SPEECH/ 09/526

Meglena Kuneva

European Consumer Commissioner

"Consumer Privacy and Online Market"

BEUC Multi-Stakeholder Forum “Consumer Privacy and Online Marketing: Market Trends and Policy Perspectives”

Brussels, 12 November 2009

Ladies and Gentlemen,

It is a particular pleasure to be here today to address an audience with an interest in the important and topical issue of consumer privacy and online marketing .

It is very appropriate that this event be hosted by BEUC as there can be no doubt that the interest of the consumers must be at the centre of this debate.

Around 18 months ago, I presented my Digital Agenda , whose overall objective is to make the online internal market work better for consumers.

It is composed of three main strands:

• Improving cross-border e-commerce;

• Tackling unfair commercial practices online; and

• Addressing consumer concerns about the use of their personal data and the traces they leave when shopping and surfing.

e-Commerce

Let me expand slightly on the first strand: e-commerce . I believe e-commerce is central to the development of a single market that works for consumers. There will be no citizen’s single market without borderless e-commerce within the EU. And it is to achieve this, that it is important that we develop an environment of trust and proper enforcement of consumer protection legislation online.

The European Commission published a report on cross-border e-commerce eight months ago and Communication on cross border e-commerce just last month. They both present factual data that testify to the lack of a proper EU market for consumers. Strikingly, our data shows that consumers’ attempts to buy from a cross border website within the EU will fail 6 times out of 10.

This is a worrying statistic, particularly if you consider that around half of all goods could have been at least 10% cheaper if bought in another EU Member State.

Unfair Commercial Practices Online

If consumers are to feel comfortable exploring the digital world, it is essential that trust in the internet as a commercial medium is cultivated in the long-term .

The effects of misleading practices are felt faster and more strongly in the digital world. This includes, for instance, misleading information concerning the real conditions of a contract.

On-line advertising and, more generally, on-line commercial practices warrant special attention given that they have an increasingly significant impact on the economic interests of consumers as well as on their daily activities.

The European Commission is looking very carefully at this area. In three weeks time, I will publish guidelines for the Member States on the interpretation of the Unfair Commercial Practices Directive (UCP) for online practices. Our clear goal is to make UCP work to protect consumers, and vulnerable groups in particular, when they are on-line.

But these guidelines will have to remain dynamic in nature. As new practices appear, we will have to deal with them. In particular, I believe more thought will have to go into the application of the general principle of the Unfair Commercial Practices directive to fast developing commercial prices online.

Privacy online, targeting and profiling

The third strand of my Digital Agenda is specifically dedicated to improve consumer confidence by addressing their concerns over privacy and the use of their data for marketing when shopping, or simply surfing, online. This is the main topic of today's workshop, so I would like to expand on what we have done so far and the next steps we intend to take.

Behavioural Targeting – when advertisers produce a profile of consumers in order to better target them with commercial communications - is growing fast.

It is predicted to grow in the US to over €3 billion within three years from now. This is eight times as much as in 2007 . We can assume a similar development in Europe, as current growth figures are astonishing.

According to market research, 10% of European advertisers used this technology in 2007. Only one year later, it had already reached 28%. And almost 60% of advertisers said they wanted to use it this year.

This development has an increasingly significant impact on consumers, who are genuinely concerned about the use of their private data.

Our research shows that even the most confident internet users, who are usually those aged between 15 and 25, are convinced that their personal data is being used without their knowledge.

Advertisers defend the use of data as it helps them to deliver more effective advertisements. Their argument is that ads pay for many services on the internet.

Yet, at the same time, consumers must be adequately protected . Therefore, on my initiative, the European Commission has started to assess the impact of online data collection, targeting and profiling of consumers.

The way in which consumers inform themselves about products and compare prices has changed . At the same time, the way in which businesses collect information about us has changed too .

Even since I started investigating this issue, new products have been launched, including some that make use of location data. A principle of fairness in data collection becomes more urgent with every new internet application that comes out. And the internet being the most vibrant and exciting platform ever invented, these applications come out all the time.

If cloud computing and location-based services become pervasive – as they seem destined to be – the sources and amount of data collected and stored in remote places will multiply.

We must therefore ensure that consumers are properly protected in this ever-changing environment.

The European Commission began to look at the consumer perspective of online data collection, targeting and profiling in more detail at the launch of a Digital Roundtable which took place right here in Brussels last March.

At this Roundtable , and at the Consumer Summit that followed, I made it absolutely clear that I take this matter very seriously - and that I intend to do everything necessary to increase consumer confidence online.

The Roundtable did not – nor did I expect it to - result in an immediate agreement between the participants about the main problems or the right regulatory response to take.

We followed up these meetings with bilateral talks with numerous stakeholders. We asked consumer organisations and privacy experts about their concerns; we asked businesses about the reliance on data of their business models; and we asked academics about probable future developments in the market.

Above all, we invited all concerned to offer their own view on the right way to ensure fairness for European consumers in data collection, targeting and profiling.

