BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 761 (Lowenthal)
As Amended April 25, 2011
Hearing Date: May 3, 2011
Fiscal: Yes
Urgency: No
SK
SUBJECT
Online Privacy
DESCRIPTION
This bill would require the Attorney General, by July 1, 2012,
to adopt regulations that would require online businesses to
provide California consumers with a method for the consumer to
opt out of the collection or use of his or her information by
the business.
BACKGROUND
As consumers live out more and more of their lives online,
information about their purchases, web searches, and other
online activity is increasingly "collected, analyzed, combined,
used, and shared, often instantaneously and invisibly."
("Protecting Consumer Privacy in an Era of Rapid Change,"
Federal Trade Commission, December 2010.)
A recent Wall Street Journal investigation found that "�o]ne of
the fastest-growing businesses on the Internet . . . is the
business of spying on Internet users. �The investigation]
reveals that the tracking of consumers has grown both far more
pervasive and far more intrusive than is realized by all but a
handful of people in the vanguard of the industry." ("The Web's
New Gold Mine: Your Secrets," Wall Street Journal, July 30,
2010.) In its investigation, the newspaper looked at the 50
most popular Web sites in the U.S. and, using a test computer,
found that those 50 sites installed a total of 3,180 tracking
files on the computer, usually with no warning. Twelve of those
sites installed more than 100 tracking tools apiece. The
article continued:
(more)
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Tracking technology is getting smarter and more intrusive.
Monitoring used to be limited mainly to "cookie" files that
record websites people visit. But the Journal found new tools
that scan in real time what people are doing on a Web page,
then instantly assess location, income, shopping interests and
even medical conditions. Some tools surreptitiously re-spawn
themselves even after users try to delete them.
These profiles of individuals, constantly refreshed, are
bought and sold on stock-market-like exchanges that have
sprung up in the past 18 months.
. . . advertisers are paying a premium to follow people
around the Internet, wherever they go, with highly specific
marketing messages. In between the Internet user and the
advertiser, the Journal identified more than 100
middlemen-tracking companies, data brokers and advertising
networks-competing to meet the growing demand for data on
individual behavior and interests. . . . The most intrusive
monitoring comes from what are known in the business as "third
party" tracking files. They work like this: The first time a
site is visited, it installs a tracking file, which assigns
the computer a unique ID number. Later, when the user visits
another site affiliated with the same tracking company, it can
take note of where that user was before, and where he is now.
This way, over time the company can build a robust profile.
(Id.)
While information collected using more sophisticated Web
tracking technologies can result in targeted advertisements, it
can also result in more detailed profiles that can include,
among other things, an individual's age, gender, race, income,
marital status, zip code, and recent purchases. In some cases,
tracking advertisers are combining the information obtained
online with offline records to make statistically generated
assumptions about a consumer.
For example, AccuquoteLife.com, a life insurance Web site,
tested a new system that determines whether an Internet visitor
is a "suburban, college-educated baby-boomer." For those
visitors, the Web site displays a default policy of $2 to $3
million, whereas a visitor who is determined to be a rural,
working class senior citizen would instead see a default policy
for $250,000. (Briefing memo regarding legislative hearing on
"Do Not Track Legislation: Is Now the Right Time?" U.S. House of
Representatives, Committee on Energy and Commerce, Subcommittee
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on Commerce, Trade, and Consumer Protection, November 30, 2010.)
Also, Capital One Financial Corp. used statistical assumptions
from a tracking firm to "instantly decide which credit cards to
show first-time visitors to its website." ("What They Know: On
the Web's Cutting Edge, Anonymity in Name Only," Wall Street
Journal, August 4, 2010.)
This activity has not gone unnoticed by regulators. The Federal
Trade Commission (FTC) released a preliminary staff report in
December 2010 that endorsed a "Do Not Track" mechanism to allow
consumers to opt out of the collection of information about
their online activities for targeted ads. In recommending this
mechanism, the FTC noted that in many instances, "�c]ompanies
engaged in behavioral advertising may be invisible to most
consumers. . . . The most practical method of providing
uniform choice for online behavioral advertising would likely
involve placing a setting similar to a persistent cookie on a
consumer's browser and conveying that setting to sites that the
browser visits, to signal whether or not the consumer wants to
be tracked or receive targeted advertisements." (Federal Trade
Commission, supra, at 63-66.)
