On February 6, 2017, the Federal Trade Commission (“FTC”) in conjunction with the Office of the New Jersey Attorney General announced a settlement with Vizio Inc. (“Vizio”), including payment of $1.5 million to the FTC and $1 million to the New Jersey Division of Consumer Affairs, with $300,000 of that amount suspended, over claims that Vizio’s smart TVs collected information about consumers’ video viewing behavior and shared that data with third parties without sufficient notice or consent. This settlement, along with pending class action litigation against Vizio involving similar allegations, reflects some of the privacy issues faced by developers in the Internet of Things space.

The FTC’s allegations revolved around the “Smart Interactivity” feature found on Vizio’s smart TVs. According to the FTC, starting in 2014, Vizio pre-installed its Smart Interactivity feature on new smart TVs and automatically installed the feature on older models. According to the complaint, only older models of the devices included a pop-up making consumers aware that that the feature had been installed. The FTC alleged that Vizio described the feature as enabling “program offers and suggestions,” which could be turned off through the smart TV settings.

The FTC’s complaint went on to allege that the Smart Interactivity feature did not actually enable program offers or suggestions, but rather collected “highly-specific, second-by-second information” about consumers’ video viewing behaviors, including what content they watched, when they watched it, and the length of their views. Vizio allegedly determined what consumers watched by matching pixels from consumers’ television screens with publicly available pixels from movies, shows, and commercials. Vizio then allegedly shared this viewing data, along with persistent identifiers it collected from consumers, with third party data brokers in order to license that data to still other third parties for purposes of measuring audience viewership, determining advertising effectiveness, and serving targeted advertisements to specific consumers on their various devices. In its contracts with the data brokers, Vizio allegedly prohibited the data brokers from re-identifying consumers by name but allowed the data brokers to append data from their own internal databases, such as sex, age, and income (thereby building a more robust consumer profile).

The FTC claimed that Vizio’s actions violated Section 5 of the FTC Act in three ways. First, the FTC alleged, Vizio acted unfairly by collecting and sharing sensitive information (i.e., video viewership information) without consumers’ consent and through a medium consumers would not expect to be used for tracking. Second, the FTC alleged, Vizio deceived consumers by failing to adequately disclose that the “Smart Interactivity” feature collected and shared consumers’ video viewership information. Finally, the FTC maintained that Vizio deceived consumers by falsely representing that the Smart Interactivity feature enabled program offers and suggestions when it actually collected and shared consumers’ video viewership information.

In the pending class action litigation against Vizio, television owners have contended that Vizio violated both the federal Video Privacy Protection Act (“VPPA”) and Wiretap Act by collecting their video viewing behavior and sharing that data with data brokers and advertisers, exposing their personally identifiable information. Earlier this month, a federal judge allowed the claims for violation of the VPPA, invasion of privacy and intrusion upon seclusion to survive a motion to dismiss and granted plaintiffs leave to amend their allegations as to the Wiretap Act. The judge also allowed claims for fraudulent omission to move forward based on allegations that Vizio fraudulently hid its data practices by failing to mention the software it uses to collect data and how to disable the software or that the data is sold, despite a “very small font” privacy policy that claims the company collects anonymous and nonpersonal data.

What are the privacy takeaways for developers of smart TVs and other connected devices that are part of the Internet of Things?

• Make accurate disclosures and do not omit material facts. The FTC’s primary concern with respect to Vizio appeared to be that the company allegedly collected and shared video viewership information without accurately and fully disclosing its practices. Two of the three counts against Vizio involved deceptive acts or practices. According to the FTC, the alleged description of the “Smart Interactivity” feature was misleading and the pop-up, without further information, insufficient. Companies should carefully review the representations they make, including those made outside of their privacy policies.
• Make sure your practices align with consumer expectations. The FTC also voiced concern that Vizio’s alleged practices of collecting and sharing video viewership information did not align with consumer expectations. Per the FTC, when using a television, consumers do not expect the television manufacturer to figure out exactly what they are watching and share that data with third parties for retargeting purposes. Manufacturers should understand that, even if a practice does not violate a specific statute, it may carry a “creepiness factor” that could attract regulatory scrutiny or impact a company’s public perception and bottom line. To the extent companies intend to engage in such practices, companies should clearly and prominently alert consumers of their practices.
• Get opt-in consent prior to sharing video viewership information. In the Vizio settlement, the FTC refers to video viewership information as sensitive information that requires opt-in consent and potentially a separate video policy, prior to collection and sharing. Interestingly, acting Chairman Maureen Ohlhausen issued a concurring statement to the settlement questioning whether video viewership information should be treated as sensitive information. While there may be some disagreement over the sensitivity of video viewership information, legislators have taken the position that such data warrants greater scrutiny than many other forms of data (as evidenced by the federal VPPA and similar state laws). Under the VPPA, companies are prohibited from knowingly disclosing “personally identifiable information” concerning a consumer to any person unless an exception applies. There is currently a circuit split as to what constitutes personally identifiable information under the VPPA, with some courts finding that video viewership information in conjunction with a static identifier (e.g., an IP address) is sufficient to plead a case. The VPPA and similar state laws provide consumers with a private right of action with an accompanying right to statutory damages even in the absence of a showing of harm.
• Be creative with respect to your disclosures. As part of settlement, the FTC required Vizio to prominently disclose its practices. The FTC emphasized that Vizio must provide unavoidable visual disclosures, and, more relevant for the Internet of Things space, audible disclosures delivered in “a volume, speed, and cadence sufficient for ordinary consumers to easily hear and understand.” Companies should view the audible disclosure requirement as a signal that the FTC expects connected devices to provide conspicuous disclosures in a manner that is more aggressive than traditional small-print privacy policies linked to the bottom of web pages.
• The $2.2 million payment does not tell the whole story. Vizio allegedly collected video viewership information from more than 10 million televisions prior to entering into the settlement. So companies might think that the risk of a $2.2 million settlement seems miniscule in comparison to the potential upside. However, the settlement also requires Vizio to destroy all video viewing information collected without opt-in consent prior to March 1, 2016, establish a mandatory privacy program, have an independent third party routinely assess its data practices, keep extensive records, and report to the FTC, create new policies among other things. Thus, the real cost is significantly higher than $2.2 million.
• Dealing with data brokers attracts scrutiny. The FTC has shown consistent interest in regulating data brokers. For example, the FTC issued the report “Data Brokers: A Call for Transparency and Accountability” in May 2014 and the report “Big Data: A tool for inclusion or exclusion” in January 2016. In the settlement with Vizio, the FTC specifically cited Vizio’s contract prohibiting data brokers from re-identifying consumers yet allowing them to append certain forms of data. Smart device manufacturers should therefore be extra careful with regard to their practices when dealing with data brokers.