Nomi is one of a handful of companies that have pioneered an innovative technique of using the wireless signals emitted by consumers' phones to take a digital headcount of shoppers in retail stores. The company uses this information to offer insights to retailers about consumer traffic patterns, such as the duration of visits, number of repeat customers, and the percentage of consumers who passed by the store without entering it. Retailers can then use these insights to measure the effectiveness of product offerings, promotions, displays and the set-up of their stores. Consumers benefit because retailers use these insights to create better shopping experiences.
To settle the case, the FTC has proposed a 20-year consent decree. The FTC is not asking Nomi to pay any civil penalties. Instead, it simply requires Nomi to correctly represent its notice and choice policies in the future and to notify the FTC of any new policies, compliance failures and consumer complaints.
Regulators have to learn that innovation, by its very nature, involves risks and mistakes. Tech companies publish written policies describing their products and services, but due to the rapid pace of change, these descriptions can fall out of sync with the latest versions. While companies certainly should strive to keep these updated, in the race to innovate it is not surprising that occasionally something will get overlooked. They should not face punitive measures for actions that were taken in good faith and did not cause consumer harm.
On the plus side, some of the commissioners at the FTC seem to understand this is not the way to operate. In a rare occurrence for a case like this, the commission split 3-2 in its vote to issue the complaint and accept the proposed consent order. Commissioners Maureen Ohlhausen and Joshua Wright both issued dissenting statements stating that the FTC should have shown more restraint.
While the FTC's proposed settlement terms are somewhat restrained, by formally taking action when there was no injury to consumers, the FTC is effectively encouraging companies to devote more resources on lawyers and less on delivering value to consumers, including privacy-enhancing technologies. After all, companies like Nomi would be better off providing no privacy guarantees to their consumers, because then they would not fall victim to gotcha-style regulatory enforcement actions.
Castro is the vice president for the Information Technology and Innovation Foundation (ITIF). McQuinn is a research assistant at ITIF.