Veering Off the Beaten Path Into Murky Legal Waters
Path, a high-profile San Francisco social media startup, ignited a firestorm this week with the revelation that its mobile application uploads users’ entire iPhone address books to the company’s servers without their knowledge or permission. The practice, discovered by Singapore developer Arun Thampi, provoked outrage within the user community and was broadly condemned by the tech business press. Jon Mitchell at ReadWriteWeb wrote that the upshot of Path CEO Dave Morin’s initial response was “We did it first, and we’ll ask you for permission in a little while.” The company quickly apologized on its corporate blog and, as I write this, plans to push out an updated version of the iPhone app to quell users’ privacy concerns. As most readers know, I’m a lawyer and advisor to social Web and mobile startups. As one of the original in-house counsel at MySpace, I helped fight every kind of abuse imaginable as the site exploded into one of the most popular in history from 2004-06. After that, I served as head of Legal at eHarmony, where we were entrusted with 20+ million users’ sensitive personal information. I recognize that a business lawyer’s role is to advance the interests of the company and its shareholders — which, in a social media business, entails obtaining and preserving maximum latitude to use members’ content and contact information in whatever way turns out to be best for the business — within the legal and ethical boundaries that apply.
Privacy law in general, and particularly in the United States, is disclosure and consent-based. A principle established by the FTC long ago is that Internet companies can generally gather, store and share information as they wish, provided they disclose these practices up front to users in written privacy policies. (State laws such as California’s now require privacy policies.) The rationale is that a consumer who objects is free to leave the site or decline to supply it with any personal information. It’s understandable that businesses, particularly aggressive social startups seeking rapid growth, want to streamline the user experience and minimize barriers from things like pagefuls of legalese and boxes that must be checked to proceed. Nevertheless, the prophylactic effect of those measures can be enormous in a scenario like the one Path found itself in.
If a hypothetical company similar to Path were my client, I’d recommend that there be:
- At a minimum, conspicuous disclosure that this data transfer is necessary for the app to function (i.e., if you don’t agree, don’t use it);
- Better, a setting both in the mobile app and on the member Settings page on the website enabling users to opt out of the address book sharing; and
Path is not a uniquely irresponsible company. Countless startups have made similar mistakes in their early days, particularly when urgency and innovation have a tendency to trump circumspection (e.g., “Move fast and break things“). I myself am a fan of the Path service. Nevertheless, there are simple preventive measures that could have been put into place that might have avoided such an eruption of animosity — not to mention potential legal and financial consequences. (Some commentators are suggesting Path violated privacy laws outside the U.S., particularly in the European Union member countries.) In building trust with the user community and business media, there is power in being able to respond truthfully and immediately to critics that the company informed consumers, sought and received their consent before doing the act in question.
In the bigger picture, as smartphones and mobile apps become ubiquitous, we as a society will have to come to terms with the nature and degree of privacy expected when enjoying their cutting-edge features. Judging by the reaction, Path clearly crossed a line here, but with adequate disclosure, one could argue the company did nothing wrong. Jon Mitchell posits that “Whenever Facebook or Google messes with our privacy, this is the cost of doing business for free. Path is no different. It’s already using our personal data in ways we didn’t expect. ” Nevertheless, from the startup’s point of view, it’s worth bending over backwards to disclose and/or seek permission from users for any unusually aggressive practices in the handling of their personal information.
This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.