• by Wendy Davis  @wendyndavis, April 12, 2012

A federal judge has ruled that the bulk of a privacy lawsuit against the Internet service provider Wide Open West should go to arbitration.

Wide Open West was among six Internet service providers that partnered with controversial behavioral targeting company NebuAd in 2007 and 2008 to test its ad-serving platform. The company, now defunct, worked with ISPs to gather data about Web users' activity in order to serve them targeted ads.

NebuAd's platform, which made use of deep packet inspection technology, drew objections from privacy advocates as well as lawmakers. One of the major criticisms was that ISPs were able to provide data about everything consumers did online -- including their searches and activity at noncommercial sites.

NebuAd said its data collection was anonymous, and that consumers could opt out of the program. But in 2008, after news of the tests came to light, consumers sued NebuAd and the six ISPs, arguing that the companies unlawfully installed "spyware."

The complaint against Wide Open West alleged violations of the federal computer fraud law and wiretap law, as well as invasion of privacy, unjust enrichment and violations of Illinois state law.

Wide Open West filed a motion to send all but one allegation to an arbitrator, arguing that its terms of service require arbitration of disputes -- except those alleging wiretap law violations.

U.S. District Court Judge Edmond Chang in the Northern District of Illinois late last month agreed with the ISP, noting that the U.S. Supreme Court ruled recently that such arbitration clauses are enforceable. Chang didn't send the wiretap law claim to arbitration; instead, he put that claim on hold pending resolution of the other allegations.

Most consumers prefer proceeding in federal court, where juries can award large amounts of damages, rather than in arbitration. The subscribers who sued Wide Open West might be able to keep the case in federal court by making the strategic decision to abandon all claims other than the wiretap law allegations. As of Thursday, the publicly available court records didn't reveal whether the consumers would do so.

NebuAd shuttered in late 2008, shortly after news of the tests came to light. Last year, the company agreed to a $2.4 million settlement (to be paid by its insurance carriers). Two-thirds of the money will go toward various privacy organizations, while $800,000 will go to the lawyers who brought the case.

The ISPs have been fighting the cases, with mixed results. So far, lawsuits have been dismissed against CenturyTel and Embarq. A case against Knology was sent to arbitration. Litigation is still pending against two other ISPs: Bresnan and Cable One.

The consumers who sued Embarq appealed the dismissal to the 10 Circuit Court of Appeals, where they are arguing that U.S. District Court Judge Julie Robinson wrongly dismissed the lawsuit. Robinson threw out the case last year, ruling that NebuAd alone was responsible for any wiretap law violations, and that Embarq subscribers consented to NebuAd's behavioral targeting platform by failing to opt out of the program.