Following the FTC's report, U.S. Rep. Jackie Speier introduced
H.R. 654, the "Do Not Track Me Online Act", which would require
the FTC to promulgate regulations that require the use of an
online opt-out mechanism that a consumer may use to easily and
effectively prohibit the collection or use of his or her online
information. The bill has been referred to the Subcommittee on
Commerce, Manufacturing, and Trade of the House Energy and
Commerce Committee.
Modeled closely on H.R. 654, this bill would require the
California Attorney General to adopt regulations that would
require online businesses to provide California consumers with a
method for the consumer to opt out of the business' collection
or use of his or her information transmitted online.
CHANGES TO EXISTING LAW
Existing law , the California Constitution, provides that all
people have inalienable rights, including the right to pursue
and obtain privacy. (Cal. Const. art. I, sec. 1.)
Existing law requires online businesses that collect personally
identifiable information about California consumers through the
Internet to conspicuously post their privacy policies on their
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Web sites. Those privacy policies must identify the categories
of personally identifiable information that the business
collects through the Web site and the categories of third-party
persons with whom the business may share that information.
(Bus. & Prof. Code Sec. 22575.)
Existing law establishes the Office of Privacy Protection to
"protect the privacy of individuals' personal information in a
manner consistent with the California Constitution by
identifying consumer problems in the privacy area and
facilitating the development of fair information practices in
adherence with the Information Practices Act . . . and to
promote and protect consumer privacy to ensure the trust of the
residents of this state." (Gov. Code Sec. 11549.5 et seq.)
This bill would require the Attorney General, by July 1, 2012,
to adopt regulations that would require persons or entities who
do business in California and collect, use, or store online data
containing a consumer's "covered information" to provide a
consumer with a method for him or her to opt out of the
collection or use of his or her personal information transmitted
online.
This bill would require that the regulations adopted by the
Attorney General shall do the following:
include a requirement for a business to disclose, in a manner
that is easily accessible to a consumer: (1) information on
its collection, use, and storage of information practices; (2)
how the entity uses or discloses covered information; and (3)
the names of the persons to whom the entity would disclose
covered information; and
prohibit the collection or use of covered information by a
business for which a consumer has opted out of such collection
or use, unless the consumer changes his or her opt-out
preference to allow the collection or use of that information.
This bill would provide that the regulations shall not interfere
with, affect, or prohibit a commercial relationship between a
consumer and a business where the consumer has expressly opted
in to the collection and use of his or her covered information
by the business for the purpose of engaging in that commercial
relationship. This bill would specify, however, that the
regulations may regulate and affect such a commercial
relationship if a majority of the business' revenue is derived
from online advertising and marketing.
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The bill would provide that the regulations may do the
following:
include a requirement that a business provide a consumer with
a means to access his or her covered information and its data
retention and security policies in a format that is clear and
easy to understand; and
include a requirement that some or all of the regulations
apply with regard to the collection and use of covered
information, regardless of the source.
This bill would permit the Attorney General to exempt certain
commonly accepted commercial practices, including the following:
providing, operating, or improving a product or service used,
requested, or authorized by the consumer, including ongoing
customer service and support;
analyzing data related to use of the product or service for
purposes of improving the products, services, or operations;
basic business functions such as accounting, inventory and
supply chain management, quality assurance and internal
auditing;
protecting or defending rights or property, including
intellectual property, against actual or potential security
threats, fraud, theft, unauthorized transactions; or other
illegal activities;
preventing imminent danger to the personal safety of an
individual or group of individuals;
complying with a federal, state, or local law, regulation,
rule, or other legal requirement, including disclosures
pursuant to a court order, subpoena, summons, or other
properly executed compulsory process; and
any other category of operational use specified by the
Attorney General in regulations.
This bill would prohibit a covered business from selling,
sharing, or transferring a consumer's covered information.
This bill would provide that a business that willfully fails to
comply with the Attorney General's regulations is liable to a
consumer in a civil action in an amount equal to the sum of
actual damages but in no event less than $100 or more than
$1,000 as well as punitive damages. In the case of a successful
action, the business would be liable to the consumer for
reasonable attorney's fees and costs. This bill would specify
that such an action must be commenced no later than two years
after the date upon which the claimant first discovered or had a
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reasonable opportunity to discover the violation.
