Criminal Investigation?

How will the NJ Federal Prosecutor's criminal investigation of how App companies use data it collects impact the mobile industry?

• Federal prosecutors in New Jersey are investigating whether  smartphone applications illegally obtained or transmitted information about their users without proper disclosures. http://online.wsj.com/article/SB10001424052748703806304576242923804770968.html Pandora in an SEC filing stated they were subpoenaed in an investigation probing information-sharing by mobile applications.  This criminal investigation is examining whether the app makers fully described to users the types of data they collected and why they needed the information—such as a user's location or a unique identifier for the phone. Collecting information about a user without proper notice or authorization could violate a federal computer-fraud law. How will this impact business plans of just about every social app and some financial transaction apps?

• Answer:

  It is highly unlikely that the criminal investigation will lead to any formal charges.   There may be a few civil suits targeting some of the bigger players, but there are just too many app developers for the immediate consequences to be too severe. However, there will be increased visibility into the hitherto unregulated world of smartphone applications.  In 2009,  Facebook responded to Canadian regulators' concerns about 3rd party applications & privacy, by requiring developers to provide users with more explicit notice about how their information is collected and used through applications.   In the same way, mobile app marketplaces will more judiciously require app developers to explicitly seek user consent before disclosing user information.  App developers will also become more discerning in what data they ask to avoid presenting users with lengthy disclosure statements. Ultimately however, despite some additional text added to disclosure statements and short-lived public furor at the breaches of privacy, not much will change.   Apps will now just ask users for permission to send data, and, because vast number of people do not read privacy statements (GameStation conducted an experiment for April fools recently which demonstrated that 88% of users did not read online terms & conditions), the users will consent and the app will behave as before.  The impact on business plans of social and financial transaction apps will therefore be limited.