FTC Announces Settlement with Social Networking App and Issues Staff Report Regarding Mobile Device Privacy Disclosures

by White & Case LLP

On February 1, 2013, the Federal Trade Commission ("FTC") announced an agreement with social network mobile application ("app") operator Path, Inc. ("Path") to settle the FTC's claims that Path collected personal information from Path users' mobile device address books without their knowledge and consent, in violation of the FTC Act,1 and violated the Children's Online Privacy Protection Act and Rule ("COPPA")2 by collecting children's information without providing the requisite notice and obtaining parental consent (the "Settlement").3 On the same day, the FTC issued a Staff Report on best practices for mobile privacy disclosures by key mobile industry actors (the "Staff Report").4 The Settlement and the Staff Report are important because they reflect that the FTC continues to focus on mobile privacy concerns and that separate and prominent just-in-time disclosures and express consent prior to the collection of personal information from mobile devices may be required for information that consumers consider to be sensitive information or unexpected in the context of collection by a particular app.

The Path Settlement
Path operates a social networking service that allows users to keep journals (including photos, written thoughts, location information and names of songs to which the user is listening) about their lives and share their journals with their Path friend network (the "Path App"). The FTC alleged in its complaint that Path App users could search for friends to add to their networks by selecting one of several friend-finder features of the Path App, including by accessing contacts in the user's mobile device address book. The Path App, however, automatically collected and stored personal information (including first and last name, address, phone number, email address, Facebook and Twitter usernames, and birth date) from its users' mobile device address books, even if the user did not select the "find friends from your contacts" option. According to the FTC, Path's privacy policy claimed that Path automatically collected only certain enumerated types of information about its users (such as IP address, operating system, browser type, the address of a referring site and site activity). The FTC claimed that Path's automatic collection of mobile device contact information and its failure to accurately disclose the same to its users denied Path App users any meaningful choice concerning the collection of their personal information and constituted deceptive representations and practices in violation of Section 5 of the FTC Act.5

Path also agreed to settle charges that it failed to accurately and fully disclose its information collection practices for children and collected children's personal information (including email address, first and last name and, if provided, gender and phone number) without first obtaining verifiable parental consent, in violation of COPPA.6 According to the FTC's complaint, Path automatically collected (without first providing notice and obtaining parental consent) the mobile device contact information described above and allowed children under thirteen to register and use the Path App without restriction, enabling the sharing of their photos, location and other personal information.7 Under the terms of the Settlement, Path agreed to pay a civil penalty of $800,000 and is permanently enjoined from violating COPPA or using in any manner the personal information it has collected from children, all of which must be destroyed.8 Path is permanently enjoined from misrepresenting its personal information practices and, in connection with mobile device contact information, must clearly and prominently disclose (separate from any privacy policy or terms of use) the categories of information to be collected or accessed from a user's mobile device, and obtain the user's affirmative express consent to the access or collection of the information before the collection takes place.9 Path must also establish and maintain a comprehensive privacy program, undergo biannual independent privacy assessments, create and retain certain privacy records for twenty (20) years, and submit compliance reports to the FTC within one hundred eighty (180) days after the entry of the Settlement order, and within fourteen (14) days of any change that occurs during the next twenty (20) years in Path's or its affiliates' corporate structure that could affect compliance obligations under the Settlement.10

FTC Mobile Privacy Disclosure Guidance
The Staff Report contains best practices recommendations specifically directed to "key commercial players" in the mobile marketplace, namely, mobile platforms and providers (mobile operating systems and providers, as well as the app stores they offer), app developers, advertising networks and analytics companies, and app developer trade associations.11 The Staff Report recommendations vary for each type of entity12 but generally reflect the FTC's position that key mobile industry players need to: (a) provide clear, just-in-time disclosures and obtain express affirmative consent before apps collect or use personal information of mobile device users, including information that is by its nature sensitive and information that may be sensitive to consumers in certain contexts, such as photos, calendar entries and contacts; (b) work together to accurately notify consumers concerning information collection and sharing practices; (c) consider offering a do-not-track mechanism to allow consumers to opt out of third party tracking across apps; and (d) develop standardized privacy policies and simple "dashboard" approaches to allow mobile device users to review and change their information collection preferences for all apps and categories of information. These recommendations echo the disclosure and consent requirements imposed on Path and emphasize the importance of transparency and meaningful choice in the FTC's current initiatives.

