53/10    25 May 2010

The OFT today published a market study setting out its current views on behavioural advertising and targeted pricing practices.

The report finds that, although industry self-regulation addresses some concerns about behavioural advertising, more could be done to provide consumers with better information about how personal information is collected and used. It also sets out how regulation might apply to these new and emerging practices.

Online behavioural advertising uses information about a user's web browsing behaviour to target adverts based on likely interests. Usually, this information is collected through 'cookie' files which are placed on a user's computer after a first visit to a website.

The revenue from online behavioural advertising is currently between £64m and £95m, but this looks set to rise significantly in the future.

The report finds that, while behavioural advertising may offer benefits to consumers such as, for example, free access to content, there are objections to the practice which centre around privacy issues and the possibility for the misuse of personal data. 

To address these concerns, the OFT will encourage the IAB, the trade association for online advertising, to work with the industry to provide clear notices alongside behavioural adverts and information about opting out.

Under laws enforced by the Information Commissioner's Office (ICO), it is a legal requirement for firms clearly to inform consumers about the purposes of storing a cookie or other tracking system on the user’s computer and to provide people with an opportunity to opt out.

The OFT considers that the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) could also apply to business practices in this area, for example misleading consumers about the collection of information where this would lead consumers to alter their 'transactional decision'. This would include, in the OFT's view, a decision on whether or not to visit a website.

Should industry action prove ineffective, the OFT and the ICO are strengthening the effectiveness of regulation by seeking to agree a Memorandum of Understanding to establish in which circumstances the ICO, or the OFT, would take enforcement action. In the event that the MoU covers areas where OFT and Ofcom have overlapping jurisdiction, the OFT and Ofcom would discuss, on a case by case basis, who would be best placed to act. 

The study also examines the prospects for the online targeting of pricing based on previous purchases, browsing behaviour or geographic location. Research suggests that consumer opposition to such practices would be very strong. This has led the OFT to conclude that consumers who knew that targeted prices were being applied would change their behaviour, meaning that failure to inform consumers about the practice could breach the CPRs and in such an event the OFT would consider enforcement action.

Heather Clayton, OFT Senior Director in the Consumer Market Group said:

'The OFT is keen to engage with industry players and consumer groups while behavioural advertising is in its relative infancy, and before targeted pricing takes hold, so that the market develops in a way that protects consumers from bad practice.
'Discussions now about the potential for both benefits and harm, and how consumer protection legislation applies, will stand us in good stead in the event that industry action proves ineffective or targeted pricing becomes a reality.'

Download the OFT's full report on the online targeting of advertising and pricing (pdf 1.8Mb).

NOTES

1. The revenue from online behavioural advertising is between £64m and £95m. At present, this represents just a fraction of the wider online advertising industry market which was worth £3.35bn in 2008.
2. The OFT does not currently have any information about any firms increasing prices to consumers on the basis of their online behaviour at the moment.
3. The Privacy and Electronic Communications (EC Directive) Regulations 2003 (Privacy Regulations) requires firms to inform consumers when a tracking system stores information about them on their computer and to give them the opportunity to refuse their continued use. The exact form that the information and consent takes varies according to the situation and it may be acceptable to put the information in a privacy policy. In the case of behavioural advertising based on deep packet inspection techniques, the ICO has indicated that opt-out is not sufficient. The Information Commissioner also enforces the Data Protection Act 1998 which provides for the regulation of the processing, including the collection and use, of personal data. In a recent consultation the ICO proposed that information about browsing behaviour should generally be treated as though it were personal data. This means that firms should provide a clear and simple explanation as far as possible of how such data is collected and used and the result of this (for example for targeting advertising), must keep the data secure and must only use it in a way that is fair to consumers. www.ico.gov.uk/about_us/consultations/our_consultations.aspx. 
4. The OFT considers that the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) also apply in this area. Broadly, the CPRs may generally be breached if the average consumer alters a transactional decision as a result of an unfair commercial practice, for example, misinformation or lack of information. The OFT interprets transactional decision widely and believes it encompasses, for example, the decision to view a website.