Michigan initiates DoubleClick inquiry

Trouble for DoubleClick gained momentum today as Michigan's attorney general took steps to file a consumer protection lawsuit blasting the online ad firm's data-collection practices.

The action could prove more vexatious than the informal investigations initiated by the Federal Trade Commission and the New York Attorney General's office in the past week.

In her legal papers, Michigan Attorney General Jennifer Granholm accuses New York-based DoubleClick of violating Michigan's Consumer Protection Act, an offense punishable by a fine of $25,000.

NetDeals.com, an online sweepstakes, and email search firm IAF.net also were named in the action.

"Forget Big Brother," Granholm said in a statement. "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."

Josh Isay, DoubleClick's Washington, D.C., director of public policy, said he has not heard from Granholm's office. But he said, "We are confident that our business policies are consistent with our privacy statement and beneficial to consumers and advertisers."

Despite its successes as the online leader for placing banner advertisements, DoubleClick's mounting legal problems have taken a toll: The company's stock fell $15.75 to $90.75 by the 1 p.m. PST close of regular trading on the Nasdaq Stock Market.

The firm already is facing six lawsuits, some of which have gained class-action status. Last week, the Federal Trade Commission opened an informal inquiry into DoubleClick's consumer profiling practices.

The move was considered part of the agency's aggressive efforts to police Internet companies' privacy policies. Separately, a privacy watchdog group called the Electronic Privacy Information Center (EPIC) filed a complaint with the FTC alleging that DoubleClick engaged in "unfair and deceptive practices."

Yesterday, New York Attorney General Elliot Spitzer also began an informal inquiry into DoubleClick's practices.

In the Michigan matter, the company has 10 days to respond before a lawsuit can be filed.

"We wouldn't insist on an Internet-wide solution," said Tracy Sonneborn, Michigan's assistant attorney general. "We're only concerned about Michigan consumers. DoubleClick says it can target people geographically, and that's what we're concerned about."

Controversy about the company erupted last month when DoubleClick revealed a new plan to track

DoubleClick at a glance

HQ: New York   CEO: Kevin J. O'Connor   Pres.: Kevin P. Ryan   Employees: 482   Annual sales: $258.29 M   Annual income: -$55.82 M   Date of IPO: February 1998   Ticker: DCLK   Exchange: Nasdaq More: DoubleClick quotes DoubleClick news DoubleClick message boards Bloomberg (11/10/99)

consumer's movements online and attach that data to people's real names and addresses. The point of compiling the dossiers is to better target advertisements to consumers as they surf the Web.

The plan, which is still in the works, became possible after DoubleClick sealed a $1.7 billion merger in November with Abacus Direct, a Broomfield, Colo.-based company that markets consumer-purchasing data to catalog firms.

DoubleClick executives have said that the information will only be compiled through those Web sites that are members of the Abacus Alliance and will only be used to better deliver advertisements.

The company also has said it will not associate sensitive information, such as health, financial or sexual orientation, with an individual, nor will it associate data collected from children.

Nonetheless, the new privacy policy--the company's fourth since its debut three years ago--touched off a storm of criticism from privacy groups and consumer advocates who feared the massive databases could end up in the wrong hands.

At the heart of the issue are tiny, electronic files called "cookies" that are routinely placed on an individual's computer. Through cookies, businesses can track people's online habits--whether they're shopping or just surfing the Web--but cookies are generally considered benign.

DoubleClick ads placed on the Web sites of any of its 1,500 customers also dispense cookies. Information collected from the company's digital tag may someday be used with Abacus' data, meaning that a person's name and address could be connected to their otherwise anonymous online profile.

Michigan's attorney general and privacy watchdogs are certain that few consumers are aware that DoubleClick--a third-party player on a Web site--has this ability.

So far, DoubleClick has amassed about 100,000 consumer profiles using the cookie technology, the company has confirmed.

Michigan's action states that the company doesn't give consumers "meaningful notice and choice" about whether they want to be profiled and is therefore deceiving Internet users. What's more, the company remains ambiguous about what it will do with the consumer information it compiles, the action states.

"DoubleClick's privacy policy is a moving target, and consumers should be extremely cautious about relying on the company's vague promises," Granholm said. "Today, the policy says one thing, but tomorrow it may say another."

DoubleClick argues that consumers have the choice not be tracked by going to their site and requesting to "opt out."

In response to the mounting criticism, DoubleClick on Monday unveiled a series of online privacy initiatives in an attempt to defuse the situation.

The company launched an education Web site called PrivacyChoices.com and said it will promote the site in a $2 million ad campaign.

It also said that in the United States it would only do business with Web sites that have "a clear and effective privacy policy"; engage PricewaterhouseCoopers to perform periodic privacy audits; establish a consumer privacy advisory board; and hire a chief privacy officer who would report to the company's board.