Although the Path Settlement does not bind app developers or entities other than those specifically covered by the settlement, and the Staff Report is not binding law, these FTC actions are important because they may be setting the tone for future FTC enforcement. It is likely that in resolving enforcement actions, the FTC will now seek to impose the requirements discussed above in the mobile space. App developers, platform providers and other mobile device players should closely monitor the FTC's enforcement actions and published guidance concerning mobile disclosures and take the FTC's recommendations and agreements into consideration in developing and rolling out apps and working with other mobile device industry participants.

1 - See 15 U.S.C. §§ 45(a)(1) (prohibiting unfair or deceptive acts or practices in or affecting commerce).
2 - See 15 U.S.C. §§ 6501-6506; 16 C.F.R. pt. 312 et seq. (1999).
3 - United States v. Path, Inc., No. C13-0448 (N.D. Cal. Jan. 31, 2013) (consent decree and order for civil penalties, permanent injunction and other relief), available at http://www.ftc.gov/os/caselist/1223158/130201pathincdo.pdf; Press Release, FTC, Path Social Networking App Settles FTC Charges it Deceived Consumers and Improperly Collected Personal Information from Users' Mobile Address Books (Feb. 1, 2013), available at http://ftc.gov/opa/2013/02/path.shtm.
4 - FTC, FTC Staff Report, Mobile Privacy Disclosures, Building Trust Through Transparency (Feb. 2013), available at http://www.ftc.gov/os/2013/02/130201mobileprivacyreport.pdf; Press Release, FTC, FTC Staff Report Recommends Ways to Improve Mobile Privacy Disclosures (Feb. 1, 2013), available at http://www.ftc.gov/opa/2013/02/mobileprivacy.shtm.
5 - United States v. Path, Inc., No. C13-0448, 3-4 (N.D. Cal. Jan. 31, 2013) (complaint), available at http://www.ftc.gov/os/caselist/1223158/130201pathinccmpt.pdf (hereinafter "Complaint").
6 - Complaint, at 7.
7 - Id. at 8.
8 - Settlement, at 9-11.
9 - Settlement, at 12.
10 - Settlement, at 12-18.
11 - Staff Report, at 1.
12 - The Staff Report emphasizes the important role that platforms play in controlling operation of apps in mobile devices and recommends that mobile platforms: (a) provide just-in-time disclosures to consumers and obtain their affirmative express consent prior to collecting or using sensitive information, and consider doing so for other information that consumers may find to be sensitive in context, such as contacts and photos; (b) consider developing a "dashboard" approach to allow users to review and make changes to which apps have accessed their information; (c) consider developing icons to reflect data transmission; (d) promote app developer best practices by, for example, contractually requiring that app developers make just-in-time privacy disclosures; (e) consider providing consumers with clear disclosures concerning the extent to which platform providers review apps prior to their becoming available in an app store; (f) consider offering a mobile device do-not-track mechanism to allow consumers to choose to opt out of tracking across apps. Staff Report, at 14-21. The Staff Report recommends that app developers: (a) have a privacy policy in place; (b) to the extent not taken care of by platforms, provide just-in-time disclosures and obtain affirmative express consent before collecting and sharing sensitive information outside the platform's API; (c) improve coordination with ad networks and other third parties that provide services for apps to better understand how the third party software works with respect to data collection and use and provide more accurate disclosures to consumers; and (d) consider participating in self-regulatory programs, trade associations and industry organizations. Staff Report, at 22-24. Trade associations representing app developers, academics and other experts and researchers are asked to: (a) develop icons for app developers to reflect data practices and activity; (b) promote standardized app developer privacy policies or develop "badges" to enable quick comparison of practices across apps; and (c) educate app developers on privacy issues and seek to develop standardization within app privacy policies. Staff Report, at 24-27.

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