NEW YORK (CNNfn) - The Michigan Attorney General's Office said Thursday it is moving toward formal legal action against DoubleClick, joining the Federal Trade Commission and New York state in questioning the business practices of the leading Internet advertising company.|
Michigan Attorney General Jennifer Granholm announced she has filed a Notice of Intended Action against DoubleClick, which precedes filing a formal lawsuit. The attorney general alleges that DoubleClick (DCLK: Research, Estimates) is violating Michigan's Consumer Protection Act.
The Michigan Consumer Protection Act protects consumers against unfair, unconscionable or deceptive methods, acts or practices in the conduct of trade or commerce.
DoubleClick = Big Brother?
"Forget Big Brother," said Granholm in a statement Thursday. "Truly 'Big Browser' appears to have arrived in the form of an Internet corporate giant. Companies like DoubleClick take advantage of the technology to rob people of their privacy - causing people to distrust the Internet - and that would be the greatest travesty of all."
Granholm alleged that DoubleClick violated Michigan's Consumer Protection Act and additional laws by implanting "cookies," or electronic surveillance files, on Internet users' computer hard drives, without their consent or knowledge.
"A consumer visiting a trusted national clothing retailer's site, for instance, might expect the retailer to collect preference information so the site could customize the consumer's visit," Granholm said. "That consumer would have no idea, however, that a third party - Doubleclick -- is also placing a surveillance cookie on their computer for the purpose of selling that profile information to other Web advertisers."
"Consumers never intend to interact with Doubleclick, nor do they know they are [under surveillance] by Doubleclick ...nor does a consumer know how to 'opt out' of being tracked."
The Michigan Attorney General also names company subsidiaries IAF.net, NetDeals.com, and Abacus Online, charging that Doubleclick uses the units in collecting Internet user information.
Granholm said Doubleclick has 10 days to respond to Michigan's notice. If it does not respond, it could face a potential lawsuit, filed on behalf of Michigan consumers. A violation of the Michigan Consumer Protection Act is punishable by a fine of $25,000.
Doubleclick stock slumps
DoubleClick has been under fire for allegedly violating Internet users' privacy by tracking their surfing habits. Michigan's announcement put pressure on DoubleClick stock Thursday, pushing it down 16-1/16, or 15 percent, to $90- 7/16 by late afternoon.
DoubleClick issued a statement Thursday in response to the probes, denying any wrongdoing.
DoubleClick denies charges
"DoubleClick has never and will never use sensitive online data in our profiles, and it is DoubleClick's policy to only merge personally identifiable information with non-personally identifiable information for profiling, after
providing clear notice and choice," DoubleClick President Kevin Ryan said.
"We have engaged PricewaterhouseCoopers to perform periodic privacy audits so that consumers can remain confident that we are living up to our commitment to protect users' privacy," said Ryan. "In addition, we have announced the creation of the DoubleClick Privacy Advisory Board, and we are adding a new executive level position of Chief Privacy Officer."
On Wednesday, New York Attorney General Eliot Spitzer's office announced an informal investigation into DoubleClick's business practices. A spokeswoman said Spitzer's office is in the "information gathering stage," and said DoubleClick has voluntarily provided it with information. The spokeswoman said Spitzer has been talking to DoubleClick since January.
The FTC also released a statement Wednesday concerning its probe into DoubleClick. "The Federal Trade Commission staff is conducting a routine inquiry of DoubleClick Inc. to determine whether it has engaged in unfair or deceptive practices in violation of Section 5 of the Federal Trade Commission Act," said Jodie Bernstein, director of the consumer protection bureau. "The company has been cooperating with the inquiry."
Late Wednesday DoubleClick said it is working with the FTC regarding its inquiry.
"We are fully cooperating and we applaud the FTC's efforts to keep the Internet safe for consumers," DoubleClick's Chairman and CEO Kevin O'Connor said.
EPIC leads charge
On Feb. 11, advocates from the Electronic Privacy Information Center (EPIC) filed a formal complaint with the FTC, asking it to investigate if DoubleClick was in violation of the FTC Act.
EPIC targeted DoubleClick's Abacus Direct unit, a marketing concern acquired last year. The privacy group accused Abacus Online, a group of DoubleClick clients, of tracking Net users' habits by compiling data including user names, addresses and purchases.
The furor comes after Josh Isay, DoubleClick's director of public policy and government affairs, was tapped to sit on the FTC's newly established Advisory Committee on Online Access and Security. The committee's purpose is to "address providing online consumers reasonable access to personal information collected from and about them, and maintaining adequate security for that information."
Former FTC Commissioner Christine Varney nominated Isay for the group. In a letter to FTC Secretary Donald Clark on Jan. 4, 1999, Varney said Isay's "participation would help promote a balance of viewpoints."
"He is ideally suited to make a meaningful contribution to the Committee's consideration of online access and security issues particularly with respect to the topic of 'enhancements to personal information,'" Varney wrote in her letter.
Varney wrote the letter two years after she stepped down from the FTC.
She is now a partner at the Washington, D.C., law firm Hogan & Hartson. Calls to Varney and Isay seeking comment were not returned.
Analysts weigh in
Stock analysts who follow DoubleClick believe the company will rise above the scrutiny and shares will bounce back.
Tomas Isakowitz, of Janney Montgomery Scott, said DoubleClick needs to be more pro-active with its public relations campaign regarding the privacy furor.
Perry Boyle of Thomas Weisel Partners, who follows DoubleClick, said he doesn't believe the controversy is deserved, since direct marketers target consumers by gathering credit card information offline as well - a routine practice.
"It's amazing to me that this double standard exists between the online vs. the offline world," said Boyle. "It seems like DoubleClick is being singled out when this is an industry-wide issue. DoubleClick is conducting this on a test-basis and this is not generating any revenue for them."
"This has broader applications concerning personalizing Web advertising. DoubleClick is one of the best companies in this space and this does not affect our forecast," Boyle said.
Andrew Shen, policy director at EPIC, said he thinks the DoubleClick probes are "admirable."
"I think this is just the tip of the iceberg," Sheen said. "I think we're just starting to see what happens to a company that doesn't respect the privacy of consumers."
"What DoubleClick is doing is more insidious than offline marketers," Sheen said. "DoubleClick raises that to a whole other level. Direct marketers offline don't follow consumers around shopping malls or [browsing through] catalogs."
"DoubleClick is being focused on because it's a leader in the industry, one of the first movers. But it's not a business model that other companies should be following," Sheen said.