Watchdog Planned for Online Privacy

The Wall Street Journal

The Obama administration is preparing a stepped-up approach to policing Internet privacy that calls for new laws and the creation of a new position to oversee the effort, according to people familiar with the situation.

The strategy is expected to be unveiled in a report being issued by the U.S. Commerce Department in coming weeks, these people said. The report isn't yet final and could change, these people said.

In a related move, the White House has created a special task force that is expected to help transform the Commerce Department recommendations into policy, these people said. The White House task force, set up three weeks ago, is led by Cameron Kerry, the brother of Sen. John Kerry (D., Mass.) and Commerce Department general counsel, and Christopher Schroeder, assistant attorney general at the Department of Justice.

The initiatives would mark a turning point in Internet policy. Recent administrations typically steered away from Internet regulations out of concern for stifling innovation. But the increasingly central role of personal information in the Internet economy helped spark government action, according to people familiar with the situation.

The Wall Street Journal has been examining this online information-gathering industry in its "What They Know" investigative series.

Privacy issues are bubbling up on Capitol Hill. Rep. Joe Barton (R., Texas), co-chairman of the Congressional Privacy Caucus and ranking member of the House Energy and Commerce Committee, said he welcomed the administration's privacy initiative.

"Better late than never," Mr. Barton said. "I am glad more and more folks, in the government and otherwise, are beginning to realize that there is a war against privacy."

Yet the administration faces significant obstacles to enacting its privacy agenda. While the Republicans who now control the House of Representatives generally support privacy, they are unlikely to support any bill to expand the enforcement powers of the Federal Trade Commission, GOP congressional aides say. Privacy advocates will be reluctant to back legislation that lacks enforcement and is perceived as toothless.

There is no comprehensive U.S. law that protects consumer privacy online. Internet privacy issues generally are policed by the FTC, which can take action only if a privacy-violating action is deemed "deceptive" or "unfair."

That means the recent privacy crackdowns on Facebook Inc. and Google Inc. were led by Canada, Germany, the U.K. and other countries that have stronger privacy laws.

The central issue in writing federal privacy legislation is whether the Internet industry's efforts to police its own behavior has been effective enough. Proponents of legislation argue the industry is a Wild West where consumer data are gathered and sold without restrictions. Opponents of legislation say the industry is committed to providing tools to give consumers better insight into and control over data about themselves.

Commerce's draft report doesn't recommend specific legislation, but does indicate that self-regulation isn't robust enough, these people said. The administration would seek to guide the legislative debate through its new privacy office.

In remarks in Jerusalem in late October, U.S. Commerce Department Assistant Secretary Lawrence E. Strickling said that Internet privacy needs to be strengthened for the industry to sustain users' trust.

"It's difficult for consumers to act in their own interest if the law doesn't meet their basic expectations," Mr. Strickling said. He cautioned that the coming report isn't a final position statement, but rather the beginning of a "dialogue" that would lead to an official administration policy on information privacy.

A spokesman for the Commerce Department said the administration is "committed to promoting policies that will preserve consumer privacy online while ensuring the Web remains a platform for innovation, jobs, and economic growth. These are complementary goals, because consumer trust in the Internet is essential for businesses to succeed online."

The Federal Trade Commission is also expected to issue a report on Internet privacy by the end of the year. It is expected to call for the industry to develop a so-called do-not-track tool that people could use to remove themselves from online surveillance by marketers and others.

The prospect of new laws raised hackles at the Interactive Advertising Bureau, which represents the online-ad industry. "We believe we are living up to consumer-privacy expectations and are very advanced in privacy protections and innovation," said Mike Zaneis, senior vice president, who said he wasn't familiar with the report's contents.

Some privacy advocates expressed disappointment that Commerce isn't going further. "While [the report] gives lip service to legislation and fair information practices, its framework is based on industry self-regulation," said Jeff Chester, founder of the Center for Digital Democracy, who has met with Commerce officials about the report.

In 1999 President Bill Clinton appointed Peter Swire as chief counselor for privacy in the Office of Management and Budget. Mr. Swire helped craft privacy guidelines for the use of consumer medical and financial data. The new office would be similar but have more resources, and would engage other countries in privacy discussions and negotiations.

