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Online Business Practices Under Scrutiny

Fraud allegations raise questions on regulation
By Kate Maddox
Issue date: March 25, 1996

As cyberspace becomes the hot place to do business, it's not surprising that government agencies are looking closely at questionable business practices on the Internet.

One agency, the Federal Trade Commission, is doing more than looking. The FTC on March 14 accused nine companies of making false or unsubstantiated advertising claims in connection with marketing p roducts or services on the Internet. The cases involved credit services, income opportunities, a grant assistance offer, and a memory chip marketer. "The laws prohibiting fraud also apply to the information superhighway," says Jodie Bernstein, director of the FTC's bureau of consumer protection in Washington.

The FTC's action raises the question of whether existing laws and regulations governing advertising are strong enough to deal with online marketing. "The Internet makes it easier for everybody to access information, not just credit-card information, but information you might not want to make public, such as health information,'' says Bradley Stillman, telecommunications policy director for the the Consumer Federation of America in Washington.

"To the extent that a company with a Web site can identify individual consumers logging in, they should exercise some responsibility with what they do with that information,'' adds Stillman. "It's critically important that policymakers begin to look at these issues now.''

But some business groups are more worried about excessive government involvement than fraud on the Net.

"We would want to make sure that the measures taken [to patrol Internet marketing] would not exceed measures taken in other media," says Kaye Caldwell, policy director of the Software Industry Coalition, a Santa Clara, Calif., group that monitors policy decisions affecting the software industry. "If every ad had to be approved by the Federal Communications Commission, for example, we'd object.''

Government agencies have yet to say whether they will set up rules and policies to govern online marketing. Still, some businesses worry that the recently passed federal telecom law will open the door to censorship and undue restrictions on advertising and marketing.

Many businesses that market online want to help fight fraud on the Net. The Council for Better Business Bureaus in Arlington, Va., which has been asked by the FTC to help investigate online advertising, says many of its 220,000 business members have expressed interest in finding a way to help consumers identify reliable businesses online.

"A lot of the major companies, whether they are technology companies, content providers, browser companies or telecommunications providers, are concerned that the right things happen online,'' says Russell Bodoff, VP of the Council for Better Business Bureaus. "The council wants to have a role in creating an ethical online marketplace."

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