This bill would define "covered entity" to mean a person or
entity doing business in California that collects, uses, or
stores online data containing covered information from a
consumer in the state.
This bill would not apply to government entities or businesses
that store information from or about fewer than 15,000
individuals provided that the business does not collect or store
"sensitive information," as defined or use the information to
study, monitor, or analyze consumers' behavior, as its primary
business.
This bill would define "covered information" to mean any of the
following that is transmitted online:
the online activity of the individual such as the Internet Web
sites and content from those sites accessed; the date and hour
of online access; the computer and geolocation from which
online information was accessed; and the means by which online
information was accessed, such as a device, browser, or
application;
any unique or substantially unique identifier, such as a
customer number or Internet Protocol address; and
personal information including, a name; postal address or
other location; email address; telephone or fax number;
government-issued identification number; financial account
number; credit card or debit card number; or required security
codes or passwords.
This bill would provide that "covered information" does not
include the title, business address, business email address,
business telephone or fax number associated with an individual's
status as an employee of the organization. It also would not
include an individual's name when collected, stored, used, or
disclosed in connection with that employment status or any
information collected from or about an employee by an employer,
prospective employer, or former employer that directly relates
to the employee-employer relationship.
This bill would define "sensitive information" to include any of
the following:
any information that is associated with an individual's
covered information and relates directly to that individual's,
among other things: (1) medical history, physical or mental
health; (2) race or ethnicity; (3) religious beliefs and
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affiliation; (4) sexual orientation or sexual behavior; (5)
income, assets, and liabilities or financial records; and (6)
precise geolocation information and any information about the
individual's activities and relationships associated with that
location;
an individual's unique biometric data, including a fingerprint
or retina scan, or social security number; and
information deemed sensitive pursuant to the regulations
adopted by the Attorney General.
COMMENT
1.Stated need for the bill
In support of the bill, the author writes:
Internet tracking is invasive and pervasive. Wherever
consumers go online and whatever they do is tracked usually
without their knowledge and consent. What they click on,
purchase, or share with others is compiled, analyzed and used
to profile them. The data is often used to target
advertising, but can also be used to make assumptions about
people in connection with employment, housing, insurance, and
financial services; for purposes of lawsuits against
individuals; and for government surveillance.
At the moment there are no state or federal limits on what
information can be collected, with whom it can be shared, how
long it can be retained or how it can be used. A "Do Not
Track" mechanism would give consumers control over whether
their data is collected.
The sponsor, Consumer Watchdog, writes "�n]early 80 percent of
Californians use the Internet and almost 45 percent use
Facebook. However, millions are unaware that their online
behavior is being tracked with their data collected and sold to
advertisers. There is no longer any anonymity on the Web. The
most persona information about people's online habits is
collected and eventually bought and sold, often instantaneously
and invisibly. Data collection practices have become a business
themselves, driven by profits at consumers' expense."
2.Requiring the Attorney General to adopt regulations requiring
online businesses to provide consumers a method to opt out of
the collection or use of their information
This bill would require the Attorney General, in consultation
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with the Office of Privacy Protection, to adopt regulations that
would require online businesses to provide California consumers
with a method for the consumer to opt out of the business'
collection or use of his or her information transmitted online.
With respect to this bill, the Attorney General has stated her
"strong support for state legislation to enhance Internet
privacy protections for consumers." The Attorney General
further writes, ". . . SB 761 would have the California
Department of Justice assume a substantial regulatory role over
Internet privacy. . . . there has already emerged some
passionate disagreement over whether the bill's approach is the
right one. We are committed to working with you, and with
stakeholders and committee staff, to develop a proposal that
appropriately balances personal privacy with the operational and
business needs of corporate and other entities having an
Internet presence."
While this bill would largely leave to the Attorney General the
details of how to accomplish this mandate, the bill would
require that the regulations do two things: (1) require
transparency; and (2) prohibit the collection or use of
information if a consumer has opted out.
a. Regulations must require transparency
First, the regulations must include a requirement for a
business to disclose, in a manner that is easily accessible to
a consumer, all of the following: (a) information on the
business' collection, use, and storage of information
practices; (b) how the business uses or discloses covered
information; and (c) the names of the persons to whom the
business would disclose covered information.
