Tracking Company Settles FTC Charges It Misled Consumers About Opt-Out Ability

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April 23 — In the Federal Trade Commission's first action against a retail tracking company, Nomi Technologies Inc. has agreed to settle FTC administrative charges that it misled consumers with promises that it would provide an in-store mechanism for them to opt out of tracking and notify them when retailers were using its tracking services, a split commission announced April 23.

Despite the promises, there was no in-store opt-out mechanism available to consumers, and they weren't informed when such tracking was taking place, the FTC alleged in an administrative complaint.

Within the first nine months of 2013, Nomi collected information on approximately 9 million mobile devices, the FTC said in an April 23 statement.

“It is vital that companies keep their privacy promises to consumers when working with emerging technologies, just as it is in any other context,” Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in the statement. “If you tell a consumer that they will have choices about their privacy, you should make sure all of those choices are actually available to them.”

Tracking at Brick and Mortar Stores 

Nomi's mobile device tracking technology allows it to provide analytics services to brick and mortar retailers using its “Listen” service, according to the FTC's complaint. The company places sensors in its clients' retail locations that allow it to collect the media access control (MAC) addresses, or unique identifiers, of consumers' mobile devices.

According to the FTC, such information allowed Nomi to produce analytics reports for its clients on customer traffic patterns, such as the percentage of consumers entering the store, the average duration of their visits, the types of mobile devices used by consumers, the percentage of repeat customers and the number of customers who visited another of the client's locations.

In its privacy policy posted on its website, Nomi promised to allow consumers the ability to opt out of the tracking service both on its website and at retailers using its technology, according to the complaint.

However, the FTC said, Nomi didn't live up to its promises. “Consumers were not provided any means to opt out at retail locations and were unaware that the service was even being used,” the complaint said.

The FTC alleged that such practices violated Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

The proposed no-fault consent order would prohibit Nomi from misrepresenting the extent to which consumers can exercise control over the collection, use, disclosure or sharing of their information or the extent to which they will be provided notice about such collection, use, disclosure or sharing of information.

Dissenting Statements 

The FTC's two Republican commissioners, Maureen K. Ohlhausen and Joshua D. Wright, issued separate dissenting statements.

Even though Nomi didn't collect any personally identifiable information, it still offered consumers the opportunity to opt out, Ohlhausen said. She said the FTC “should use its limited resources to pursue cases that involve consumer harm.”

“Second, and more importantly, we should not apply a de facto strict liability approach to a young company that attempted to go above and beyond its legal obligation to protect consumers but, in so doing, erred without benefiting itself,” Ohlhausen added. “I fear that the majority’s decision in this case encourages companies to do only the bare minimum on privacy, ultimately leaving consumers worse off.”

According to Wright, the evidence suggested that Nomi's representation that it would offer in-store tracking wasn't material, and therefore it wasn't deceptive. “To penalize a company for such a minor shortcoming—particularly when there is no evidence the misrepresentation harmed consumers—sends a dangerous message to firms weighing the costs and benefits of voluntarily providing information and choice to consumers,” he added.

FTC Chairwoman Edith Ramirez and Commissioners Julie Brill and Terrell McSweeny—all Democracts—issued a separate statement in support of the action and responding to the dissenting statements.

The consent agreement is open to public comment through May 25. The FTC released an analysis of the proposed consent order to aid public comment.

The FTC represented itself. Wilson, Sonsini, Goodrich & Rosati PC represented Nomi.

The commission held a seminar on mobile device tracking by retailers in February 2014.

The proposed consent order is available at https://www.ftc.gov/system/files/documents/cases/150423nomiorder.pdf.

Other documents from the administrative case are available at https://www.ftc.gov/enforcement/cases-proceedings/132-3251/nomi-technologies-inc-matter.