U.S. Tech Probe Nears End

The Wall Street Journal

Several of the U.S.'s largest technology companies are in advanced talks with the Justice Department to avoid a court battle over whether they colluded to hold down wages by agreeing not to poach each other's employees.

The companies, which include Google Inc., Apple Inc., Intel Corp., Adobe Systems Inc., Intuit Inc. and Walt Disney Co. unit Pixar Animation, are in the final stages of negotiations with the government, according to people familiar with the matter.

The talks are still fluid, these people said, with some companies more willing to settle to avoid an antitrust case than others. If negotiations falter, both sides could be headed for a defining court battle that could help decide the legality of such arrangements throughout the U.S. economy.

Still, there are powerful incentives for both sides to settle the potential civil case before it reaches that stage.

The Justice Department would have to convince a court not just that such accords existed, but that workers had suffered significant harm as a result.

The companies may not want to take a chance in court. If the government wins, it could open the floodgates for private claimants, even a class action by employees. A settlement would allow the Justice Department to halt the practice, without the companies having to admit to any legal violations.

Spokespeople for Google, Apple, Intel, Adobe and Intuit all declined to comment. Pixar had no immediate comment. A Justice Department spokeswoman also declined to comment.

The Justice Department's probe of hiring practices could reach beyond Silicon Valley.

During the course of its more than year-long investigation, the agency has uncovered evidence of such agreements in other sectors, according to the people familiar with the matter.

A settlement with tech companies—or a court fight—could therefore help determine what kinds of agreements are acceptable in other industries as well.

At stake are dueling visions of how far companies should be able to go in agreeing to limit the kind of headhunting that can help valuable employees increase their compensation.

The companies have argued to the government that there's nothing anticompetitive about the no-poaching agreements. They say they must be able to offer each other assurances that they won't lure away each others' star employees if they are to collaborate on key innovations that ultimately benefit the consumer such as improved Google SEO.

Some economists believe that banning such agreements could harm Silicon Valley's open, collaborative model.

"The effect of the lawsuit would be to reduce innovation because companies would worry about exposing their employees to each other," said Paul Rubin, an economics professor at Emory University, who isn't involved in the case.

For the Justice Department, such agreements amount to an effort by companies to limit competition for talent, harming employees' ability to get the best jobs and wages and reducing the incentives for people to enter professions in high demand, according to people familiar with the matter.

The government could argue that the agreements constitute an effort by companies to fix the price of labor, and are therefore just as harmful as price-fixing or bid-rigging—automatic violations of antitrust law.

"In a free market economy, you want the best people getting the best positions, and presumably all the rewards that come with that," said Spencer Waller, a law professor at Loyola University Chicago, who has no connection to the case. "This agreement, if the government has the facts, suggests that market for talent is being depressed by collusion."

The agreements under investigation varied in their scope and details, according to the people familiar with the matter. In conversations with the Justice Department, some companies have maintained they didn't have agreements not to hire each others' employees, only agreements not to "cold-call" partners' employees.

However, people familiar with the matter say the Justice Department believes that cold-calling is an important way in which people are hired in the sector. Even if the employees don't end up moving, their employer often has to sweeten their pay and conditions to make sure they stay.

After more than a year of investigation, the Justice Department antitrust division has concluded that many of these agreements have harmed people's ability to get better jobs or improve their conditions.

But proving that in court may be tricky, some antitrust lawyers said.

During the course of the investigation, more than a dozen tech companies have been questioned by the Justice Department, people familiar with the matter said. Those include Yahoo Inc., Genentech Inc. and IAC/InterActiveCorp.

However, some companies said they are no longer in the government's cross-hairs. "After a thorough investigation, the [Justice Department] antitrust division has advised IBM that it will not pursue a case against IBM," an International Business Machines Corp. spokesman said.

Microsoft Corp. also said it is no longer a target of the investigation. A Genentech spokeswoman said the Justice Deparment had relieved the biotech firm of the obligation to hold on to relevant information.

A Yahoo spokeswoman said the company fully cooperated in the investigation and believed its responses were sufficient. IAC didn't respond to requests for comment.

