POLITICO Pro

FTC sees privacy threats in the ‘Internet of Things’

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As consumers buy up fitness trackers, Internet-connected thermostats and even Web-enabled cars and toothbrushes, the Federal Trade Commission has a message: It’s watching.

The agency is warning that as millions of new smart devices make people’s daily lives more convenient, they’re also collecting reams of personal information that raise new privacy and data security concerns.

The nascent sector — known as the “Internet of Things” and embraced by companies from Google to Intel — is still largely unregulated, and the FTC is hoping a set of recommendations it released Tuesday will goad companies into building consumer data protections into their systems.

“The only way for the Internet of Things to reach its full potential for innovation is with the trust of American consumers,” said FTC Chairwoman Edith Ramirez. “We believe that by adopting the best practices we’ve laid out, businesses will be better able to provide consumers the protections they want and allow the benefits of the Internet of Things to be fully realized.”

The report advises companies to build security into products and services from the outset, minimize data collection and give consumers notice and choice about how their data will be used — all familiar FTC guidance.

But the agency, which acts as the nation’s de facto privacy regulator, didn’t call for new legislation to govern the industry, saying it would be premature to apply new laws to the evolving sector. Instead, the FTC said it intends to rely on its existing authorities under the FTC Act, the Fair Credit Reporting Act and the Children’s Online Privacy Protection Act to police the expanding category.

Even the agency’s cautious steps, however, are already meeting with resistance from a Republican Congress that is skeptical of any agency overreach that might inhibit a dynamic new tech market.

“Government agencies like the Federal Trade Commission … are already considering possible changes to the law that could have the unintended consequence of slowing innovation,” Senate Commerce Committee Chairman John Thune (R-S.D.) said in a statement Monday night, announcing an Internet of Things hearing next month. “Standing on the cusp of technological innovations that will improve both the safety and convenience of everyday items, we shouldn’t let government needlessly slow the pace of new development.”

Ramirez, a Democratic appointee of President Barack Obama who took over as FTC chairwoman in March 2013, has put the agency firmly in the center of the emerging debate. In forum after forum, she has sounded an alarm that the explosion of digitally connected devices, if left unchecked, could threaten consumer privacy and security. She even coined a term for a worst-case scenario: “smart home hacking.”

Not all the commission members are on board with her campaign.

Republican FTC Commissioner Joshua Wright slammed the agency’s conclusions on the Internet of Things, saying they are based on a single workshop held in November 2013. Wright, the sole member of the five-person commission to dissent on the report, said the FTC can provide no evidence that its best practices “would improve consumer welfare.”

As Washington begins to grapple with the issue, tech giants are racing ahead, placing big bets on the new wave of products and services.

Google shelled out $3.2 billion for Nest, a maker of thermostats that can be controlled via mobile app. Samsung snapped up SmartThings, a home automation system for controlling things like light switches and door locks with an app. And it’s hard to miss the growing number of people donning Internet-connected devices known as “wearables,” whether it’s Fitbit or Nike FuelBand. Apple is due to enter the fray soon with a highly anticipated smartwatch.

In a sign of the sector’s rapid growth, a recent estimate from the firm 451 Research found that companies last year spent about $14.3 billion to acquire 60 Internet of Things device-makers, a major jump from 2013.

Intel’s Internet of Things group grew 19 percent last year, passing the $2 billion revenue mark for the first time, CEO Brian Krzanich said during the company’s fourth-quarter earnings call last week. For Verizon, the Initernet of Things and telematics car technology contributed $585 million last year, up more than 45 percent from 2013.

So far, the FTC has brought only one Internet of Things enforcement case, suing TRENDnet, a maker of Web-enabled home-security cameras. The company’s lax security practices allowed hackers to post video feeds from people’s homes, including images of babies in their cribs, according to the agency.