LOS ANGELES — Each year, businesses lose billions of dollars in inventory that simply disappears. While thieves account for some of the loss, a second category has troubled company executives more - merchandise that vanishes into a faulty record-keeping system. A technology called RFID, "Radio Frequency Identification," could put an end to such confusion.
Proponents of the technology have described it as a next-generation bar code, sure to ease inventory control and lower costs. Eventually, RFID tags could end up on everything from razor blades and books to clothes that send cleaning instructions to your washing machine.
But privacy advocates and civil libertarians say the technology designed for tracking widgets at a very short range can easily be adapted to tracking and spying on people, just as software "cookies" now track computer users' movements online. And as some of the world's largest companies prepare to shift their record keeping to the new model, there's a growing debate as to how - or whether - it should be regulated.
"We're at the very beginning stages of the uses of this technology, so it's not entirely clear how it will be used," says Deborah Bowen, a California state senator who may propose RFID legislation. "My general inclination is that it's better to design in safeguards before there's widespread deployment."
RFID depends on two components: a tiny transponder, or "tag," that includes a computer chip and radio antenna, and a reader. While a bar code must be scanned with a laser, the RFID tag only needs to pass near a reader, as far as several feet away. Already in use in toll routes and electronic door locks in the US and abroad, the reading device fires a burst of radio waves that turn the tag on. In turn, it transmits its data back to the reader. The data is then passed to a computer.
In a store or warehouse, the tag can transmit information such as product type, cost, and age. The information might prompt the computer to order new inventory. But privacy advocates worry it might be only a small step from tracking merchandise with RFID devices to tracking the people who buy the merchandise.
"The radio signature of an RFID tag could be identified with a person," says Beth Givens, executive director of Privacy Rights Clearinghouse, an advocacy group based in San Diego. "The potential for surveillance is very real."
The technology is well suited to a cultural shift now taking place in developed nations, says Jerry Kang, a visiting professor at Harvard Law School. He calls it "pervasive computing."
Professor Kang envisions a world in which computers and information technology are woven even more seamlessly into daily life. For instance, mobile telephones might soon include global positioning capabilities and RFID, he says, so one could track friends and family or get help fast in an emergency. But as the technology advances, there could well be a tradeoff in privacy in exchange for such convenience, he adds.
"The real reason stores don't track us now is that they can't," Kang says. "If they could invisibly place an Internet-style cookie on us and keep track of where in the store we browse and for how long, they would. Amazon.com does a lot of database marketing right now. Even if you're not buying anything, they know who you are and they're collecting data on what you look at. [With RFID] it's quite possible for other stores to do that too."
However, many of those involved in developing the technology are skeptical. "Is it possible? Yeah. Could my students build something like that? Yeah. Is there a business value to it? I don't think so," says Sanjay Sarma, research chair of the Auto-ID Center, the consortium based at MIT in Cambridge, Mass., that developed RFID. "Is it going to be economically feasible? I don't think so."
One issue, Mr. Sarma says, is the carrying distance of today's RFID signals. The cheapest tags have no power source of their own and typically can only communicate with a reader over a few inches or, at most, a yard.
Some tags do have batteries, but they're much more expensive and, although they might be able to communicate 15 feet or more in ideal conditions, they're much less reliable. Batteries are also expensive, and when they die, the card stops working.
For their part, store executives say they're much more likely to confine themselves to passive tags for tracking inventory. Wal-Mart, for example, has asked its 100 top suppliers to make deliveries with RFID tags on pallets and cases starting in 2005, says Tom Williams, a spokesman for the retail giant based in Bentonville, Ark. The chain will set the same standard for all 20,000 of its suppliers in 2006, in order to save money and increase sales through more efficient inventory practices.
But some companies are experimenting with more sophisticated applications. This year at the Tokyo International Book Fair, Sun Microsystems and the Japanese communications company NTT demonstrated a system that can track which books a shopper looks at and for how long. It also can monitor how many times a particular book is removed from its shelf.
In Britain, the Tesco discount chain and Gillette have tested an antishoplifting system that has store security cameras photograph people who take an abnormal number of blades off the shelf.
"Typically, purchasing patterns don't have you purchasing five- or 10-blade packages," says Gillette spokesman Eric Kraus. Gillette's "Mach3" blades are among the most frequently pilfered items at the store, he adds.
The privacy-rights group Consumers Against Supermarket Privacy Invasion and Numbering has denounced the test on its website and called for a boycott.
"We support free and open discussion of all (privacy) aspects but in the end consumers, and not advocacy groups, will decide on what technology innovations consumers support," Mr. Kraus counters. "We're working with other companies involved to develop guidelines."
Earlier this year, Gillette announced it had placed an order for up to 500 million RFID tags to be used in its supply chain, from manufacturing to inventory to sales.
But don't expect widespread use of the tags right away, says Dan Mullen, CEO of Automated Information Manufacturers, or AIM, Inc., an international trade group for the RFID industry based in Pittsburgh, Pa.
Companies have discussed putting RFID tags on garments so that a similarly-equipped washing machine would know how to clean them. But researchers haven't figured out a way for the clothing to send clear signals from the metal-lined interior of a machine, where radio signals bounce around. It may take years for researchers to work out basic standards. "At the end of the whole discussion, companies are only going to adopt things that make them more competitive and provide better customer service," Mullen says.
One key issue is the location of the tag, says Ms. Givens of the privacy clearinghouse. She argues all RFID tags should be readily identifiable and easy to remove, destroy, or turn off. Several policymakers, from California Senator Bowen to Mr. Sharma of the Auto-ID Center, agree.
Still, as new as the technology is, consumers object to what they perceive as surreptitious surveillance, says Paul Lee, a research analyst with Deloitte Consulting in London. If manufacturers can find ways to make RFID useful to their customers, he thinks they'll find a market within the next 20 years. Mr. Sharma thinks it will take longer, if it ever happens.
At this early stage in RFID, Harvard's Professor Kang says, it's crucial that the tags give an audible or tactile alarm every time they're signaled by a reader.
"If you got one of those notifications, it would be interesting to you. It could start a policy and political conversation.... It might even get us mad. But 10 years from now it could be like [online] cookies. People might say, 'Just live through it.' "