California is not the only government entity that is ramping up its privacy enforcement efforts. The Federal Trade Commission has signaled that it plans to get in on the action as well. On August 9th, the FTC announced a record $22.5 million civil penalty to be paid by Google in order to settle charges that the company made misrepresentations with respect to how it planned to track users' online activity.
On December 10th, the FTC published a report following up on a year-long investigation in which it found only 20% of mobile apps targeting children properly disclosed how the apps collected and shared personal data. The FTC announced it would be launching multiple investigations to determine whether certain companies have violated the Children's Online Privacy Protection Act (COPPA), which requires operators of online services (including mobile apps) directed to children under the age of 13 to provide notice and obtain parental consent before collecting personal information from children. The FTC's record settlement with Google suggests that these investigations could yield serious penalties.
What Does This Mean and What Should Be Done?
If last year is any indication, now is the time for mobile app providers to get serious about protecting the privacy of their current and future users. The latest developments out of California and from the FTC serve as reminders that a business's online presence - which includes not only its websites, but also its mobile apps, Facebook apps, or any other online form of information collection - must comply with both federal and state privacy laws. Therefore, as we enter 2013, mobile app providers should adopt the following New Year's "Resolutions." (Bear in mind, of course, that these resolutions do not represent an exhaustive list of requirements necessary for mobile app providers to be compliant with federal and state law. Rather, they highlight some of the areas that are likely to be the subject of enforcement action in the coming year, both at the state and federal levels.)
What counts as an "online service"? In sum, it is very broadly defined. The State of California concluded that "[t]he term 'online service' broadly covers any service available over the Internet or that connects to the Internet, including Internet-enabled gaming platforms, voice-over-Internet protocol services, cloud services, and mobile applications." Therefore, it is incumbent on companies to ensure that their online products properly disclose what personal information is being collected, how the company is using such personal information, and to whom such personal information is shared or sold. Even if the online product only collects users' names and email addresses, this information alone can be considered "personal information" in many jurisdictions.
Some may ask why they should be concerned with California law, especially if they are not actively doing business in the state. For example, a startup company may have developed an iPhone app that allows its customers to rate local restaurants in the Washington, DC area. What does the Attorney General of California have to do with this startup? The answer is pretty straightforward - California's privacy laws extend to all residents of the state, and it does not require that the startup conduct any business there. Therefore, if a California resident merely downloads the Washington, DC restaurant app, the startup will be within reach of California's privacy laws. The same principle can apply to other states that may have stringent privacy laws (for example, in Massachusetts), so it is important to be aware of the latest trends in the privacy laws of each jurisdiction.
Resolution #2: Pay Attention to the New COPPA Rules.
Mobile app providers should also resolve to review their COPPA compliance practices. As noted above, the FTC conducted a year-long survey during 2012 that culminated in two staff reports concerning the data privacy practices of mobile apps targeted at children. The reports determined that Apple's and Google's respective mobile platforms currently contain at least a million apps and that at least 50% of children in the United States have access to these mobile app platforms. The report concluded that there is a widespread "lack of information available to parents" about the privacy practices of these mobile apps.
Particularly, the FTC focused on the collection and sharing of a user's name, geolocation, birth date, email address, mailing address, phone number, and other mobile device identifiers. Most of the apps surveyed by the FTC shared this information with third parties, and very few of these apps disclosed to their users that they were doing so. Therefore, the FTC called on the industry to:
Incorporate privacy protections into the design of the mobile apps themselves;
Offer parents easy to understand choices about the data collection practices of these mobile apps; and
Provide greater transparency about how data is collected, used, and shared through these mobile apps.
Furthermore, a week after publishing the second report, the FTC announced new amendments
to COPPA, which are designed to strengthen the privacy protection of children as the online world continues to evolve. The new rules go into effect on July 1, 2013 and include:
Clarifying that "personal information" includes geolocation information, photographs, and videos;
Offering companies a streamlined, voluntary and transparent approval process for new ways of getting parental consent;
Closing a loophole that allowed apps and websites to permit third parties to collect personal information from children through plug-ins without parental notice and consent;
Extending coverage of COPPA to any third party collecting personal information through the app;
Extending COPPA to cover persistent identifiers that can recognize users over time and across different websites or online services, such as IP addresses and mobile device IDs;
Strengthening data security protections by requiring that covered website operators and online service providers take reasonable steps to release children's personal information only to companies that are capable of keeping it secure and confidential;
Requiring that covered website operators adopt reasonable procedures for data retention and deletion; and
Strengthening the FTC's oversight of self-regulatory safe harbor programs.
In 2012, government enforcement agencies continued to scrutinize the privacy practices of online services that collect, store, and use personal information, particularly those companies that have ventured into the increasingly popular area of mobile apps. The New Year looks to be no different. As mobile app providers establish their goals and assess their challenges for 2013, they must remember to keep privacy compliance at the top of the list.