UPDATE 2-EU starts action against Britain over data privacy

Published: 14 Apr 2009 07:17:21 PST

* Move aimed at ensuring new technologies don't harm privacy

* Shares in technology provider Phorm down 2 percent

* Britain has two months to respond, could go to EU court

BRUSSELS, April 14 - The European Commission started legal action against Britain on Tuesday for what the EU executive called a failure to keep people's online details confidential.

The move is part of a wider push by the European Union's executive arm to ensure privacy is not abused by new technologies that electronically tag a consumer's every step.

EU Telecoms Commissioner Viviane Reding said the action related to how Internet service providers used Phorm technology to send subscribers bespoke advertisements based on websites visited.

Shares in Phorm were down 2 percent in afternoon trading in London after moving higher before the EU announcement. The company had no immediate comment.

Britain has two months to respond to the charges, a Commission spokesman said.

A spokeswoman for Britain's Department for Business said: "We take our data protection and e-privacy obligations very seriously. We will be considering the issues raised by the Commission and will respond within the required timeframe."

BT admitted in April last year that it had tested Phorm in 2006 and 2007 without telling its customers, the Commission said.

The trials sparked "snooping" accusations from privacy groups and concern from the founder of the World Wide Web, Tim Berners-Lee, but found support from UK telecoms regulator Ofcom, which had no comment on Tuesday's announcement.

Phorm told Reuters earlier this month it was delighted with the trials it had held in Britain and that it was in talks on further international expansion through joint ventures and did not fear regulatory intervention.

Reding said Internet users in Britain had complained about the way the UK applied EU rules on privacy and electronic communications that were meant to prohibit interception and surveillance without the user's consent.

"Technologies like Internet behavioural advertising can be useful for businesses and consumers but they must be used in a way that complies with EU rules," Reding said in a statement.

"We have been following the Phorm case for some time and have concluded that there are problems in the way the UK has implemented parts of the EU rules on the confidentiality of communications," Reding said.

BT carried out new, invitation-based trials of Phorm in the final quarter of 2008, which resulted in a number of complaints, the Commission said.

"No comment on this, which is between the government and the EU. Our position re Phorm is unchanged. We are still evaluating the trial and have nothing further to add," BT said.

The Open Rights Group, which has been campaigning against Phorm in Britain, welcomed Reding's move.

"BT should respect everyone's privacy and drop their plans to snoop on the Internet before they damage their own reputation further," the group's executive director, Jim Killock, said.

Phorm has said it is in talks with two other British Internet service providers, Virgin Media and Carphone Warehouse , and has launched a South Korean trial.

SANCTIONS SOUGHT

The European Union executive said it was concerned that, under UK rules, interception was lawful when the service provider had reasonable grounds to believe consent had been given.

"The Commission is also concerned that the UK does not have an independent national supervisory authority dealing with such interceptions," the Commission said.

Reding called on Britain to change its national laws to ensure there were proper sanctions to enforce EU confidentiality rules.

Unless Britain complies, Reding has the power to issue a final warning before taking the country to the 27-nation EU's top court, the European Court of Justice.

If it rules in favour of the European Commission, the court can force Britain to change its laws.

Later this month, Reding will publish guidelines for EU states on the development and use of smart chips known as Radio Frequency Identification (RFID) technology, which have been dubbed "spy" chips by critics.

The EU executive is also keeping a close eye on privacy issues surrounding data on social networking sites.