This provision is intended to address one of the more
frustrating issues with respect to the collection and use of
consumers' online information for behavioral advertising-the
lack of transparency. As noted earlier, much tracking by
third parties is done surreptitiously and consumers have no
knowledge that their online behavior is being tracked. The
author notes that some search engines and browsers do have
features that provide some consumer control. For example,
while Microsoft's Internet Explorer 8 has features that "allow
a user to browse the Web without being tracked," these
features often only work if the user resets the privacy
controls at the start of each new browsing session. ("FTC
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Backs Plan to Honor Privacy of Online Users," New York Times,
December 1, 2010.)
Staff notes that opponents of this bill assert that it is
unnecessary because consumers can already opt out of data
collection using tools on their browser, and write, "�t]he
four leading internet browsers-Internet Explorer, Safari,
Firefox, and Google Chrome-all provide user-friendly filtering
options that block the ability of companies to collect data or
track Internet use. These include features that disable third
party cookies and 'in private' browsing features." In its
report, the FTC acknowledged these efforts but raised concerns
that consumers are often unaware that they have these choices
in part because the option may be difficult to find and, even
if consumers are aware, they may be confused by a lack of
clarity in how choices are presented and implemented.
Further, consumers may believe that they have opted out of
tracking by blocking third party cookies, but they could still
be tracked using a "Flash cookie," which is stored in an area
of the computer that is not controlled by the browser and thus
is not deleted when other cookies are deleted or cleared from
the browser. (Federal Trade Commission, supra, at 65-66.)
The sponsor of this bill also raises concern that there is
currently no requirement that a Web site honor a "do not
track" request.
b. Regulations must prohibit the collection or use of
information if a consumer has opted out
Second, the regulations must prohibit the collection or use of
covered information by a business for which a consumer has
opted out of such collection or use, unless the consumer
changes his or her opt-out preference to allow the collection
or use of that information.
This provision is intended to make the opt-out method
developed by the Attorney General meaningful so that if a
consumer opts-out, the business must comply with that choice
unless the consumer changes his or her mind.
This bill does not contain language providing for how the
opt-out method might functionally work. It is presumed that
the Attorney General, through the regulatory process, would
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determine this. The FTC's staff report might provide some
guidance in that its recommendation for "the most practical
method of providing uniform choice for online behavioral
advertising would likely involve placing a setting similar to
a persistent cookie on a consumer's browser and conveying that
setting to sites that the browser visits, to signal whether or
not the consumer wants to be tracked or receive targeted
advertisements." (Federal Trade Commission, supra, at 66.)
Yet, it is not clear whether such a method would completely
address surreptitious tracking technologies such as Flash
cookies which do not remain under the browser's control.
1.Regulations may include provisions relating to access
This bill would provide that the regulations adopted by the
Attorney General may include a requirement that a business
provide consumers with a means to access their information that
is collected and stored by the business. This provision stems,
in part, from a discussion in the FTC's staff report in which
Commission staff recommended that consumers be given reasonable
access to their data which should be proportionate to the
sensitivity of the data and the nature of its use. (Federal
Trade Commission, supra, at 72.)
This provision is intended to address the concern that data
brokers and other companies who are unknown to consumers collect
their information and combine it with other information about
them to sell to third parties. If a company maintains data
about a consumer and makes important decisions about that
consumer, it is important that he or she be able to know what
information is held about him or her and correct it if it is
inaccurate.
Access to consumer information maintained by a company raises
additional significant policy issues, however. For example, in
order to provide a consumer access to his or her information,
the company must be able to authenticate the identity of the
consumer. Otherwise, an identity thief could pose as the
consumer and gain access to his or her information.
In the online context, opponents of this bill argue that an
access requirement would result in companies ". . . ironically
�having] to take information that they currently collect and use
in non-individually identifying form and instead to collect and
keep it in a usuable form to be able to respond to individuals'
request to provide data about that individual."
