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As I understand it, the Phorm system downloads the content of visited websites, and uses this content to display ads to the visitor. Sound familiar?
According to the Foundation for Information Policy Research, this is illegal since both parties do not agree to the 'interception' of information.
Although IMO give it a few years with the amount of pressure to charge for internet usage I wouldn't be surprised if the implemented something like this.
Imagine, just like TV... you'll be surfing then a commercial will pop up on your screen that you'll be forced to watch before you can continue... *shudders* That day will come I'm sure...
There are a number of stark similarities between things listed in the letter, and existing (widely accepted) practices:
...data may include sensitive personal data, because it will include the search terms entered by users into search engines, and these can easily reveal information about such matters as political opinions, sexual proclivities, religious views, and health.
So: according to fipr, search queries are 'sensitive personal data'.
Many users will also be identifiable from the content of the data scanned, since it will include email sent or retrieved by users of web-based email
That doesn't sound too far from ads in gmail to me.
Of course, Phorm's proposed system is more much wide reaching, but there does seem to be some potential to tread on a few other toes.