The controversy over internet ad-targeting platform Phorm continues to drag on, with privacy advocates claiming that the UK’s Information Commissioner has “green lighted lawbreaking”.

Phorm is a behavioural advertising system which has stuck trial agreements with UK service providers Virgin Media, BT and Talk Talk. The platform, which monitors web activity and analyses user habits to better target ads, purports to anonymise the data it collects. But a backlash from industry experts and consumers has forced the service providers rolling out Phorm to make the system opt out rather than mandatory.

It’s been in the news recently after allegations that BT trialled a prototype version of the service, without alerting its customers, throughout 2006 and 2007. And privacy advocates such as the Foundation for Information Policy Research (FIPR) are battling to persuade the UK’s personal information authority that the platform raises legal concerns.

Last week the Information Commissioner’s Office released a report which acknowledged that the use of Phorm had “provoked considerable public concern,” but said it was happy that the ,”system does not allow the retention of individual profiles of sites visited and adverts presented, and that they hold no personally identifiable information on web users.”

However, the FIPR said Sunday that the ICO has not gone far enough and Nicholas Bohm, general counsel for the organisation claims that, “the illegality stems not from breaching the Data Protection Act directly, but arises from the fact that the system intercepts Internet traffic. Interception is a serious offence, punishable by up to two years in prison. Almost incidentally, because the system is unlawful to operate, it cannot comply with Data Protection principles.”

Bohm argues that Phorm can only legalise its activity by getting express permission not just from the ISP’s customers, but also from the web hosts whose pages it intercepts, as well as from the third parties who communicate with their customers through web-based email, forums or social networking sites.