The National Advertising Initiative: The Beginnings of the NAI
In 1999, when online advertising was still a fresh segment of the advertising sector, widespread concerns arose about the ways that consumers could be tracked and targeted online for advertising purposes. The Federal Trade Commission held a workshop on online profiling in November 1999.  The concerns of the day were distilled in a FTC report to Congress in June 2000, Online Profiling: A Report to Congress. In that report, the FTC found that online profiling presented privacy problems for consumers. The FTC found that online profiling was primarily accomplished through banner ads, cookies, and web bugs, also called web beacons.  The Commission also concluded that online profiling was largely invisible to consumers:
Although network advertisers and their profiling activities are nearly ubiquitous, they are most often invisible to consumers. All that consumers see are the Web sites they visit; banner ads appear as a seamless, integral part of the Web page on which they appear and cookies are placed without any notice to consumers. Unless the Web sites visited by consumers provide notice of the ad network’s presence and data collection, consumers may be totally unaware that their activities online are being monitored. 
Self-Regulatory Effort Begun in 1999
In the spring of 1999, prior to its November workshop, the FTC invited network advertising companies to “discuss business practices and the possibility of self- regulation.”  The companies announced the formation of the NAI at the 1999 November workshop.
These self-regulatory efforts were discussed in the first FTC report to Congress, which was published in June 2000.  No completed self-regulatory document was available for review at that time.
The FTC Recommends the NAI ….Paired with a Recommendation for Backstop Legislation
The Senate Commerce Committee held hearings on online profiling in June 2000. At that time, the Committee heard that privacy and consumer rights groups had not been involved in the NAI discussions with the consequence that a week later, seven senators on the Committee wrote urging the FTC to include privacy and consumer groups in the NAI talks. Some groups were invited to examine a mock up of the final NAI agreement on July 19.  On July 27, the final NAI agreement was released publicly in its final form in the FTC’s second report to Congress on online profiling (July, 2000). In this report, the FTC recommended the NAI as a self-regulatory solution to the problem of online profiling of consumers.
The Commission commends the NAI companies for the innovative aspects of their proposal and for their willingness to adopt and follow these self-regulatory principles. Their principles address the privacy concerns consumers have about online profiling and are consistent with fair information practices. As the Commission has previously recognized, self-regulation is an important and powerful mechanism for protecting consumers, and the NAI principles present a solid self-regulatory scheme. Moreover, NAI members have agreed to begin to put their principles into effect immediately while Congress considers the Commission’s recommendations concerning online profiling. 
The FTC also noted in its second report that legislation was needed to bolster the NAI:
Nonetheless, backstop legislation addressing online profiling is still required to fully ensure that consumers’ privacy is protected online. For while NAI’s current membership constitutes over 90% of the network advertising industry in terms of revenue and ads served, only legislation can compel the remaining 10% of the industry to comply with fair information practice principles. Self-regulation cannot address recalcitrant and bad actors, new entrants to the market, and drop-outs from the self-regulatory program. In addition, there are unavoidable gaps in the network advertising companies’ ability to require host Web sites to post notices about profiling, namely Web sites that do not directly contract with the network advertisers; only legislation can guarantee that notice and choice are always provided in the place and at the time consumers need them. 
The NAI was drafted with the “full review and support of the FTC.”  The FTC stated that the NAI self-regulatory principles were based on Fair Information Practices, including the canon of Fair Information Principles as articulated in 1980 by the Organization for Economic Cooperation and Development (OECD) and ratified by the United States.  Whether the NAI principles actually implement all Fair Information Practices is open to debate.
The FTC did not solicit formal or informal public comments on the NAI or on the FTC’s blessing of NAI. The NAI was never debated publicly in any robust or formal manner. Nine network advertising companies signed the NAI founding document. 
After the issuance of the FTC online profiling reports in 2000 and the FTC recommendation of the NAI self-regulation, industry perceived that the pressure for reform had diminished. The recommended legislation to prevent the self-regulation plan from failing for these reasons never happened. By 2002, just two years after the FTC recommended the NAI self-regulatory program, the NAI had only two member companies.  Once the external pressure diminished, the NAI began to fail. The FTC was correct when it stated in its report that “Self-regulation cannot address recalcitrant and bad actors, new entrants to the market, and drop-outs from the self-regulatory program.”  Those were only some of the reasons for the NAI’s failures, but they are significant ones.
 A transcript of the Workshop is available at <http://www.ftc.gov/bcp/profiling/index.htm>.
 Online Profiling: A Report to Congress, pages 2-3. “In general, these network advertising companies do not merely supply banner ads; they also gather data about the consumers who view their ads. This is accomplished primarily by the use of “cookies”11 and “Web bugs” which track the individual’s actions on the Web.” < http://www.ftc.gov/os/2000/06/onlineprofilingreportjune2000.pdf>.
 Id. at 6.
 Id. at 22.
 Id. at 22.
 For more about the lead-up to the final publication of the NAI agreement, see Network Advertising
Initiative: Principles not Privacy, July 2000, EPIC and Junkbusters. <http://www.epic.org> and <http://www.junkbusters.com>. “Privacy and consumer groups were not allowed to retain or distribute any of the documents discussed.”
 Federal Trade Commission. Online Profiling: A Report to Congress Part 2 Recommendations, July 2000. < http://www.ftc.gov/os/2000/07/onlineprofiling.pdf> at 9.
 Id at 10.
 <Networkadvertising.org/managing/principles.asp>, the NAI Principles: how they protect your privacy.
 Online Profiling: A Report to Congress, at note 4.
 The original NAI members were 24/7 media, AdForce, AdKnowledge, Avenue A, Burst Media, Doubleclick, Engage, L90, and Matchlogic. See Network Advertising Initiative, Self-regulatory Principles for Online Preference Marketing by Network Advertisers, July 10, 2000.
 See Figures 5-8 in this document. See also <http://web.archive.org/web/20021206034703/networkadvertising.org/aboutnai_members.asp/>.
 Online Profiling: A Report to Congress at 10.
Roadmap: The National Advertising Initiative – Failing at Consumer Protection and at Self-Regulation: Part II: Discussion – The Beginnings of the NAI