Big brother? No, it's a little label that's watching you.

A new generation of product labels capable of reporting on consumers' activities long past the checkout stand is raising alarm among privacy advocates and lawmakers, both in California and nationwide.

Retailers claim that the "smart tags" help them increase efficiency in a number of ways. The tags contain a radio frequency identification computer chip that can store and transmit data on a consumer's product use, geographic location and credit card number.

"The very idea of gathering that much information is frightening," said state Sen. Debra Bowen, D-Redondo Beach. "The problem with the RFID chips is that they're promiscuous. They'll talk to anybody."

Bowen drafted legislation that sets privacy standards for the use of RFID technology in stores and libraries. Her bill, which passed in the state Senate and will be taken up by an Assembly committee in June, would allow stores and libraries to use RFID chips to replace bar codes but prevent them from tracking customers before or after their transaction.

Despite privacy concerns, retailers are moving forward with plans to get their technology into their warehouses and possibly onto store shelves.

Wal-Mart Stores Inc., Albertsons Inc. and Target Corp. have all separately set 2005 targets to have their top 100 suppliers outfit their shipping packages with the smart tags so they can be tracked through the supply chain.

"Most importantly it's going to allow customers to have the merchandise when they want to buy it," said Christi Gallagher, spokeswoman for Wal-Mart. "(The use of smart tags) is going to help us do that more often and more efficiently."

What they do

Wireless electronic readers send out signals that activate the tags, which then transmit information stored on the tag back to the reader.

Retailers said the tags are better than traditional bar codes because each tag contains information that will lead to improved inventory tracking. Also, retailers don't have to worry about manually scanning inventory packages because electronic readers can handle the job.

Retailers expect cost savings will follow because there will be less lost inventory and fewer overstocked items.

Avery Dennison Corp., the largest U.S. label maker, has called RFID technology its single largest long-tern1 growth opportunity.

The Pasadena-based company, which already produces tags and labels for several pilot programs in the U.S. and Europe, plans to double its investment in RFID in 2004, and it expects to start generating revenue on those products by the end of the year.

"RFID fits right into the core of our business." Chairman and Chief Executive Philip Neal said at the company's annual meeting in March. He projected that electronic labels with RFID chips will be as common as printed bar codes 10 to 15 years from now.

While few individual products now carry the tags, retailers imagine scenarios where they could use the tags to identify consumer wants and shopping habits to better serve buyers.

"If I was a customer I would want to keep an RFID active and be able to bring in an item for a receiptless return," said Richard Varn, technology policy advisor to the National Retail Federation. "I want to be able to keep tags in my medical cabinet and keep track of what prescriptions I have there and if they need to be filled."

That idea is scaring consumer privacy advocates who worry that the tags could be used to track customers or collect personal information on a buyer weeks, even months, after a purchase.

Beth Givens, director of the Privacy Rights Clearinghouse in San Diego, said her organization is neutral on Bowen's legislation but supports restrictions on RFID tags being used to collect any type of personal information.

"Our concerns are primarily aimed at RFID tags placed on items that go home with individuals when they leave the store and are still able to be activated," Givens said.

Retailers and industry organizations say Bowen's bill and any type of prohibitive legislation is premature and could prevent useful applications of the technology that could lower product prices.

Low-price leader

Wal-Mart began testing real-life applications of RFID technology on April 30 at a regional distribution center and select Supercenters in the Dallas/Fort Worth area. Eight manufacturers, including Gillette Co., Hewlett-Packard Co., Johnson & Johnson and Procter & Gamble Co., are participating in the first phase of the trial, using REID chips placed on the shipping packages to track inventory.

Gallagher said stores are only testing the use of RFID tags to track merchandise at the case level and that the tags generally will not be on store shelves. But two types of Hewlett-Packard printers and a scanner are shipped individually and the box will contain the chip.

"There are signs on the shelves explaining that those items have an RFID tag," Gallagher said.

Wal-Mart at one point had plans to put the tags on single Gillette razors, but later scrapped the idea. "We don't have any plans to tag individual items in the foreseeable future," Gallagher said.

The technology has been in use elsewhere for some time.

Mobil has been using RFID in its Speedpass automated payment system since 1997, and California uses RFID technology in its FasTrak automated toll payment program, to name just a few examples.

The San Francisco Library Commission recently came under fire from privacy advocates who argue that the organization's plan to outfit their materials with RFID tags could be used to track residents, their reading habits and personal information.

The Los Angeles Public Library, however, has already been using RFID tags for two years in its media center, where all DVDs, videos and CDs contain the chips.

Steve Newcomer, director of information technologies for the library, said the technology allows librarians to check out items simultaneously. He said the library's use of the technology is innocuous, as the chips do not link the item to the user and will not allow an outside reader to identify the title of the item.

"When you speak of privacy issues, it doesn't apply to us," Newcomer said.

Varn said it's too early in the development of the technology to be legislating on the topic and could hurt consumers who would like the cost savings and convenience.

Readers, which currently have a range of about 20 to 30 feel, generally cost about $1,000 per device, and tags range from 20 to 50 cents.

However, Varn said consumers may welcome having readers in their house that could detect when items in the refrigerator have expired. "I would want to keep tags on my things as much as possible," he said.