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4. Bill would not affect instances where a consumer has
expressly opted in to the collection of his or her
information
This bill would provide that the regulations adopted by the
Attorney General shall not interfere with, affect, or prohibit a
commercial relationship between a consumer and a business where
the consumer has expressly opted in to the collection and use of
his or her covered information by the business for the purpose
of engaging in that commercial relationship.
This language is intended to permit those commercial
relationships between a consumer and a company where the
consumer has expressly opted in to the collection and use of his
or her information in order to engage in that commercial
relationship. For example, a consumer may sign up to
periodically receive newsletters from a company and provide his
or her information. In this case, the consumer has opted in to
the collection.
The provision does not apply to, and thus the regulations may
affect, a commercial relationship if a majority of the business'
revenue is derived from online advertising and marketing.
Opponents object to this provision because, they argue, it
"gratuitously singles out advertising companies for special
regulation. . . . Opt-in consent is not a viable compliance
route for most tracking models, but the blatant discrimination
in this approach is pointless and inappropriate. California is
a leader in the Internet advertising industry. . . .
Disrupting this industry's revenue streams directly affects its
ability to create jobs."
5. Prohibition against further sale, sharing, or transfer
This bill would prohibit a covered business from selling,
sharing, or transferring a consumer's information. While this
provision is intended to prohibit any further sale, sharing, or
transfer of a consumer's information, it is not intended to
prohibit that sharing or transferring if a consumer has
expressly opted in to that relationship. For example, the
author and his sponsor indicate that this provision is not
intended to prevent a business from completing a commercial
transaction with the consumer. As a result, the following
amendment is suggested:
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Suggested amendment
On page 6, line 8, after "information" insert "except that the
regulations adopted by the Attorney General shall permit a
covered entity to enter in to a commercial transaction with a
consumer and to collect, store, and share that consumer's
covered information solely to complete that transaction."
Opponents argue that the provision described above would impose
"a free-standing flat ban on any covered entity sharing or
transferring any covered information, for any purpose at all."
While the bill would still limit the selling, sharing, or
transferring of information, the amendment suggested above would
appear to help address some opposition concern given that it
would allow for the collection, storing, and sharing of a
consumer's information in order to complete a transaction
requested by the consumer.
This bill would also permit the Attorney General to exempt from
the regulations certain commonly accepted commercial practices,
including, among others, providing a product requested by the
consumer; allowing for basic business functions such as
accounting, inventory and supply chain management, quality
assurance and internal auditing; protecting against actual or
potential security threats, fraud, theft, unauthorized
transactions; or other illegal activities; and preventing
imminent danger. The Attorney General may also exempt any
other category of operational use.
As a result, the regulations may very well not apply to uses in
which a company might use tracking to guard against fraud or
unauthorized transactions (e.g., attempting to sign up for
Facebook or some other online service where the registrant must
be over a certain age).
6. Additional support arguments
Supporter Privacy Activism writes:
Online tracking is all but universal and often impossible
either to detect or control. When a user visits a webpage, it
almost inevitably contains tiny images or invisible JavaScript
that exists for the sole purpose of tracking and recording
browsing habits. These data collecting devices persist on a
user's hard drive and enable the site or the tracking company
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to collect data over time and to build profiles. The
explosion of social networks makes it far easier to combine
third-party tracking data with personal information to create
highly detailed personally identifiable profiles.
7. Support if amended position
The Electronic Frontier Foundation (EFF) has a "support if
amended" position on this bill. EFF notes that it "has joined
the Federal Trade Commission and companies like Mozilla and
Microsoft in supporting Do Not Track, a simple, universal,
browser-based signaling mechanism that would make it easy for
consumer to say 'don't track me.'" EFF continues:
. . . we are particularly troubled by �the bill's] failure to
clearly distinguish between first parties and third parties.
A 'first party is a website a user knowingly visits and thus
has a direct relationship with. A 'third party,' such as a
cross-domain advertising company, is often embedded within a
first party site so that consumers may not even realize that
the third-party tracking company is present, and thus cannot
protect themselves. While we acknowledge privacy concerns
about data collection by first-party websites, we believe that
these websites do not currently raise the same serious privacy
issues as third parties. The rampant, cross-domain, invisible
data collection by third-party tracking companies is a grave
threat to online consumer privacy. We believe SB 761 should
be amended to focus specifically on third parties, ensuring
that consumers can easily opt-out of such tracking.
