Daley and Pitofsky Hold Joint Press Conference on E-Commerce and Privacy

(February 6, 1999) Secretary of Commerce William Daley and FTC Chairman Robert Pitofsky held a press conference on Friday, February 5, to announce that the Department of Commerce will start keeping annual statistics on commercial sales on the Internet. Currently, Internet sales are included in the catalogue sales category. Both men also reiterated that industry should take the lead on privacy issues, through self-regulation. Both were silent on encryption.

Several private entities, such as IDC, Morgan Stanley, and Forrester Research, have been estimating online sales for years. However, their estimates have varied significantly.

Secretary William Daley stated that the Department of Commerce numbers for 1998 and 1999 "will be ready in the summer of 2000."

Robert Pitofsky and William Daley reviewed recent private company data that shows that online commerce has been growing rapidly.

"Of course, sales will not keep going up if businesses fail to act responsibly," said Daley. "Consumers have to feel confortable doing business in cyberspace as well as they do on Main Street. Right now they do not. And that is for two main reasons. First, many are concerned about privacy. Eighty-six percent of net users who buy products and services, are concerned about threats to their personal privacy, with more than half expressing very great concern."

"They will stop shopping if their data is abused," said Daley. "Chairman Pitofsky and I have asked businesses to step up to the plate on this issue and regulate themselves. And it has taken strong prodding. But I can report today that we are seeing some positive developments. The Online Privacy Alliance signed up more than eighty companies and associations.  The companies have adopted strong privacy protection principles and are committed to enforcing them through a third independent party."

"Trustee now has 460 companies -- requires them to adhere to established privacy principles -- backed up its trust mark with independent audits, and a complaint resolution process for consumers," said Daley. "The Better Business Bureau online is involved in a similar program."

Historically, the Federal Trade Commission and the Department of Commerce have not always seen eye to eye on the question of online privacy. Commerce has generally been more supportive of industry self-regulation. However, Daley and Pitofsky made a show of unity at this event, as they did at a White House event with Al Gore last July 31st.

Robert Pitofsky agreed with Daley on self-regulation. "Why self-regulation? If we can get self-regulation, I think that it is better, because we are at the front end of a markedly dynamic marketplace, and legislation may be rather inflexible to change.  It may be out of script and outdated very quickly. Whereas self-regulation is, if it is honest and it is serious, can be more flexible and adjust to changes."

Pitofsky also said that the FTC is in the process of drafting regulations implementing the Children's Online Privacy Protection Act, which was passed by the Congress as part of the Omnibus Appropriations Bill in October, 1998.  The bill requires website operators to get parental consent before collecting data online from children under thirteen.

Pitofsky also took issue with a recent statement by Scot McNealy, CEO of Sun Microsystems, regarding online privacy. "I, you know, I think the quote was, that there is no, something along the line, that there is no privacy, and why don't we all get used to it. And, I don't think that that is the way people feel. It is certainly not the way I feel. I am terrible concerned that when as a result of purchasing on the Internet information about those purchases --"

Secretary Daley fielded questions about the European Union. He stated that David Aaron, the Undersecretary for Trade, and others have been involved in negotiations. "There was progress made. We hope to bring to conclusion our discussions, hopefully by June. And, we are still optimistic -- and during this period of discussion -- we basically have a standstill. The U.S. does not expect any sort of disruption in the flow of information between U.S. companies and European companies. So we think progress is being made. There has not been an understanding yet. But we are still optimistic that by June --"

Daley continued that "the second worry people have is consumer protection. Consumers want to know that they are dealing with reputable companies." Daley added that "we will have strong enforcement of our existing consumer protection laws. But to be frank, the law should be the last line of defense. The first line should be the businesses who deal with the issues themselves."

"As we all know, e-commerce is global. It messages are important here at home. But they are just as important to the rest of the world. We will continue to work with our trading partners, and their private sectors, to make sure that consumers are protected when using sites around the globe. We will be working with Ambassador Barshevsky to ensure that other countries do not erect trade barriers in the guise of consumer protection."

Chairman Pitofsky stated also that protecting consumers in global e-commerce would require international cooperation. "I think what we are going to have to do in the consumer protection area something that we have been working on for ten, fifteen, or twenty years, in the antitrust area.  There is going to have to be coordinated enforcement. I don't think that there is any other way to get at it. And, you will find just in the last year or two that other countries around the world have come to appreciate how important coordination is. So, we do have groups at the OECD, the (inaubidble phase),other hemispheric groups, who are addressing the issue of how we can work together, cooperate, coordinate, in order to bring these kinds of cases, and challenge this kind of behavior."

Robert Pitofsky stated that the FTC recently entered into a consent decree halting conduct by a group of auto retailers directed against a competitor who sold online. In a case which Pitofsky described as "the wave of the future," a group of showroom based Chrysler dealers were being underpriced by a Chrysler dealer who sold online. The area dealers had gone to the Chrysler Corp. and threatened a boycott if the online dealer were not restricted.

Tech Law Journal asked Chairman Pitofsky afterwards whether there were any other cases pending before the FTC in which off-line retailers might be engaging in acts that constitute restraints of trade against on-line retailers. "I am not supposed to discuss pending investigations," said Pitofsky. "But just wait around. We will see cases like that, I'm sure."

"The Internet as a marketplace will not reach its full potential unless consumers, when they do business in e-commerce, are confident, feel safe and secure," said Robert Pitofsky. "Government and the private sector must address questions like fraud and deception, consumer privacy, security of commercial transactions, and marketing to children."

However, this reference to "security of commercial transactions" was a closest either got to discussing encryption. Neither Secretary Daley nor Robert Pitofsky mentioned the importance of encryption to the future of online commerce. In contrast, at a private industry luncheon hosted in Washington DC the day before by the Business Software Alliance, representatives of software companies stressed that encryption is necessary for security in online commerce, and that legislation must be passed protecting encryption rights.

A Nekkei reporter asked for reaction to the recent federal court decision on the anti-porn Child Online Protection Act. Robert Pitofsky declined to comment, on the grounds that it is a Department of Justice matter.

Also present at the event, but not participating, were FTC Commissioners Mozelle Thompson and Sheila Anthony, and FTC consumer protection chief Jodie Bernstein.