May 24th, 2011

Startups Join Facebook And Google In Protesting California Privacy Bill

The California Legislature is very late—as usual—with its annual budget. But lawmakers’ inability to pass a budget probably won’t stop them from passing a digital privacy law. Technology and social media companies, from Facebook and Google (NSDQ: GOOG) to social media startups, are getting clued in to that, and have formed a coalition to stop a California privacy bill from becoming law.

The bill, as currently written, would require big changes to social-networking sites like Facebook. Most significantly, it would require users to set their privacy settings upon registration, rather than look for privacy settings after they’ve joined. It would also require settings to default to keeping information private, rather than making it public. (It almost doesn’t need to be said at this point, but the settings for a new Facebook profile default to public.) Willful violations of the proposed law would result in $10,000 fines.

Tech companies have objected to the bill, which is sponsored by state Sen. Ellen Corbett (D-San Leandro) and known as SB 242. One of their arguments is that the up-front requirement will actually backfire. One of the opposition’s points is that throwing a bunch of privacy controls at a user immediately upon registration—before they really understand what the service does—will lead to more confusion, not less. It would be similar to forcing someone embarking on a 100-mile drive to look at all the traffic signs in advance, goes the argument.

Several large tech companies, including Google, Facebook, Yahoo (NSDQ: YHOO), and Zynga first officially voiced their objections to the bill in a letter sent last Monday. Now, their coalition has added several smaller California-based tech companies that have business models based on communities and networking. The newest members of the coalition are Oodle, an online classified site; Identified, a professional networking site; Zecco, a community investing site; and BranchOut, a professional networking service on Facebook.

The letter opposing SB 242 argues that the majority of users on social networking sites already know how to manage their own privacy settings. It suggests the proposed law would be a burden and inhibit job growth at the fast-growing social networking companies. The proposal would also force users to make “abstract, acontextual choices about privacy” that would be difficult to understand, and would actually decrease overall consumer privacy.

It may seem surprising that national and even global tech companies might be regulated from Sacramento—but it has happened before. In fact, the requirement that websites have privacy policies displayed at all is due to a California state law passed in 2003. There is no federal requirement to have a privacy policy at all; but the California privacy law includes fairly detailed language about what must be included in a privacy policy. It also defines what constitutes personal information.

California is also considering a state-level Do Not Track bill, SB 761, which is sponsored by Sen. Alan Lowenthal (D-Long Beach). It would require any company collecting data from a California resident to provide a method of opting out of that data collection.

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