Legal Challenges Force Content Sites to Alter Data Use.

ADVERTISERS and commercial content companies usually lobby against proposals for federal laws protecting personal privacy on the Internet.

But after the public relations problems and legal challenges that plagued them last year, 2001 might be the year those same players beg Congress to pass just such a law.

The past year began hopefully for the Web's data miners. DoubleClick Inc., the most prominent ad agency on the Net, was planning to merge its databases of online preferences with information collected off line by Abacus Direct, a traditional target marketer.

Privacy activists and consumer advocates likened the merger to a handshake deal between Adolph Hitler and Darth Vader. But industry insiders predicted the merger might finally squeeze some real money from the millions of individual profiles DoubleClick had collected from cookie files stored on Web suffers' computers.

Savvy surfers know about cookies, but few know these small text files can be installed on your computer by banner advertisements as well as Web sites themselves. Since ad agencies access the same cookie files from different sites, they can use these files to log the individual Web surfing preferences of millions of users.

The data are associated with identification numbers, and usually remain anonymous. Ad agencies might know that user No. 14325 fancies online leather shops and "married but flirting" chat rooms, for example, but they generally don't know the user's name.

Details for dossier

The company's solution was to post sites like PlazaDirect.com, where surfers were invited to submit their name for a chance to win prizes. While only a few could win, everyone who entered got their name attached to their DoubleClick dossier.

Privacy advocates predictably cried foul. Not so predictably, though, the industry backed off. Responding to surveys showing privacy had gained ground as a consumer concern, DoubleClick disavowed any interest in personally identifying information.

The company also joined other online advertisers and Web publishers in producing a set of self-regulatory guidelines designed to convince Congress and the Federal Trade Commission that there was no need to pass further restrictions.

The maneuver convinced lawmakers, who failed to act on a number of pending proposals. But it wasn't enough to hold back the lawyers, who weighed in against online profiling with private- and public-sector legal challenges.

In November, attorneys filed separate class action lawsuits against online advertisers Avenue A Inc. and MatchLogic Inc. for allegedly tracking customers without their permission.

Meanwhile, the Arizona attorney general's office accused New Jersey-based HealthSquare.com last month of violating the state's consumer fraud laws by allowing advertisers to set cookie files despite a privacy policy that said visitors' information wasn't shared with third parties.

The site's operators didn't think they'd done anything wrong, particularly since advertisers probably didn't know the names of visitors to the health information site. But the company agreed to settle nonetheless, paying the state's legal fees, updating its privacy policy and taking a public relations hit that few dot-coins could afford in today's tight market.

Targeting lawmakers

Such incidents are likely to drive Web publishers and their advertisers into their congressional office early this year. Since they know consumers want federal protections, they'll try to shape a bill that imposes as few restrictions as possible, quieting critics and convincing state officials that the federal government is taking charge of the situation.

I'm betting they'll get what they want. Internet privacy is a hot issue this year, particularly since it doesn't break along traditional party lines. With the Senate split evenly between the two major parties, lawmakers on both sides of the aisle are looking for "easy" compromises to improve their standing among voters soured by partisan sniping over hanging chads in Florida.

Yet Congress will try to tread lightly, avoiding the strict rules suggested by privacy advocates for fear of fouling up the fragile dot-com economy.

So don't be surprised to see online powerhouses in the unusual position of inviting new federal regulations.

Indeed, the people lobbying against federal privacy protections this year just might be the privacy advocates.