WASHINGTON (Reuters) - U.S. regulators are pressuring Internet companies to put in place by the end of the year a "Do Not Track" system that would give consumers more control over their personal data online, in a report released on Monday that privacy advocates dismissed as too soft.
The Federal Trade Commission's long-awaited 57-page final report on privacy recommendations relies heavily on industry voluntarily adopting best practices.
It also called on Congress to pass broad privacy legislation that would allow consumers to see how their online data is collected, used and sold, and give consumers the ability to stop such practices.
The report is in response to growing consumer concern about how Internet giants such as Google, Facebook and Twitter collect and trade in vast amounts of detailed information about their users' online activities and real-life identities.
The lack of force in the FTC's report is due in part to limits on the agency's powers.
The FTC has a very limited ability to write rules, and is instead leaning on Internet companies to adopt tougher internal privacy policies. The FTC does have the power to punish companies that violate their own policies or otherwise engage in deceptive practices.
The FTC is also raising the specter of legislation, but that is a largely hollow threat, at least in the short-term, due to the gridlock gripping a divided U.S. Congress.
In one of its top "action items," the FTC urged Internet companies to follow through on pledges to implement a Do Not Track system that would let consumers click a button on their Internet browsers to ensure their data is not being collected.
"We are confident that consumers will have an easy to use and effective Do Not Track option by the end of the year because companies are moving forward expeditiously to make it happen and because lawmakers will want to enact legislation if they don't," said FTC Chairman Jon Leibowitz.
The Digital Advertising Alliance, a self-regulatory body representing media and marketing trade associations, announced last month that its members would honor Do Not Track requests.
Some privacy advocates were disappointed in the FTC's report, which was two years in the making.
"'Do not track' is like vapor policy. There's nothing there in terms of actual protections for users," said Marc Rotenberg, executive director of the Electronic Privacy Information Center.
Privacy advocates said the industry-backed commitment to Do Not Track was of limited scope and consumers should avoid thinking their Internet activity would be totally shielded.
The Worldwide Web Consortium standards group is developing a safeguard that would allow consumers to completely cut off collection of their personal information. The FTC said it would work will all stakeholders to implement Do Not Track.
Consumer groups were disappointed by the FTC's reliance on self-regulation in the report.
"The commission's overall support for industry self-regulation is disappointing, and reveals a FTC still too often constrained from effectively protecting the public," said Jeff Chester, executive director of the Center for Digital Democracy.
STRIKING A BALANCE
The FTC's push for self-regulation comes after years of failing to get Congress to pass broad privacy legislation.
Privacy laws have been narrowly tailored toward protecting children, or categories of sensitive data such as credit reports and health records. Policy experts see little chance of a comprehensive privacy bill passing this year.
Legislation that would curtail Internet companies' ability to collect and cash in on users' data would be a severe blow to a billion-dollar industry.
Data collection on the Internet allows advertisers to target users in a demographic who are more likely to buy their product. These ads often subsidize Web content.
Internet giants have already gotten into trouble for various abuses, including secretly tracking users' locations, selling consumers' data to advertisers without their knowledge and other blunders.
Both Google, the world's No. 1 search engine, and Facebook, the No. 1 social networking site, reached settlements with the FTC last year because of privacy problems which resulted in the companies being subject to privacy audits for 20 years.
But industry argues that intrusive government scrutiny will harm Internet companies that are important drivers of economic growth.
"The FTC's recommendations would create economic burdens that could stifle the efficiency and innovation that consumers also want from the Internet. The report does not strike the right balance," said Daniel Castro, senior analyst at the Information Technology and Innovation Foundation.
The White House was sensitive to this argument when it announced its own position on Internet privacy last month.
President Barack Obama, who is fighting for re-election in November, said companies should give consumers a "privacy bill of rights" that includes basic protections. He was careful to note that his plan will foster growth in the "digital economy".
Joseph Turow, a mass media expert at the University of Pennsylvania, said the FTC was in a difficult position because of the administration's desire to be seen as friendly to business.
"There's an essential tension going on in not wanting to be known as anti-business but at the same time wanting to show that they care about privacy," he said.
A Google representative said the company looks forward to working with the FTC. Erin Egan, Facebook's chief privacy officer-policy, said the company intends to participate in future meetings to develop enforceable codes of conduct. Twitter declined to comment.
ON THE RIGHT SIDE OF PRIVACY
The FTC's report also targeted online data brokers who buy, compile, and sell personal information about consumers. It said there should be legislation that would provide consumers with access to information held by data brokers.
Further, the FTC said data brokers should explore a centralized website where consumers could get information about their practices and their options for controlling data use.
Joel Reidenberg, an Internet privacy expert who teaches at Fordham University School of Law, said that the FTC report was significant even though the FTC's power to issue regulations on privacy is limited.
"The large companies are looking for guidance to be on the right side of privacy. And to the extent that the FTC is providing indications of what best practices should be in the privacy world, that will be of assistance to large companies," he said.
(Reporting By Jasmin Melvin and Diane Bartz with additional reporting by Alexei Oreskovic; Editing by Maureen Bavdek, Gerald E. McCormick and Tim Dobbyn
