June 27th, 2011

Dutch Require Consent on Cookies

The Wall Street Journal

The Dutch Parliament passed a law Wednesday that forces websites to get explicit consumer consent before they place small text files known as cookies on a computer. The new law was opposed by the online-advertising industry, which fears the legislation will pave the way for similar moves across Europe.

The law also bans telecommunications companies from charging more when online customers use Skype and other competing services, thus becoming the first European Union country to guarantee so-called net neutrality.

The law has caused consternation among telecom companies and online-advertising executives because they fear it sets an antibusiness precedent for the rest of the EU. Some have threatened to leave the Netherlands.

EU officials have said they probably won’t challenge the Dutch law, indicating it is unlikely to be overturned and suggesting that industry may have a bigger fight on its hands than it feared.

In November 2010, the EU passed a directive requiring online advertisers to get “informed consent” from users before placing cookies on their computers. Under EU treaty law, countries then had until May to write that rule into their national legislation, but there has been some confusion about exactly how the language had to be interpreted.

“The Dutch law is an important case study because it’s such a big market,” said Kimon Zorbas, vice president of the Interactive Advertising Bureau Europe, which represents online advertisers. “We would expect companies from our sector to either move their operations to neighboring countries or lose their clients to companies located elsewhere in Europe.”

Online advertisers are up in arms. An increasing number of ad campaigns are dependent on cookies, which store data on users and their viewing habits, and the business model could be crippled, they say. “Fifty percent of campaigns in euro volumes might be shut down,” said Stephan Noller, chief executive of nugg.ad, an online-advertising consulting company.

In the Netherlands, publishing companies lobbied furiously against the bill, arguing the law exceeds the EU mandate because it includes a provision that websites must prove they have received permission from users to place cookies on their machines. One news portal called nu.nl said it might disappear entirely.

EU regulators will now “carefully assess the Dutch legislation to verify its compliance with the e-privacy directive,” said Jonathan Todd, a spokesman for Neelie Kroes, the EU’s commissioner for the digital agenda. EU officials in Ms. Kroes’s cabinet say they believe the Dutch law is in the spirit of the EU requirement for “informed consent.”

That could be bad news for the online-ad industry, because the EU is committed to harmonizing rules. “We all stand to lose from fragmented rules,” said Ms. Kroes, speaking Wednesday afternoon in Brussels at a conference on online legal issues.

The biggest immediate losers will be the companies that compete in the Dutch telecom market—Royal KPN NV, Vodafone Group PLC and Deutsche Telekom AG—but telecom lobbyists in Brussels say they fear that other European countries could pass similar rules.

Vodafone charges customers an additional fee to use Skype on smart phones, while Deutsche Telekom’s T-Mobile subsidiary prohibits subscribers from using Skype or WhatsApp in its terms and conditions. KPN said last month it wanted to introduce additional charges. In a statement, KPN said it “regretted parliament not taking more time” to study the legislation.

KPN, which has a 48% market share, also blamed the increasing use of Skype and WhatsApp for an 8.1% drop in Dutch service revenue in April, resulting in a profit warning and plans to cut 4,000 to 5,000 jobs between 2011 and 2015, which represents around 20% to 25% of the company’s work force in the Netherlands. The former state monopoly has already eliminated almost 10,000 jobs since 2005.

In April, the European Commission challenged Internet providers to treat all websites equally or face new penalties, but it declined to order an immediate change. It is currently considering such a proposal.

In the U.S., the Federal Communications Commission has said it is committed to defending net neutrality, a stance currently being reviewed by Congress.

Read more: http://online.wsj.com/article/SB10001424052702303970604576401752904495820.html

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