The California Senate’s passage last month of legislation that would restrict the use of radio frequency identification (RFID) systems and the FTC’s plans to host a public workshop next month regarding the implications for consumers of this item-tagging technology are certain to heighten regulatory scrutiny of RFID systems.
RFID tags are tiny chips that can transmit a unique code or other data to an RFID reader a short distance away through a variety of substances such as paint, snow, or ice. When RFID chips are affixed to products or implanted in animals or humans, an RFID system can automatically identify, locate, and track RFID-tagged items without the need to touch them. Toll booth E-Z Passes and the ExxonMobil Speedpass wireless payment system are examples of early applications of RFID.
It is now evident that evolving RFID applications can generate substantial efficiencies. For example, according to the U.S. Department of Defense, RFID systems enable a soldier to do in 20 minutes an inventory job that once took three days. The Defense Department recently held a summit with government contractors to discuss its plans for RFID. Both the Defense Department and Wal-Mart have adopted policies requiring that their suppliers, by 2005, embed RFIDs into each pallet of products delivered to them. Wal-Mart, which projects that RFID systems could help the company save $8.4 billion annually by reducing labor costs and theft, has already begun accepting RFID-tagged goods from eight manufacturers at a regional distribution center near Dallas, Texas.
New applications of RFID chips are in the trial stages. The biggest obstacle to widespread use of RFIDs has been cost, but increased demand and production has reduced the price for each electronic tag from $1 to 30 cents. By 2006, the cost will very likely be as low as 3 cents a piece. Microsoft, IBM, Sun Microsystems, and Hewlett-Packard are marketing software and consulting services to enable companies to use RFID tags to track products throughout the supply chain and develop other applications. Annual investment in RFID technology is expected to leap from $90 million last year to more than $4 billion by 2008.
Contending that RFIDs are far more than a benign new form of retail bar code technology, dozens of consumer and privacy groups have voiced their concerns about the profound societal implications of the potential widespread use of RFIDs. In a paper released last fall, more than 30 such groups approved of only three uses of RFID technology: (1) tracking pharmaceuticals from factories to pharmacies to fight counterfeit medicines; (2) tracking manufactured goods prior to shelving for resale or to any interaction with consumers; and (3) detecting items containing toxic substances (such as personal computers) when they are delivered to landfills.
Against this backdrop, on April 29 the California Senate passed S.B. 1834. Introduced by Senator Debra Bowen, the bill, which does not define the term "radio frequency identification (‘RFID’) tags," would impose conditions on the use of RFIDs for item-level tagging "to gather, store, use, or share information that could be used to identify an individual." S.B. 1834, if enacted, would make California the first state to set privacy standards for the use of RFID systems. Senator Bowen has in the past successfully shepherded privacy legislation through the state legislature.
The FTC, on the other hand, asserts that the goal of its June 21, 2004 workshop is to "encourage the development of best practices that capitalize on the efficiencies generated by RFID without compromising consumers’ privacy and security." It plans to explore current and anticipated commercial uses of RFIDs and their impact upon consumers. Several of the FTC’s past workshops have served as springboards for legislative or regulatory initiatives. The deadline for submitting comments on the questions the FTC has put forth on this issue has been extended to July 9, 2004. These questions may be found here.
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