As connected devices become ubiquitous, it comes as no surprise that interactive toys that connect to the internet are more popular than ever. At the same time, regulators have taken note of the privacy and security concerns raised by lawmakers and privacy advocates about the proliferation of smart toys that collect personal information from kids. Recent guidance issued by both the Federal Trade Commission (FTC) and the Federal Bureau of Investigation (FBI) suggests that the agencies may be taking a closer look at the rapidly expanding connected toy market, a small part of the largely unregulated “Internet of Things.”

FTC’s Updated Compliance Plan

In June 2017, the FTC updated its six-step compliance plan for businesses operating under the Children’s Online Privacy Protection Act (COPPA) to clarify that the law applies to Internet of Things devices, including children’s toys. In connection with the update, FTC Acting Chairman Maureen Ohlhausen issued a response to a letter from U.S. Senator Mark Warner (D-Va.), which had expressed concerns regarding privacy and security issues related to connected toys and the FTC’s strategy in responding to such issues. In her letter, Ohlhausen defended the FTC’s COPPA enforcement strategy, stating that “when companies surreptitiously collect and share children’s information, the risk of harm is very real, and not merely speculative,” and that “the Commission is committed to using its enforcement tools to bring actions against companies that fail to maintain reasonable security measures to protect children’s personal information.” In keeping with these promises, the FTC’s updated compliance plan specifically calls out “connected toys and other products intended for children that collect personal information” as subject to COPPA. While this update was not a true change to COPPA, as the FTC has taken the position in the past that connected devices may be considered COPPA-covered online services, the guidance is a signal to businesses that the agency may be taking a closer look at smart toys and other products that target children.

The FTC has indicated interest in the Internet of Things in the past—most notably in a report issued in January 2015 that discusses the benefits and risks associated with Internet of Things, and addresses the privacy and data security measures the FTC recommends for consumer-facing connected products and services. To date in 2017, the agency has brought enforcement actions against the makers of various connected devices, including networked routers, IP cameras, and smart TVs, signaling continued enforcement in this arena.¹ At the same time, the agency has shown an increased focus on children’s privacy, with the number of COPPA enforcement actions rising in the past few years. These trends, combined with the recent guidance, suggest that the next wave of enforcement could be related to connected toys.

FBI’s Consumer Notice

Just a month after the FTC issued its updated compliance plan, the FBI warned consumers about the importance of taking cybersecurity into account when purchasing internet-connected toys. The FBI’s consumer notice encouraged consumers to consider the privacy and safety risks of toys that employ technologies that learn and tailor their behaviors based on user interactions. According to the FBI, “these toys typically contain sensors, microphones, cameras, data storage components, and other multimedia capabilities—including speech recognition and GPS options. These features could put the privacy and safety of children at risk due to the large amount of personal information that may be unwittingly disclosed.” For example, toys may collect information such as a child’s name, school, likes, and dislikes, in addition to sensitive data such as GPS location information and visual identifiers from pictures or videos. The FBI’s notice warned that these types of information may present bad actors with opportunities for child identity fraud or exploitation.

The agency explained that data often gets stored on servers or via a cloud service, but it could end up exposed if a company lacks appropriate security practices, like failing to require passwords for access to Bluetooth-enabled devices or not using proper encryption methods. Consumers should research products before buying them, the FBI cautioned, including whether there are any known reported security issues online, whether the toy can receive firmware and/or software updates and security patches, where user data is stored, and what the privacy policy discloses. In addition, the FBI recommended that users only connect and use smart toys in places with secure Wi-Fi access, and ensure the toy is turned off, especially those with microphones and cameras, when not in use.

Implications for Businesses

What does this increased scrutiny mean for businesses looking to enter the connected toy space? Companies should consider privacy and security from the early stages of product planning and throughout the product lifecycle (the FTC refers to this strategy as “privacy by design”). Companies also should aim to minimize collection of children’s information to only what is necessary to the product or service being offered, offer transparent and meaningful explanations of privacy practices, and incorporate strong security into the product or service at the outset. Specifically, companies may want to consider using some of the following approaches when developing products or services that collect information from children:

• Include privacy information on the toy packaging itself. A full privacy policy may not be workable, but the Future of Privacy Forum suggests, for example, informing parents that the toy will require creation of a parental account or parental permission to activate its features.
• Consider creative ways to present meaningful privacy notices and choices to parents, especially where the device may not have a screen with which to communicate with consumers, such as offering a set up wizard that provides information about privacy practices, or affixing a QR code that, when scanned, would take the consumer to a website with information about privacy practices.
• Build strong security into the device at the outset, including by implementing strong encryption standards, ensuring that technical safeguards prevent the toy from communicating with unauthorized devices or servers, and imposing access control measures to limit the ability of an unauthorized person to access a user’s device or data. Continue to monitor products throughout their lifecycle and, when possible, patch known vulnerabilities.

¹ See Complaint for Permanent Injunction and Other Equitable Relief, Federal Trade Commission v. D-Link Systems Corp. et al., No. 3:17-cv-39 (N.D.Cal. January 5, 2017); Complaint for Permanent Injunction and Other Equitable Relief, Federal Trade Commission v. Vizio, Inc., No. 2:17-cv-00758 (D.N.J. February 6, 2017).