FTC Announces First Flash Cookie Enforcement and Settlement with Child Social Network

ScanScout

ScanScout, which claims it is the “web’s largest in-stream video ad network,” agreed to settle FTC charges that it violated Section 5 of the FTC Act by failing to live up to representations made in its website privacy policy. The FTC’s complaint states that ScanScout’s privacy policy claimed that users could “opt out of receiving a cookie by changing [their] browser settings to prevent the receipt of cookies.”  Despite this representation, ScanScout used Flash cookies—which are locally stored files associated with the Adobe Flash Player—to track user behavior, which could not be blocked by changing browser settings as indicated in the privacy policy. The FTC deemed ScanScout’s inaccurate description of the ways that consumers could opt out of tracking to be a deceptive act or practice that violated Section 5 of the FTC Act.  The privacy policies of many websites and Internet-based applications state that consumers can opt out of tracking by disabling cookies, so these companies should reexamine whether they (or their web vendors) also use Flash cookies, HTML5, ETags, or any other methods to track website users that would not cease when users disable traditional HTML cookies.

Under the consent decree (PDF), the FTC barred ScanScout from misrepresenting its online information practices, including how consumers’ data is collected, used, shared, and disclosed, and required ScanScout to implement measures aimed at providing consumers with more effective notice of how their data is used and simplified methods by which consumers may opt out of such use. 

As a corollary, the FTC yesterday released a consumer education article, entitled “Cookies: Leaving a Trail on the Web (PDF),” which explains how cookies can monitor online activity and how users can control this monitoring, including a section on controlling Flash cookies.

Skid-e-Kids

Skid-e-Kids, the self-proclaimed “Facebook and Myspace for kids,” agreed to settle FTC charges that it violated the COPPA Rule and made deceptive claims in violation of Section 5 of the FTC Act. 

The COPPA Rule requires that any collection, use, or disclosure of personally identifiable information of a child under 13 be preceded by verifiable parental consent. The FTC’s complaint (PDF) alleges that Skid-e-Kids collected personally identifiable information from approximately 5,600 underage users without first obtaining parental consent, a violation of the COPPA Rule. This enforcement action comes on the heels of the FTC’s recent proposal to amend the COPPA Rule aimed at keeping pace with developments in the online world, including the advent of social networks and the development of smartphone and geolocation technology.

The complaint also alleges that Skid-e-Kids represented in its privacy policy that a child’s account would not be activated until it received parental consent. Nevertheless, Skid-e-Kids registered children and activated their accounts without parental consent, and subsequently collected personally identifiable information from those registered child users. The FTC found that Skid-e-Kids’ failure to live up to the representations made in its privacy policy constituted a deceptive act or practice that violated Section 5 of the FTC Act.   

Under the consent decree (PDF), the FTC barred Skid-e-Kids from misrepresenting the details of its collection, use, and disclosure of children’s personal information. The settlement also required Skid-e-Kids to delete the information collected; provide links to a government website that educates consumers on children’s privacy issues on the Skid-e-Kids website, in notices sent to parents, and in its privacy policy; and employ a third-party oversight mechanism that will ensure future compliance with COPPA. In addition, the settlement imposed a civil penalty of $100,000 on the operator of the website, though all but $1,000 of which was suspended.

This blog entry was contributed by Steven Spagnolo, an associate in the Privacy and Information Management group in Hogan Lovells’ Washington, DC office

Authored by Steven Spagnolo