The US Senate Commerce Committee is hearing the case for greater privacy protection for internet users in a review which could make or break some internet advertising firms.
Google, Microsoft and the US Federal Trade Commission (FTC) are being questioned on where to strike the balance between the privacy of people using websites and the rights of the site owners to sell that information on or use it themselves.
"The practice that has been described to us, whereby an ISP may enter into an agreement with an advertising network to copy and analyse the traffic content of the ISP's customers, poses serious questions under the federal Wiretap Act," said Leslie Harris, of the Centre fof Democracy and Technology, in a written submission.
"It seems that The disclosure of a subscriber's communications is prohibited without consent.
"In addition, especially where the copying is achieved by a device owned or controlled by the advertising network, the copying of the contents of subscriber communications seems to be, in the absence of consent, a prohibited interception."
Lydia Parnes, director of the FTC's Bureau of Consumer Protection, told the panel that the organisation is currently formulating a code of principles around such issues but has yet to finalise the details.
"The FTC's examination of behavioural advertising has shown that the issues surrounding this practice are complex, that the business models are diverse and evolving and that behavioural advertising may provide benefits to consumers even if it raises concerns about privacy," she said.
"At this time the FTC is cautiously optimistic that the privacy concerns raised by behavioural advertising can be addressed effectively by industry s elf-regulation."
Social networking sites in particular are very keen to see some form of legal behavioural advertising so that they can start making money from their huge user bases.
Chris Kelly, chief privacy officer at Facebook, said that his company had tried several systems, including the ill-fated Beacon, but is not happy with any of them.
Others, including Microsoft, stressed that consumers must be reassured that their privacy is being protected.
"Consumers must trust that their privacy will be protected," said Michael Hintze, associate general counsel at Microsoft.
"If the internet industry fails to meet that standard, consumers will make less use of online technologies, which will hurt them and industry alike."
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