A new U.S. Federal Trade Commission (FTC) case illustrates how retail chains can get in serious legal troubles when they use third parties to help mine shopper data. Although the FTC did not, in that case, go after the retailers who either provided the marketing company with access to the data or who purchased the analyzed data, we can expect that, in the future, either the FTC or consumers themselves will go after those chains.
Retailers routinely hire technology companies or marketing companies to help them better know their customers. These outside vendors can help retailers comb through mountains of data to determine the profiles of their customers, their wants and desires.
But if retailers want to avoid liability for unfair and deceptive trade practices, they had better ask not only what these companies can do, but also how they plan to do it. Even buying aggregated data from an untrustworthy source, or allowing a third party to mine your consumer data, can lead to big trouble.
Cookies are a problem for consumers because they have to read the privacy policies of every single website they visit to find out not only whether cookies are sent, but also what kind of cookies they are, what kind of data they collect, and with whom the data is shared.
But consumers are not powerless. They have the ability, within their browser settings, to decide what kind of cookies to accept, and with whom they want to share them.
A consumer may have no problem with sending a cookie back to the originating site (telling Target that they have been there before) but may take issue with sending the same information to Walmart, or worse, to some Chinese hacking site. They can control—at least to some extent—their own privacy settings. Or at least they thought so.Epic Marketing offered a service to retailers to allow them to engage in behavioral marketing of customers— even those customers who had deliberately made a decision not to accept cookies, and who took efforts to protect the privacy of their Internet browsing activity. Rather than relying on the cookies themselves, Epic developed a technology called "history sniffing."
Every browser has a history file, a file that lists all of the websites that browser (and therefore, presumably, that consumer) has visited over a period of time. If you visit a website twice, a feature in the browser can change the color of the URL displayed.
It's easy to see—try doing a Google search for something, and you will see that all of the results are hyperlinked in blue. Click on one of the results. Then go back to Google and do the search again. You will notice that the one link you previously clicked on is now displayed in purple, not blue.
Epic took advantage of this feature to essentially sniff the browser history files of consumers and gather data for behavioral marketing. The company created a network of more than 24,000 domains, including Papajohns.com, Cnn.com, Orbitz.com, Redcross.com and others, and was able to collect and analyze data across these domains.
Epic then profiled consumers based on this information, sometimes gleaning sensitive health data from the sites visited. Epic could tell whether a consumer was interested in things like arthritis remedies, memory improvement, and pregnancy or fertility issues. It sold this data to other merchants.
So there were two (not mutually exclusive) categories of merchants here—those who gave their customers’ data to Epic, and those who purchased aggregated and analyzed data from Epic. Both of them have potential FTC or civil liability, depending on the circumstances.
But Epic was collecting information from the consumer's hard drive—or at least data stored in the browser's cache indirectly. And Epic was sharing that information not simply with Papa John's "restaurant affiliates and other affiliates," whatever that might mean, but with any subscribers to Epic's data analytics service.
By participating in the Epic marketing program, companies like Papa John’s may themselves be violating the privacy of consumers, either directly or indirectly. Even by purchasing data that was collected this way, retailers may have liability.
And this, according to the FTC and the settlement agreement finalized last month, constituted a fraudulent and deceptive trade practice by Epic.
No word on whether it also constituted a fraudulent and deceptive trade practice by Epic's willing merchant participants. But that is what litigation is for.
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.