Apple (AAPL) CEO Cook Backs Proposed Privacy Legislation

Apple Inc. ( AAPL ) Chief Executive Officer ( CEO ) Tim Cook has sent a letter to key members of Congress stating that “Apple continues to support efforts at the federal level to establish strong privacy protections for consumers, and we are encouraged by the draft proposals your offices have produced.” Cook noted that “the areas of agreement appear to far outweigh the differences.”

Cook’s letter was sent in reference to the recently completed draft of the proposed legislation called the American Data Privacy and Protection Act. It was addressed to Senator Maria Cantwell (D-Washington), the chair of the U.S. Senate Committee on Commerce, Science, and Transportation, and Representative Frank Pallone (D-New Jersey), the chair of the U.S. House Committee on Energy and Commerce. The bill has potentially large ramifications for the business models , and thus the profitability, of several leading U.S. high tech companies.

The American Data Privacy and Protection Act

The American Data Privacy and Protection Act, in its current draft form, applies to any entity that collects, processes, or transfers “covered data” and is subject to the jurisdiction of the Federal Trade Commission (FTC). Covered data is information “identifying, linked, or reasonably linkable to an individual or device linkable to an individual.”

The draft says that covered entities cannot “unnecessarily” use or collect this covered data. Covered entities are “are prohibited from collecting, processing, or transferring covered data beyond what is reasonably necessary, proportionate, and limited to provide specific products and services requested by individuals,” the proposal says. Covered entities also are required to “communicate with individuals in a manner they reasonably anticipate given the context of their relationship with the covered entity, or for a purpose expressly permitted by this act.”

Another clause of the draft says that covered entities must provide users with privacy policies that specify their data collection, processing, and security activities in a readily available and understandable way. A particular focus of the draft legislation is targeted advertising .

Targeted Advertising

As defined by the proposals, targeted advertising means “displaying to an individual or unique identifier an online advertisement that is selected based on knowns and assumptions derived from covered data collected.” Covered entities engaged in targeted advertising would be required to provide individuals with “clear and conspicuous means” to opt out. Targeted advertising may not be engaged in if the user is known to be under age 17.

Disparate Impact on Big Tech

Big tech firms such as Meta Platforms, Inc. ( META ), the parent of Facebook, and Alphabet Inc. ( GOOGL , GOOG ), the parent of Google, that are heavily reliant on advertising revenue, especially targeted advertising. As a result, they are likely to see a major threat to their business models and revenue streams if the proposals in this draft become law. Specifically, if large numbers of users opt out from targeted advertising, that is likely to result in diminished advertising revenues for these companies, since advertisers generally view non-targeted ads as less effective, and thus less valuable.

Apple, meanwhile, has positioned itself as the most privacy-focused big tech company, and CEO Cook is focused on this issue as part of Apple’s strategy. Apple says that its commitment to privacy is a deeply held value by its employees, as its privacy statement asserts that privacy is, “a fundamental human right.” Meanwhile, Apple’s App Tracking Transparency feature allows users to choose whether an app can track their activity across other companies' apps and websites for the purposes of advertising or sharing with data brokers.