Federal Trade Commission Issues Revised Guidance On COPPA Rule

by Perkins Coie
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On July 1, 2013 the FTC’s amended COPPA Rule went into effect. On the same day, the commission also released a six-step compliance plan to aid businesses in complying with the new rule. On July 26, the commission issued further guidance on the rule, particularly as it applies to social network plug-ins and ad networks, in the form of updated FAQs. The new rule, adopted in December 2012, expands the definitions of “operators,” those subject to the rule, as well as the definition of “personal information,” the collection of which triggers the COPPA notice and consent requirements, unless an exemption applies.  As a result, many companies find themselves covered by the rule for the first time and are struggling to develop and implement appropriate compliance plans.

The FTC’s Six-Step Plan

The commission’s six-step plan offers simplified guidance for complying with the rule and encourages companies to:

  1. determine if your company is a website or online service that collects personal information from kids under 13;
  2. post a privacy policy that complies with COPPA;
  3. notify parents directly before collecting personal information from their kids;
  4. get parents’ verifiable consent before collecting information from their kids;
  5. honor parents’ ongoing rights with respect to information collected from their kids; and
  6. implement reasonable procedures to protect the security of kids’ personal information.

The compliance guide also provides a chart of exceptions to the verifiable parental consent requirement, such as where information is collected to provide support for the internal operations of a website or service.  The commission also put out a six-minute video that outlines the changes under the new rule.

Ad Networks, Social Plug-In Providers, and the Revised FAQs

Ad Network and Social Plug-In Obligations Under the New COPPA Rule

While the FTC’s six-step plan provides a useful roadmap for companies that knowingly collect data from children or child-directed sites and services, it is not as helpful for “third parties,” such as analytics companies, ad networks, and social plug-in providers, that may knowingly or unknowingly collect data from child-directed sites or services.  For such third parties, determining how to best ensure compliance with the new rule can be particularly vexing.

Under the new rule, first-party operators of child-directed sites and services are held strictly liable for data collection by third parties on their sites. At the same time, third-party providers can be held liable as co-operators if they are deemed to have “actual knowledge” that they are collecting data from a website or service directed at children. The new rule provides that third parties will “likely” be deemed to have “actual knowledge” that they are collecting data on a website or service directed at children where: (1) the first party site has communicated its online status to the third party or (2) if a representative of the online service recognizes the child directed nature of the content.

The new rule, moreover, does not limit liability to companies that collect traditional personally identifiable information (such as name, address, phone number and email address) from child-directed sites and services. Rather, the new rule defines “personal information” to “include a persistent identifier that can be used to recognize a user over time,  or across different Web sites or online services,” such as a customer number held in a cookie, an IP address, a processor or device serial number, or a unique device identifier, even when such identifiers are not linked to any identifying information such as a name or an email address.  As a result, a company that sets or reads a cookie with only a randomly-generated identifier for behavioral advertising purposes on a site directed to children could be held liable under the rule if it is determined to have “actual knowledge” of the child-directed nature of the site or service.

Revised FAQs

In response to questions about how third-party ad networks and social plug-ins can ensure compliance with the new rule, the commission updated its COPPA FAQs. The FAQs attempt to provide greater clarity with respect to the obligations of “third parties” under the rule, focusing on share buttons, means by which third parties can be deemed to have acquired “actual knowledge” that they are collecting data on child-directed sites, and the obligations of ad networks or other third parties once they gain such knowledge. 

  • Share buttons. The new FAQ D.9[1] makes it clear that if an app includes embedded buttons or plug-ins that allow kids to send email or otherwise post information, such as through a social network, verifiable parental consent is required before enabling a child to share personal information through the plug-in.  This applies even if the app itself does not collect personal information.

