By Lesley Fair

Sometimes it’s nice to be the center of attention – but not when a company is tracking shoppers’ every move online without their informed consent.  In a recent settlement announced by the Federal Trade Commission against Sears Holdings Management Corporation, which handles marketing operations for Sears and Kmart retail stores and websites, the FTC alleged that the company failed to disclose adequately that a downloadable software application would monitor nearly all Internet behavior that occurred on that computer.

According to the FTC, Sears invited certain visitors to sears.com and kmart.com to become members of the “My SHC Community.”  Sears paid them $10 to “participate in exciting, engaging, and on-going interactions – always on your terms and always by your choice.”  As part of the process, Sears directed them to download software it said would confidentially track their “online browsing.” Only in a lengthy user license agreement – available to consumers at the end of a multi-step registration process – did Sears disclose the full extent of what the software tracked.  According to the FTC, the software monitored almost all Internet use on that computer, including the sender, recipient, and subject of web-based email and information transmitted in secure transactions related to everything from online banking and prescription records to video rentals.

The FTC’s complaint charged that Sears’ failure to disclose adequately the scope of the data collection was deceptive and violated the FTC Act.  To settle the case, Sears agreed to stop collecting data from consumers who downloaded the software and to destroy the data it had already collected.  For any tracking software Sears uses in the future, the company must clearly and prominently disclose the types of information it will monitor.  This disclosure must be made before the software is installed and separate from any user license agreement.  

What can savvy retailers take from the FTC’s action against Sears?

• Disclose the details.  When it comes to online tracking, just because some consumers might be willing to give an inch, companies shouldn’t take a mile.  Consumers have different comfort levels about how much information―and what kind―they’re willing to share.  Explain your policies carefully and in language customers are sure to understand.  Don’t assume that approval for one kind of use amounts to a blanket OK.
• It’s all in the timing.  If there’s important information consumers need in order to evaluate whether an offer is right for them, give them the straight story upfront.  Waiting until the last possible moment in the transaction to reveal the true terms and conditions may leave you with exasperated customers and unwanted attention from law enforcers.
• Suspended license?  If the disclosure of information is necessary to prevent a statement from being deceptive, burying it in an end user license agreement isn’t likely to do the trick.  It’s unrealistic to assume customers will scroll through page after page of legalese and technical terminology.  Put it where consumer are bound to notice and read it.

Lesley Fair is attorney in the FTC’s Bureau of Consumer Protection.