While announcing an $800,000 settlement with the popular social-networking startup Path, a top federal regulator warned Friday that Internet companies will face stricter government oversight if they don't take voluntary steps to protect consumer privacy.
"Some companies are doing a good job," said Jon Leibowitz, who is stepping down this month as chairman of the Federal Trade Commission. But he added, "if other companies don't wake up and do the right thing, my sense is the industry is more likely to face far more proscriptive legislation down the road."
Leibowitz spoke during a news conference held to announce that the makers of Path, a popular mobile app that lets users share their experiences and feelings with friends, have settled an FTC complaint by agreeing to pay $800,000 and to adopt new privacy safeguards that will be subject to oversight for the next 20 years.
Path, started by tech entrepreneur and early Facebook employee Dave Morin, was embroiled in a controversy last year after it was learned the company's signature app had collected information from users' mobile device address books without their consent.
After an investigation, the FTC accused the company of unfair and deceptive actions against consumers. Under the agreement announced Friday, Path is settling the civil charges without admitting any legal violation.
As part of the case, the FTC also alleged
Morin has previously apologized for the episode and Path said it purged the data it had collected, although Morin also said collecting such information had been a common industry practice. In a corporate blog post Friday, Path appeared to downplay the FTC's action. "The gist of the FTC's complaint is this: early in Path's history, children under the age of 13 were able to sign up for accounts. A very small number of affected accounts have since been closed by Path," the company said in its unsigned post.
"Before the FTC reached out to us, we discovered and fixed this sign-up process qualification, and took further action by suspending any underage accounts that had mistakenly been allowed to be created," the statement continued.
Leibowitz declined to comment Friday when asked about the company's characterization of the case. But he noted that the FTC believed Path had deceived consumers by letting them believe the app would not collect information from their electronic address books unless the users agreed to let the app use that information to add their friends to the service.
Instead, the FTC said, Path collected information on its mobile application for Apple (AAPL) devices even if users did not opt in to the friend-finding feature. The app stored first and last names, addresses, phone numbers, email addresses, Facebook and Twitter user names, and dates of birth of users' contacts, the FTC alleged.
Under the settlement, Path agreed to establish a comprehensive privacy program, including privacy audits every other year for the next 20 years. Future violations of those privacy standards could be subject to fines.
The settlement is part of recent FTC efforts to crack down on abuses of online privacy, especially involving children. Leibowitz, who served on the commission since 2004, is stepping down after four years as FTC chairman under the Obama administration. But industry observers expect whoever is chosen as his replacement will maintain the commission's stance on privacy issues.
In recent years the FTC has also negotiated legal settlements of privacy complaints against Facebook and Google (GOOG). Leibowitz said Friday that the Path settlement shows "that no matter what new technologies emerge, the agency will continue to safeguard the privacy of Americans."
The FTC also released a report on data privacy Friday that includes recommendations for mobile app developers and companies that distribute mobile apps. The FTC recommendations include notifying users before they take actions that will let apps use their personal information, and providing a "do not track" option that would let smartphone uses opt out of tracking by advertising networks.
California Attorney General Kamala Harris issued a similar set of recommendations earlier this year. Officials in other states and in Congress have also raised concerns about privacy issues in recent months.
Leibowitz said the FTC has been working with individual app developers as well as companies that distribute apps, such as Apple and Google, to develop a set of recommended industry practices. He said many industry members have been cooperative but he warned they will face stricter government oversight if they don't respect consumer privacy.
One trade group praised the FTC for recommending voluntary standards Friday. In a statement, Morgan Reed of the Association for Competitive Technology, which represents many app developers, said industry members are working to address privacy issues.
Staff writer Jeremy C. Owens contributed to this report. Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.