The author acknowledges the concern and indicates that "�s]ome
Websites that raise the largest privacy concerns, such as Google
and Facebook, are primarily first party sites. Consumers are
justifiably concerned about protecting their personal data when
they visit those sites. This bill does not mandate that
first-party and third-party sites be treated in exactly the same
manner under a Do Not Track regulation. There may well be some
first-party activities that should be allowed under a Do Not
Track mechanism, that would be prohibited for a third-party
site. The bill envisions those distinctions being made through
the regulations promulgated by the Attorney General in
consultation with the Office of Privacy Protection. Indeed, the
bill specifically provides: 'The regulations shall not interfere
with, affect, or prohibit a commercial relationship between a
consumer and a covered entity where the consumer expressly opts
in to the collection of his or her covered information by the
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covered entity for the purpose of engaging in that commercial
relationship.'"
8. Additional opposition arguments
In addition to the arguments described above, opponents of this
bill also write that the bill will "harm California's Internet
economy and innovation" and would "create a second, conflicting
set of standards to which companies would have to conform or
else face class action lawsuits. This would, in turn, create
significant confusion and uncertainty for investors, businesses,
and consumers. Online commerce would simply be unworkable if
websites were forced to comply with a patchwork of privacy and
notice laws. This would impose an unprecedented and arduous
regulatory burden on Internet commerce."
Opponents further argue that the bill is constitutionally
infirm, writing that "�i]nternet commerce is an inherently
interstate activity and SB 761 would regulate businesses far
beyond California's borders. Websites cannot restrict who
visits their sites and cannot reliably know if a visitor is a
California resident. Therefore every Internet website in the
world would need to change their practices in order to comply
with the law or risk violating it and facing costly class action
lawsuits. As a result, any out-of-state company affected by the
law would be entitled to bring a Commerce Clause challenge under
42 U.S.C. �1983."
The U.S. Constitution grants Congress the power to regulate
commerce among the states. (U.S. Constitution, art. I, sec. 8.)
From this grant of power, the U.S. Supreme Court has inferred
that states may not enact laws that burden interstate commerce.
(Gibbons v. Ogden (1824) 22 U.S. 1.) The threshold test for
whether a state law violates the dormant commerce clause is
whether the law affects interstate commerce. If the answer to
that question is yes, then the court looks to whether the state
law discriminates against out-of-staters or whether it treats
everyone alike. A state law that does not discriminate between
the two-as this bill arguably would not-generally is upheld
unless it is found to place a burden on interstate commerce that
outweighs its benefits. (Pike v. Brace Church (1970) 397 U.S.
137.) In this case, opponents argue that because an online
business will not know whether a computer user is in California,
all online businesses would have to change their practices to
satisfy California law. Despite that argument, this bill would
arguably enforce best business practices. In addition, the
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author's office contends that a company can tell if a consumer
is in California based on the consumer's IP address.
9. Amendments
The following technical amendments are necessary:
(a) On page 4, line 36, after "the" insert "covered
entity's"
(b) On page 4, line 38, after "discloses" strike "that" and
insert "covered"
(c) On page 4, line 39, strike the second "that" and insert
covered"
Support : Attorney General Kamala D. Harris; Common Sense Media;
Consumer Federation of California; Electronic Frontier
Foundation (if amended); Privacy Activism;
Opposition : A's; American Advertising Federation; American
Express; American Insurance Association; Amway; ANA; AOL;
Association of California Insurance Companies; Association of
California Life & Health Insurance Companies; Acxiom; California
Attractions and Parks Association; California Bankers
Association; California Cable & Telecommunications Association;
California Chamber of Commerce; CalCom; CTIA, the Wireless
Association; Direct Marketing Association; Entertainment
Software Association; Google; iab; Internet Alliance; National
Business Coalition on E-Commerce and Privacy; Motion Picture
Association of America; NetChoice; Personal Insurance Federation
of California; Privacy & Security Coalition; Technet; Time
Warner Cable; Toy Industry Association, Inc.; Yahoo; 24-7
RealMedia; 4As, American Association of Advertising Agencies
HISTORY
Source : Consumer Watchdog
Related Pending Legislation : None Known
Prior Legislation : None Known
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