Summary:

Under U.S. law, most information exchanges aren’t regulated at all by the federal government. There are a few big exceptions, like health in…

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Under U.S. law, most information exchanges aren’t regulated at all by the federal government. There are a few big exceptions, like health information, which is regulated by HIPAA. And there’s another, more unusual, exception-video-rental history, which is regulated by the Video Privacy Protection Act, or VPPA.

In today’s letter to shareholders [PDF], Netflix (NSDQ: NFLX) said that it’s making “great progress” on an application that would integrate it with Facebook. It plans to launch the new feature before the next earnings report-but only in Canada and Latin America. In the U.S., Netflix says it’s hampered by the VPPA.

The VPPA has an unusual history. It was passed by Congress in 1988 after the U.S. Senate debated Robert Bork’s nomination to the Supreme Court. (Bork’s quest to join the high court was unsuccessful, making him the first person to ever get Borked.)

During the debate over Bork’s nomination, the alt-weekly Washington City Paper obtained his (utterly, utterly unremarkable) video-rental history from a local store and decided to publish it. It wasn’t quite the phone-hacking scandal of its day, but the tactic was deemed invasive and was denounced by liberals and conservatives alike.

It made Congress angry, and Congress passed the VPPA. So today, anyone who publishes a consumer’s video rental history can get in serious trouble; the law makes a rental service liable for up to $2,500 in penalties per offense.

The trouble Netflix is having is that the VPPA is written in such a way that it isn’t clear how you would go about publishing a consumer’s video-watching habits even with permission. The text of the VPPA states that the history can be disclosed “to any person with the informed, written consent of the consumer given at the time the disclosure is sought.” (emphasis mine)

That line clearly envisions a one-time publication of results. Netflix wouldn’t be allowed to just ask a customer once, “Is it OK if we publish the movies you watch on your Facebook page?” Because permission must be given at the time of disclosure. That language puts continuous, internet publication of the data in a kind of legal limbo.

Imagine telling lawmakers in 1988 that in the future, consumers would want to publish-constantly publish-their own video rental history. It might have been laughed at. But today it’s an obvious feature for Netflix to add, and it’s hampered by a pre-internet era privacy law.

In any case, Netflix has said it’s hoping the problem gets solved soon. A bipartisan group of legislators is pushing a fix to this in the form of HR2471, a bill introduced in the House earlier this month. But this strange law does mean that the U.S. is likely to be in the unusual situation of getting the latest online-video innovations after its northern and southern neighbors.

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