Privacy concerns hinder RFID rollout

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Major retailers rushing to use tiny radios in cost-cutting inventory tracking systems have raised opposition from consumer advocates who say companies have failed to adequately protect consumer privacy.

The latest skirmish followed last month's announcement that Philips Semiconductor would ship 15 million radio frequency identification, or RFID, tags for the Sisley clothing line of Italian manufacturer Benetton. Each tag contains a computer chip for storing data and a miniscule antenna that lets the stamp-sized device communicate with a network.

For Benetton, the tags mean boxes of clothes traveling through the company's supply chain can be scanned and their contents recorded within an inventory management system, without having to unpack and scan each item by hand. Besides saving time, Philips' RFID-enabled i.code chips cut costs further by being more accurate than the manual method.

Because retailers operate under very slim margins, the potential for cutting costs through RFID technology is extremely attractive. The closer stores are able to tie actual sales to demand, the lower the inventory levels. Lower inventory means higher margins and a reduction in expenses.

Better tracking of inventory in warehouses, loading docks, and trucks doesn't normally mobilize consumer advocates. But embedding tracking devices in clothing does. Benetton planned to conceal the tags in the labels of its Sisley clothing brand during the manufacturing process, tracking each garment right into the company's 5,000 stores.

Having consumers walking around with computer chips capable of transmitting data into a corporate database was too Orwellian for consumer advocates.

"You could simply put a reader device into a doorway and you would know what everyone was carrying as they walked in," Katherine Albrecht, founder and director of Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN), said. "It would be like an electronic frisk."

The Philips tags have an operating distance of about five feet, so the company says the clothes can't be tracked once consumers leave the store. Nevertheless, the call for boycotts from CASPIAN and other pro-privacy groups convinced Benetton to reconsider its plans, while assuring customers "that no microchips (Smart Labels) are present in the more than 100 million garments produced and sold throughout the world under its brand names, including the Sisley brand."

The company went on to say in a statement released last week that no "feasibility studies have yet been undertaken with a view to the possible industrial introduction of this technology."

Benetton, however, left open the possibility that RFID tags may be back.

"On completion of all studies on this matter, including careful analysis of potential implications relating to individual privacy, the company reserves the right to take the most appropriate decision to generate maximum value for its stakeholders and customers," the company said in a statement. Benetton and Philips couldn't be reached for comment.

While agreeing that privacy advocates are right to watch the use of radio tags, retail analyst Gene Alvarez of META Group believes they're overreacting, given the current state of the technology. "A washing machine could solve the problem of an RFID tag," he said.

Today's tag readers can't reliably identify mixed goods on adjacent warehouse palettes, so the technology is years away from being able to identify people, the clothes they're wearing and the products they're carrying. Nevertheless, as the technology improves, abuse is possible. But Alvarez doesn't believe government intervention is necessary. "If technology vendors, retailers and suppliers can come up with a scheme for deactivation, it won't be necessary for the government to step in," Alvarez said.

Benetton is not alone in its interest in radio tags. Consumer goods titan Procter & Gamble is testing the technology. And earlier this year, Gillette, Wal-Mart, and United Kingdom-based supermarket chain Tesco said they would design shelves capable of picking up radio waves from microchips embedded in shavers and related products.

In Benetton's case, system integrator Lab-ID would add RFID technology to store shelves and warehouses, while Psion Teklogix supplied the handheld readers. Separately, Psion and Lab-ID announced this week a partnership in which they would develop RFID technology, including a handheld device capable of reading traditional barcodes and radio tags. The new version of Psion's Netpad is scheduled to ship in the fall.

UCCnet, an Internet-based exchange used by major retailers to store product data that can be accessed by distributors, said RFID tags were not an invasion of privacy as long as they are deactivated at the point of sale. "The fact that it can be disengaged, or killed, solves the privacy issues," spokeswoman Cecily Laidman said. "Nevertheless we are incredibly aware of the privacy issues and respect those rights."

But in a time of corporate scandals like Enron and WorldCom, consumer advocates want government to regulate the use of radio tags. At the very least, products carrying the technology should be labeled for consumers, Albrecht said.

CASPIAN plans to launch lobbying campaigns at the end of the month in California, Massachusetts, Texas, and Washington to convince lawmakers that consumers need legal protection. In the meantime, the group advocates a voluntary moratorium on RFID tags by manufacturers.

"They need to allow time for the rest of us to get up to speed on the technology's implications," Albrecht said. "They're playing with a technology that has tremendous potential for abuse."

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