearing on
Global Crossing. But the bottom line is I need to convince more
Members and the leadership of my party how important it is to
get this as a benchmark before we get all these communities and
50 States out there with a bill which will cause--talk about
costs that was alluded to.
So again, I think we made a good start and a lot of your
testimony will help, I think, clear a lot of issues for Members
and we will keep working on this. And with that the committee
is adjourned.
[Whereupon, at 11:25 a.m., the subcommittee was adjourned.]