Apple, Google to face lawmakers in privacy tussle

Tech companies such as Apple and Google are hoping the tracks of millions of mobile device users will lead to billions of dollars in revenue.

But where they see dollar signs, lawmakers see red flags.

The revelation last month that Apple's iPhones collected location data and stored it for up to a year -- even when location software was supposedly turned off -- has prompted renewed scrutiny of the nexus between location and privacy.

On Tuesday, senior Apple and Google executives will submit to questions from a US congressional panel on how location-tracking may violate users' rights.

Smartphone and advertising companies argue that they use data on what users like (which they know because users use the phone to check prices); where they are (which they know because of contact with cell phone towers); and who their friends are (which they know from social media like Facebook) to give their customers ads for products they are most likely to buy.

"There are terrific things about mobility. There's a lot of good stuff that can come out of this," said Joseph Turow, who follows marketing for the University of Pennsylvania's Annenberg School for Communication.

Companies capable of delivering advertisements to the right consumers in a mobile format could make big money.

"What's the implications of the data in terms of revenues? The issue is in one word -- huge. We think that by the 2014 time frame or so it will be well north of $3 billion," said Carter Lusher, an analyst with research firm Ovum.

"There are simply more and more devices shipped every day that can be targeted."

A study done for Google -- which sells mobile ads -- found that 82 percent of smartphone owners notice mobile ads and 74 percent make a purchase as a result of using a smartphone while shopping, according to the trade publication Mobile Marketer.

But the discomfort comes with the failure of companies -- ranging from smartphone makers, to app makers, to advertisers -- to disclose to customers what information they are collecting and what they will do with it, said a staffer for Democratic Senator Al Franken, chairman of the online privacy subcommittee that will hold Tuesday's hearing.

Witnesses will include Google and Apple executives, as well as Federal Trade Commission and Justice Department officials.

"There are rights-based harms," the staffer said. "We have a fundamental right to know what information is gathered from us, and what they do with it."

Google said in a statement that it was looking "forward to engaging with policymakers." An Apple spokesman said the company was not immediately prepared to discuss the hearing.

Tuesday's inquiry remains just that: lawmakers seeking more information on the technology and its potential uses.

But the risk is, if public concern snowballs into consumer outrage, that lawmakers may eventually pass laws restricting such activity.

Franken's staff has been concerned by reports that insurance companies have explored using location tracking to calculate insurance rates by noting where people go -- for example if they go to a gym or a donut store.

Already three online privacy bills have been introduced -- by Representatives Bobby Rush and Jackie Speier and by Senators John McCain and John Kerry. It's far too early to tell which, if any, of them might become law.

The bills include proposals that companies tell consumers what data is being collected, who it is shared with and how it is safeguarded.

"The fact is that they're creating these sort of mobile digital dossiers based on what you do on your mobile phone and where you are," said Jeff Chester, head of the Center for Digital Democracy.

Franken has not yet decided what he would like to see in a bill, his staffers say.

"Congress has a role to play here. Congress has not done a good job of updating privacy laws," said Marc Rotenberg, head of the privacy think tank Electronic Privacy Information Center.

The University of Pennsylvania's Turow agreed, advocating a ban on collection of data on financial or health issues, perhaps even as minor as over-the-counter medicine purchases.

"Executives in advertising don't understand what's going on," he said. "I really do believe that we need ground level protections. And certain things should be prohibited."

(Reporting by Diane Bartz; Editing by Tim Dobbyn)