The agency has decided not to pursue charges against companies that had what it believes were legitimate reasons for agreeing not to poach each other's employees, said people familiar with the matter. Instead, it's focusing on cases in which it believes the non-solicit agreement extended well beyond the scope of any collaboration.

Summary: Google Continues Book Battle with DOJ

AP

WHO'S SMARTER?: Google Inc. believes it can convince a federal judge that it has a better grasp on antitrust and copyright law than the U.S. Department of Justice.

WHAT'S AT STAKE: The Internet search leader is seeking the digital rights to millions of hard-to-find books to make them more accessible. It has reached a settlement with publishers, but the Justice Department and others object.

THE DECISION MAKER: U.S. District Judge Denny Chin in New York.

WHAT'S NEXT: Chin is scheduled to hear arguments Feb. 18.

DOJ Deems Amended Google Book Search Deal Anticompetitive

eWeek

The Department of Justice Feb. 4 urged a New York District Court not to bless Google's amended Google Book Search deal with authors and publishers, citing copyright and antitrust issues that render the deal anticompetitive. The DOJ said the deal would let Google be the only competitor in the digital marketplace with the rights to distribute many works in multiple formats. The DOJ further agreed to work with Google, authors and publishers on a viable, fair solution. District Court Judge Denny Chin will hold a hearing on the amended settlement agreement Feb. 18.

The Department of Justice said copyright and antitrust concerns continue to make Google's amended settlement agreement for its Google Book Search project anticompetitive, suggesting the court presiding over the case shouldn't bless the deal.

Acknowledging that Google and authors and publishers have made considerable progress in their agreement to digitize books and offer them to readers through Google's  search engine, the DOJ told the U.S. District Court for the Southern District of New York Feb. 4:

"Although the United States believes the parties have approached this effort in good faith and the amended settlement agreement is more circumscribed in its sweep than the original proposed settlement, the amended settlement agreement suffers from the same core problem as the original agreement: it is an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute before the court in this litigation."

Google and the Author's Guild and the Association of American Publishers in October 2008  struck their Google Book Search deal, a plan in which Google would scan millions of orphan books, or those works for whom authors can't be found or are unknown. Google would then let users search for them and pay to use the works, with authors and publishers taking 63 percent of the sales and Google taking the remaining 37 percent. 

The DOJ and Google's search rivals opposed the deal, arguing that it would give Google too much control over orphan works in an increasingly competitive space. Privacy advocates complained that Google wasn't taking the necessary precautions to protect readers' privacy.

Google, authors and publishers in November 2009 revised the settlement, which has been picked over and commented on by opponents and proponents while the District Court reviews the deal.

In a 31-page filing to presiding District Court Judge Denny Chin, the DOJ acknowledged the parties in the deal made "substantial progress" over such concerns as: enabling rivals to access orphan works; imposing limitations on provisions for future licensing; eliminating potential conflicts among class members; providing more protections for orphan works; and addressing the concerns of foreign authors and publishers.

However, the DOJ claimed the deal still affords Google "anticompetitive advantages." Specifically, the DOJ said the deal would let Google be the only competitor in the digital marketplace with the rights to distribute many works in multiple formats. The DOJ further agreed to work with Google, authors and publishers on a viable, fair solution.

Google's response to the DOJ's filing ignored the negative conclusion, playing up the positive. A Google spokesperson told eWEEK:

    "The Department of Justice's filing recognizes the progress made with the revised settlement, and it once again reinforces the value the agreement can provide in unlocking access to millions of books in the U.S.

    We look forward to Judge Chin's review of the statement of interest from the Department and the comments from the many supporters who have filed submissions with the court in the last months. If approved by the court, the settlement will significantly expand online access to works through Google Books, while giving authors and publishers new ways to distribute their works."

Despite Google's positive spin, experts have said they would be surprised if Chin disagreed with the DOJ and approved the amended settlement agreement, which comes almost five years after authors and publishers filed a copyright infringement suit versus Google.

Chin, who has received reams of documentation from opponents and proponents of the deal in the last few weeks, will hold a hearing on the amended settlement agreement Feb. 18.