FTC Slaps Down Retail Use Of Tracking Software

Attorney Mark D. Rasch is the former head of the U.S. Justice Department's computer crime unit and today serves as Director of Cybersecurity and Privacy Consulting at CSC in Virginia.

In a case that has potentially significant consequences for NFC and RFID applications, the U.S. Federal Trade Commission is cracking down on so-called "phone home" technologies being used by computer rental companies to monitor consumer behavior. When contemplating the use of any technology that provides use, location or other information about a product, retailers should be careful to ensure consumers know—or are at least able to know—exactly what the product is doing.

Don't be so quick to conclude that your people aren't doing any of this, though, as it extends way beyond rent-to-own. Many current—and many more future—devices will have technology that enables post-purchase information capture. For example, RFID tags that aren't disabled before the customer leaves the store might enable retailers, marketers or others to capture data from those devices without the consumer's knowledge or effective consent. Embedded NFC tags or other devices make it possible to track consumers wirelessly, even after they leave the store. Smart appliances can communicate with both the electrical grid and retail outlets, so the power company knows the toaster is making Pop-Tarts or the grocery store knows when that yogurt on the top shelf has gone bad (can yogurt really go bad?).

We already have electronic books that tell publishers what page we are on; streaming movies and songs that post our playlists to Twitter and Facebook; and apps that tell our friends when we are at Walmart, what we are buying and even how much we are paying. These capabilities are not intrinsically evil. But when hardware or software is collecting information about consumers, the deceptive trade practice rules essentially mean the consumer should be advised of this fact—and given some way to either opt in or opt out. And you thought the only people who thought their appliances were spying on them wore aluminum foil hats.

Rent to own. The FTC case arose out of a software product made by a company called DesignerWare LLC. DesignerWare sold its product to a bunch of "rent to own" centers that, in addition to renting furniture and electronics, also rent things like PCs and laptops. These companies included Aaron's Rent-A-Center, ColorTyme and Premier Rental Purchase. What people renting computers from these places didn't know was that, if they didn't return the computers on time or didn't pay for the lease (and, of course, often even if they did), the software was equipped with two different modes. One operated as a remote "kill switch," effectively giving the rental center a "self-help" remedy for an alleged breach of contract and a way to render the computer inoperable. Imagine giving a presentation to a client on a computer the rental company just thinks you haven't made the most recent payment on.

This practice is more common than you might think.This practice is more common than you might think. It is not uncommon for car lessors or financers to install both a kill switch and a hidden GPS device on leased or financed vehicles. So if a vehicle is not fully paid for, not only can it be disabled (say as you are driving a sick relative to the emergency room) but located by GPS. This is something Walmart shoplifters recently learned the hard way. Other technologies, including LoJack, OnStar, remote access apps, etc., may effectively accomplish the same thing. So the DesignerWare software enabled Aaron's and others to engage in "self help," something the law typically disfavors, but in the case of items purchased on credit may amount to electronic repossession. Bad enough.

But it gets worse.

The DesignerWare software also has a "Detective" mode. This enables the rental companies to invoke a key logger and capture lessees' keystrokes—their account passwords, their bank and credit information, their personal and intimate correspondence, just about anything they typed. The rental companies could also turn on the webcam and see what the lessee was doing in the intimacy of, well, of anything. The software has a "GPS" mode, too, and can reveal the location of the hardware, enabling both repossession and potential harassment of the customer.

Now, all this might have been legal, if the rental companies had disclosed these "features" of the rent-to-own products. Remember, rights to privacy can be waived, although not all waivers would be "fair." For example, it would certainly not be fair to say "You can have this computer with a webcam for only $30 a month provided we can watch everything you and your girlfriend do on the cam." TMI.

The FTC sued seven rent-to-own companies and the software designers, alleging that these practices were deceptive and unfair. The settlement, announced Sept. 25, 2012, by the FTC and various States' Attorney General, prohibits the software company and the rent-to-own stores from using monitoring software like Detective Mode and bans them from using deception to gather any information from consumers.

By the way, for those who want to dig into this topic more deeply, here are some potentially helpful related documents: the FTC's original complaint, along with the FTC's analysis, and the government's news release about it. (Note to FTC lawyers: When coming up with URLs for your documents, you should really rethink how you shorten the word "analysis.")

The agreement also prohibits the use of geolocation tracking without consumer consent and notice and bars the use of fake software registration screens to collect personal information from consumers. In addition, DesignerWare will be barred from providing others with the means to commit illegal acts and the seven rent-to-own stores are prohibited from using information improperly gathered from consumers in connection with debt collection. All the proposed settlements contain record-keeping requirements to allow the FTC to monitor compliance with the orders for the next 20 years.

If you disagree with me, I'll see you in court, buddy. If you agree with me, however, I would love to hear from you.