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House Hearing on Effects of EU Privacy Directive

Yesterday the House Subcommittee on Commerce, Manufacturing, and Trade held a hearing addressing the economic consequences of the European Union’s internet privacy regulations. The hearing is part of a comprehensive review of the online privacy aimed at encouraging discussion about how to best satisfy consumer privacy concerns while maintaining a robust and innovative digital ecosystem. Among the issues raised was the concern that the US’s less restrictive framework for online privacy puts American companies at a disadvantage in the form of aggressive enforcement by EU member states. Also discussed was the question of whether there is a demonstrable harm to consumers from behavioral advertising, which utilizes browsing data to improve advertising efficiency for both businesses and customers. Catherine Tucker presented results from a ten year study she conducted with Avi Goldfarb evaluating the effects of the EU Data Privacy Directive on advertising by European companies. Their study revealed that the directive “reduced advertising performance by 65%.” She cited an estimate based on the study indicating U.S. companies could suffer losses of $33 billion over five years if Congress chose to adopt opt-in online privacy measures similar to the EU directive. Tucker also observed that strict regulations in this area can incentivize companies to switch to more intrusive, less tailored advertising to maintain their current business models, or even switch to pay-wall type models. Despite these findings, many are concerned that the hearing will undermine legislative efforts to more thoroughly regulate online privacy. In August I wrote an op-ed explaining why online privacy measures are best left to consumers through marketplace solutions, and not through congressional action. As I noted, there are already ample tools at consumers’ disposal:
Privacy is important, to be sure, but regulatory mandates are ill-equipped to account for the dynamism of the digital age. Not all consumers demand the same level of privacy protection. For the many consumers who deeply value their privacy, the market is responding accordingly. Increasingly, firms compete on privacy protection. Microsoft, for instance, touts its Trustworthy Computing effort as a core feature of many of its software and online products. Consumers also enjoy an array of tools and services that deliver the level of privacy they demand. Several Web browsers already incorporate “do-not-track” features, while independent software developers are constantly experimenting with technologies that give users control over what they reveal online. Organizations, including PrivacyChoice and TRUSTe, inform consumers about how numerous sites collect data, enabling users to opt out of tracking activities they don’t like.
A heavy regulatory hand will ultimately do damage to both consumers and business. Congress should heed the warnings of European startups, and not follow down that same burdensome path.