We consulted internet publishers and advertisers, ad-networks and data solution providers, browser manufacturers, regulators and self-regulatory organisations - both in the EU and in the US.

I am fully aware that we cannot provide an immediate "one size fits all" solution. Nevertheless, I found the initial results of these meetings to be encouraging as both business and consumers see potential for improvement in current information and disclosure practices.

Most stakeholders would also agree on the need for readable privacy notices and terms and conditions which are free from unfair terms.

But I also believe that stakeholders should agree on better consumer information when profiles are used. In essence, consumers should be informed that ads are based on their profile.

And I hope we can also agree on the need to give consumers access to the ad segments they are in, and the right to change them if they wish. I acknowledge that this may be difficult , but some companies have already shown that this is indeed possible.

Progress on these measures would increase transparency for consumers enormously and would boost consumer confidence in the online environment by offering real consumer choice.

Nevertheless, there remain other problems such as practices that are blatantly unfair to consumers. Some of them are evidently illegal. For example, when a social network decides to claim ownership of their participants’ content, or when young internet users are asked to provide personal data of friends.

In such cases the fundamental issue seems to be one of enforcement . And up to this point there has been insufficient resources dedicated to the enforcement of consumer legislation online.

In other cases, it may be less clear whether or not a practice is unfair. It is then up to the regulator to decide what measures could be taken to clarify the situation.

My dialogue with stakeholders has also convinced me of the need for further investigation into the power of behavioural targeting .

Most businesses reject the argument that consumers are exposed to risk in targeted advertisement as 'they will always be able to execute free choice'. For example, no consumer would actually be forced to buy something at too high a price.

But we know that consumers can be persuaded to enter transactions that they live to regret or that turn out simply not to be good for them. Commercial practices in retail financial markets have shown the effects of what marketers call ‘optimal persuasion’. Should we for instance care about the fact that in the US low income people where aggressively targeted with offers of sub-prime mortgages online?

Several academics and consumer organisations have highlighted the risk of commercial discrimination among consumers as personalised offers become increasingly widespread.

A recent study by the British Office of Communications has shown that the nature of a personal interest and the depth of emotional engagement can affect the evaluation of risks by a consumer. The reward of an online transaction, a new purchase for example, may override the potential perceived risks.

The study also found that a perception of familiarity was the most important factor when assessing the trustworthiness of online content. If a new site looked familiar intuitive judgements could lead to a false perception of familiarity and subsequent trust.

When we came together for the Digital Roundtable in March, you may recall that I urged businesses in Europe to better address consumer concerns about the collection and use of online data.

Of course, I did not expect them to come up with a complete set of solutions in just seven and a half months.

The US is clearly ahead of Europe in this field, with the Network Advertising Alliance's principles and the July "best practices" on behavioural targeting. The Federal Trade Commission has made it very clear that this is the last chance for business to adopt meaningful self-regulation.

European initiatives are also making progress but the time has also come to continue with our discussions in a more structured way.

In this vein, a " Stakeholder Forum on Fair Data Collection " was recently set up. In this forum, publishers, advertisers, ad-networks, and other business representatives will shortly be invited to outline their plans and to address pertinent issues with the European Commission and other key stakeholders, such as consumer organisations.

This occasion will also allow us to jointly assess the perceived risks to consumers and consider how best to address them.

Main topics of debate will include:

• The fairness of often non-transparent and incomprehensible privacy notices. They effectively function as a commercial contract since they govern the exchange of a service for the provision of data;

• Misleading and aggressive practices in order to obtain personal data and its use, such as posing as "friends" in social networks or offering rewards to teens in order to procure e-mail addresses of friends and other personal data;

• Repeated violations of existing privacy and consumer protection legislation and self-regulatory principles, such as obtaining data without informed consent by sites such as social networks or by software companies;

• Effective ways to obtain informed consent from consumers and what should be the default privacy settings in software and on websites;

• Access for consumers to the information about the data collected and how it is used.

• The practice of commercial targeting and profiling and whether they are they being sufficiently disclosed to consumers.

This is not an exhaustive list; it rather covers some of the issues that were raised in our recent dialogue with stakeholders.

It is important to note that these issues are also related to data protection and telecom legislation . Other European Commission Departments are therefore closely involved in this debate.

In the interest of consumers, I believe that we should jointly identify the problems in the market, and then discuss the best ways to address them.

Invitations to the next Stakeholder Forum have recently been sent out. The Forum will convene for the first time in February and two further meetings are planned in the course of next year.

The Internet as we know it and as it is developing runs on information. Meetings so far have shown that all stakeholders want to make sure consumers continue to use the internet freely and confidently.

I do not want consumers to fear that they are being monitored against their will or that their data is misused when surf the net.

They should have clear and transparent rights regarding the use of their data and they should be able to use the internet confidently as empowered consumers .

This is a crucial building block to realising the full potential of the internal market online.

Thank you.