microsoftEditor’s note: This is a guest post by Mark Stanley from the Center for Democracy & Technology (CDT), a non-profit public interest organization based in Washington, D.C. For more on online privacy, visit CDT’s Take Back Your Privacy page.

For online privacy, the pressure is mounting in Washington, D.C. Last week, the Federal Trade Commission (FTC) released a highly anticipated privacy report. The 122-page report was the subject of much discussion, with particular interest focused on the endorsement of an online “Do Not Track” mechanism.

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The next day, Congress held a hearing entitled “Do-Not-Track Legislation: Is Now the Right Time?” With the public in a pique over privacy fresh off the heels of the TSA body scanner controversy, perhaps the time was right for Congress to move the ball forward on “Do Not Track.”

Then, with the stage set for something to break, Microsoft introduced its Internet Explorer 9 browser feature “Tracking Protection Lists” this week, shrewdly taking the reigns of the online privacy debate.

Here is why Microsoft’s IE9 privacy upgrade is a smart move:

First, and most importantly, Tracking Protection Lists can be an effective privacy tool. Companies don’t always come up with innovative privacy tools when left to their own devices, but in this case, Microsoft looks to have bucked the trend. Tracking Protections Lists allows users to create a list of web addresses of third-party tracking sites they don’t want snooping on them. IE9 will then decline to initiate a connection with these sites. Some questions – like who will develop the lists – remain, but this is a good start. As CDT has said many times, respecting customers’ privacy, which means respecting customers, is smart business.

Second, this renders a case made by Congress or the FTC for government regulation less urgent. If companies are providing users with meaningful options comparable to a “Do Not Track” mechanism, the need for the government to step in is diminished. However, while a “Do Not Track” list is helpful, because behavioral web targeting is just one aspect of online privacy, such a list is no substitute for baseline consumer privacy legislation.

Finally, this puts pressure on Microsoft’s browser competitors to follow suit, and places Microsoft toward the front of the privacy pack. There is already speculation as to when Google Chrome and Mozilla Firefox, a bastion for online privacy protection plug-ins, will introduce equivalent features. Regardless of its competitors’ next moves, though, Microsoft has already won on the publicity front. As Chris Soghoian, an advocate and well-known fixture in the online privacy field, notes, “Now that Microsoft has made this announcement, Google, Apple and Mozilla may be forced to follow, but if and when they do, they won’t get nearly as much praise for doing so.”

The public favors online privacy, and they’re watching. For businesses, taking the lead on privacy is, in more ways than one, the right thing to do.