Out-Law News 4 min. read

OFT calls for labelling of behavioural advertising

Online adverts which are displayed to users based on their web-surfing habits should be identified by an industry-standard badge to alert internet users, consumer regulator the Office of Fair Trading (OFT) has said.

The OFT said that trade body the Internet Advertising Buruae (IAB) should develop the sign, but the IAB has told OUT-LAW.COM that it will only back a badge once it has secured pan-EU support for it.

"We are not going to do this at a UK level, it will be done at an EU level," said Nick Stringer, director of regulatory affairs for the IAB in the UK. "Doing this just in the UK, rushing ahead, makes no sense at all. The first starting point is at the EU level, meaning that if it happens there it will happen at the UK level."

The OFT has published the results of months of investigation into behavioural advertising, the practice of choosing which adverts to show to which web users based on the tracking of their online activities. It undertook the study because of fears that the practice could infringe web users' privacy rights.

The OFT's report has stopped short of calling for more formal regulation of the area, saying that the IAB's Privacy Principles governing members' conduct were a good start and allowing the internet advertising industry time to apply and extend them. It will step in and introduce more formal regulation if that does not happen, though, it said.

"Based on our work and the results of the consumer research, we believe that it is proportionate to focus on improving and supporting self-regulation," said the OFT in its report. "The IAB’s Principles do appear to go some way to addressing consumer concerns."

"The OFT will establish a Memorandum of Understanding with the ICO [Information Commissioner's Office] establishing in which circumstances each party would act," it said. "This will increase effectiveness of enforcement which is an important fall-back if self-regulation were to fail or if there were concerns about practices which fell outside its scope."

Stringer said that the IAB is now committed to the behavioural advertising logo – or 'enhanced notice' – as the best method by which to alert internet users to the serving of ads based on their behaviour.

"The enhanced notice is very important in meeting the objective of being more transparent about this," he said. "Work has already gone on in US about an icon that sits beside ad – we think that that is the way forward."

The report identifies the IAB as the body which must ensure that the advertising industries adopt a behavioural advertising icon if it is to refrain from more formal regulation. "We … encourage the IAB to enhance awareness by developing clear and notices (sic) alongside behavioural adverts," said the report.

Stringer said, though, that the IAB is working towards and EU-wide agreement similar to its UK Good Practice Principles, which would include a behavioural icon. He said it would not introduce a UK icon, waiting instead for an EU-wide implementation of the notice.

"We mustn't run before we can walk. The next step is to agree a set of good practice principles at the EU level that goes one step further that what has been developed at a UK level," he said. "The IAB is working with other parts of the advertising industry, with those bodies that represent advertisers, agencies, publishers and direct marketing companies. And we are looking to get support from policy makers."

Stringer said there was a document outlining plans that negotiations are based on, but that it had not yet been made public.

Trade bodies in the US have already created an icon – a stylised 'i' within a circle – that members use to identify ads that are the result of behavioural targeting. That icon is backed by the American Association of Advertising Agencies (4As), Association of National Advertisers (ANA), Direct Marketing Association (DMA), the Council for Better Business Bureaus (BBB), and the Interactive Advertising Bureau (IAB).

The OFT's research discovered that many consumers were not concerned by behavioural advertising, and that any concerns that did exist would be greatly reduced if they were told it was happening and given control over the process.

"We found that attitudes to online targeted advertising are mixed with 40% of consumers holding neutral views, 28% disliking it and 24% welcoming it," said the report. "Concerns decreased when consumers were able to opt-out of behavioural advertising, and the associated tracking, if they wished. Around 40% of consumers said they would take some actions to prevent behavioural advertising (such as deleting cookies), although only a very small minority would reduce their internet usage to avoid it. Around 60 per cent would not alter their behaviour at all."

The OFT's study also looked at the practice of charging different consumers different prices for goods based on their browsing behaviour, previous purchases or geographic location. The OFT said that companies using these techniques without informing users would be in breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs).

But it acknowledged that its discussion around such price targeting was "largely hypothetical". It said that it had found no evidence of any firms increasing prices to consumers on the basis of their online behaviour at the moment. "The fear of a consumer backlash, in itself, means that firms are reluctant to engage in targeted pricing to preserve their own reputations," said the report.

"The OFT is keen to engage with industry players and consumer groups while behavioural advertising is in its relative infancy, and before targeted pricing takes hold, so that the market develops in a way that protects consumers from bad practice," said Heather Clayton, the OFT's senior director in the consumer market group. "Discussions now about the potential for both benefits and harm, and how consumer protection legislation applies, will stand us in good stead in the event that industry action proves ineffective or targeted pricing becomes a reality."

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