Feds begin investigating smartphone apps that share users' info with third parties

Pandora Media Inc. said on Monday that it has been subpoenaed as part of a federal grand-jury probe into the methods smartphone software handles personal data. Pandora disclosed the subpoena in a Securities and Exchange Commission (SEC) filing, but emphasized that it is "not a specific target of the investigation." The company said:

“We were served with a subpoena to produce documents in connection with a federal grand jury, which we believe was convened to investigate the information sharing processes of certain popular applications that run on the Apple and Android mobile platforms.”

Last year several reports (1, 2, 3) noted that both iOS and Android applications were sending information about the devices, their users and the locations of said uses to third parties, most notably advertising networks.

Pandora was one of the apps that was cited as sharing information with third parties. The app is cross-platform, and exists on Android, iOS, Windows Mobile, Palm webOS, and BlackBerry OS. The December reports focused on Android and iOS, however.

The WSJ report said:

Legal experts said the probe was significant because it involved potentially criminal charges that could be applicable to numerous companies. Federal criminal probes of companies for online privacy violations are rare.

Federal laws prohibit unauthorized access to information. "This is a big hammer if the government chooses to use it," said Orin S. Kerr, a law professor at George Washington University.

Legal experts cautioned that companies rarely end up being charged with a crime in general and that the current probe could morph into a civil one, for possible violations of the Computer Fraud and Abuse Act.

Federal prosecutors can charge individuals or companies with violating the computer-fraud law either as a felony or misdemeanor and can also pursue civil charges. But legal experts said it's rare for a corporation to be end up being charged criminally in any kind of probe. More often, companies in the federal government's cross hairs reach non-prosecution or deferred-prosecution agreements that allow the targets to avoid being criminally charged in exchange for agreeing to concessions, including monetary payments or promising not to engage in future wrongdoing, among other things.

Makers of apps could also face complaints of fair and deceptive trade practices from the Federal Trade Commission. Such complaints can be aimed at companies that fail to tell customers how they're collecting information or are violating their own terms of service.

Given the large number of smartphone users, the companies could also face huge class-action lawsuits if facts emerge to support any government charges.

Many of the apps in both the Android Market and Apple's App Store are free, and ad-supported. Thus, some say, it's not that surprising that not only are the apps ad-supported, but that they are sending back such data. Nothing is free, and that part of the "deal" would appear to be part of the monetization process.

Whether or not consumers truly understand that, and if that then constitutes fraud, will be determined by this investigation.

Via: WSJ, BW