WASHINGTON – Amazon.com (AMZN) revealed yesterday that the Federal Trade Commission is conducting a preliminary inquiry into the business practices of one of its subsidiaries. The FTC wants to determine whether Amazon's Alexa Internet subsidiary has engaged in unfair and deceptive trade practices. Additionally, both Amazon and Alexa have been named as defendants in two pending private lawsuits. Amazon mentioned the inquiry during a routine filing with the Securities and Exchange Commission on Monday. The company called the FTC's request for materials and documents an "informal informational review." An FTC spokeswoman declined to comment on the matter. According to Amazon's filing, the lawsuits allege that both Amazon and Alexa Internet violated the California Business and Professions Code, as well as two federal statutes. Representatives of both companies denied the lawsuits' allegations and said they were cooperating with the FTC's request.
The episode began last December, when Internet consultant Richard Smith alerted the FTC to what he describes as a violation of Amazon's privacy policy. In a letter to Amazon CEO Jeff Bezos, Smith charged that Alexa Internet was silently collecting Web surfers' personal data, in violation of an Amazon policy allowing the company to collect anonymous data only. Smith says that neither Bezos nor anyone else at Amazon answered his letter.
Alexa Internet sells a software plug-in that supplements Web browsers by giving surfers detailed information about the sponsors of the sites they visit. The plug-in also refers customers to related Web sites. Amazon, which bought Alexa last year, now sells its own plug-in; dubbed "zBubbles," it's based on Alexa's product.
Using a packet sniffer to monitor the data travelling between his computer and Alexa's servers, Smith discovered that his full home address had been sent to Alexa while he was using AltaVista's yellow-page service. He also learned that Alexa's servers had received detailed information from an airline ticket purchase he made on Travelocity, and a personal phone call he made to a relative in Florida.
Publicity surrounding Smith's complaint last year sparked the lawsuits, followed by the FTC inquiry. Smith says he has also identified several potential security threats to Alexa's servers.
The FTC inquiry comes as the commission continues to try to decide its role in policing privacy on the Web. Last month, Smith was named to the FTC's Advisory Panel on Online Access and Security, which is studying those two issues for the commission. FTC Chairman Robert Pitofsky and the four FTC commissioners are scheduled to testify before a Senate committee at a reauthorization hearing tomorrow. At that hearing, the subject of online privacy is sure to come up. Next week, the FTC plans to announce a broad crackdown on online auction fraud.
