The US Federal Trade Commission (FTC) is conducting an informal inquiry into possible privacy violations by internet-based advertising agency DoubleClick.
The move follows a complaint filed with the FTC last week by advocacy group, the Electronic Privacy Information Center. The group alleges that DoubleClick engaged in unfair trade practices relating to its compilation of data about internet users.
The allegations centre around DoubleClick's practice of matching data about individual consumers and their internet habits with public information such as addresses and telephone numbers.
DoubleClick has already received a letter from the FTC and is co-operating with the inquiry, according to documents that the company filed with the Securities and Exchange Commission (SEC).
"We are fully co-operating and we applaud the FTC's efforts to keep the internet safe for consumers," said Kevin O'Connor, DoubleClick's chairman and chief executive.
An FTC spokesman said the body is becoming increasingly concerned about online privacy. "Internet companies must voluntarily safeguard the privacy of internet commerce customers to stave off increased government regulation," he said.
The SEC documents also reveal that DoubleClick faces six privacy-related lawsuits that have been filed over the past few weeks.
Privacy advocates claim that the advertising agency is not doing a good enough job of informing people about the data that is being collected about them.
They are also concerned that DoubleClick's planned acquisition of Abacus Direct, the largest catalogue shopping database firm in the US, and the merger of the two companies' consumer databases will lead to abuses of users' privacy.
To try to quell fears that it is creating secret virtual profiles of consumers to sell to its advertising customers, DoubleClick unveiled five privacy initiatives earlier this week. They include an advertising campaign and a website that instructs consumers how they can opt out of advertising schemes and avoid DoubleClick's profiling network.
The company has also hired PricewaterhouseCoopers to audit compliance with its stated privacy policies.
However, one analyst said the FTC investigation should have little affect on the company. Michele Slack, an advertising analyst at researcher Jupiter Communications, claimed that DoubleClick is not doing anything differently to other companies. "I would be surprised if DoubleClick gets slapped with a fine," she said.
The firm's share price fell by $4.94 to close at $106.50 on Wednesday.
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