  • Actual knowledge. FAQs D.10, D.11, and D.12 offer guidance on how third parties can be considered to have “actual knowledge” that they are collecting personal information on a child-directed site.
    • D.10 attempts to provide greater clarity with respect to whether a particular employee can obtain “actual knowledge” on behalf of a company and advises ad networks and plug-in providers to provide targeted contact information on their websites to ensure that information about the child-directed nature of a site with which the company works is directed to the correct person.
    • D.11 addresses the situation in which an advocacy group sends a list of purportedly child-directed sites to an ad network. The Center for Democracy and Technology has already begun propagating such lists, and has encouraged other groups to do the same. The FAQ states that the receipt of such a list alone does not constitute actual knowledge and that the ad network has no duty to investigate.  Nevertheless, if such a list also provides screenshots or other information that reflects the child-directed nature of the site, such information may give rise to actual knowledge.  Importantly, the FAQ clarifies that ad networks “may ordinarily rely on a specific affirmative representation from the Web site operator that its content is not child-directed,” but that a standard provision in Terms of Service stating that by incorporating the third party’s code, the first party agrees that it is not child-directed would not constitute such an affirmative representation.
    • D.12 addresses a system whereby first-party sites could signal their child-directed status, such as that proposed by the Future of Privacy Forum, noting that such a system could provide greater certainty for the ad network because the network could rely on a “not child-directed” signal, as long as such a signal was not turned on by default. At the same time, the FAQ notes that an ad network may still receive screenshots or other concrete information that give rise to actual knowledge of the child-directed nature of the site, such that it could not rely on the “not child-directed” signal sent by the site.
  • Information collected from a child-directed site. FAQ K.2 has been revised to clarify the obligations of an ad network that finds out that it has been collecting data on a child-directed website.  Unless an exception applies, the ad network must stop collecting information on that site immediately and must get verifiable parental consent before continuing to collect personal information or before using any data that the network now knows came from that child-directed site or service.  At the same time, the ad network can continue to use data about previously collected interest categories where it has no indication that it came from a child-directed site or service.  As a best practice, ad networks should delete personal information, including cookies used for behavioral advertising under the rule, that it knows to have come from child-directed sites.

Key Take-aways for Plug-In Providers and Ad Networks

Ad networks and plug-in providers typically do not control where their tags and code are placed and may have no way of knowing whether they are collecting data from sites directed at children.  While the revised COPPA Rule imposes liability only for operators with “actual knowledge” that they are collecting data from child-directed sites, the rule also makes it clear that a company can be deemed to have “actual knowledge” merely because the child-directed nature of the site was communicated to someone in the company.  As a result, companies should develop processes whereby they are able to reliably learn of and address their collection of data from child-directed sites, including by making sure that all relevant communications are filtered to someone with the power to investigate and act.  Companies also may want to consider participating in industry-wide signaling programs or developing their own methods that allow child-directed sites and services to signal that status. Facebook and Google’s AdMob, for example, have already adopted such flags.  The new FAQs, however, make it clear that social plug-ins and ad networks cannot rely on such signals alone, but rather must respond to screenshots or other evidence indicating the child-directed nature of a site or service.  

If an ad network or plug-in provider becomes aware that it has been collecting data on a child-directed site, it must take steps to either obtain parental consent consistent with the rule, or ensure that its data collection falls within one of the exceptions to obtaining parental consent. For example, companies that collect only persistent identifiers and no other personal information from child-directed sites or services “for the sole purpose of providing support for the internal operations of the Web site or online service,” do not need to obtain parental consent or provide notice. The internal operations exception includes serving contextual ads and capping the frequency of ads, payment and delivery functions, optimization, reporting, and similar activities, so long as the data is not also used or disclosed for behavioral advertising or to amass a profile on the individual.  Third parties that opt to continue collecting data from sites or services directed at children and do not wish to obtain the parental consent necessary to engage in online behavioral advertising should take steps to make clear the limited activities for which they will use persistent identifiers.  Such steps can include making contractual representations, as well as adopting appropriate naming conventions for any cookies that they drop on child-directed sites.

The commission has promised to “exercise its prosecutorial discretion in enforcing the COPPA Rule, particularly with respect to small businesses that have attempted to comply with the Rule in good faith” and has not yet announced any enforcement actions under the new rule. At the same time, as noted above, privacy groups have already begun policing the web looking for child-directed sites that allow third-party data collection, and they could file complaints with the FTC where they observe activity that they deem to be inconsistent with the rule. The costs of COPPA violations are high; the COPPA Rule carries substantial civil penalties and states and certain federal agencies also have the authority to enforce COPPA in certain situations. Moreover, even if the FTC does not bring an enforcement action, it still may issue requests for information, access letters, or civil investigative demands in an effort to determine whether a particular website or service is directed at children under 13 or to determine the nature of data collection by third parties occurring on the site or service. Ad networks and social plug-in providers accordingly should seek to ensure that they have robust programs for recognizing any collection of data from child-directed sites and for ensuring compliance with the rule following any such recognition.

If you think that the COPPA Rule may impact you or your business, please contact counsel immediately.

Previous reading:

Perkins Coie LLP, Client Update: FTC Expands Scope of Children’s Privacy Law to Keep Pace With New Technologies, available here.

Perkins Coie LLP, Client Update: The New COPPA Rule Takes Effect Today — Are You Ready?, available here.

[1] The FAQs are reorganized in the July document. Thus, while they were previously numbered 1-92, they are now broken up into lettered subsections that cover individual topics (e.g., A.1, A.2, etc.).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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