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What could be worse than a prospective employer seeing your drunken Facebook photos? Maybe the less obvious stuff that big data can tell marketers and other third parties about you, like your driving habits or health condition.

That was the topic at a panel today at the Internet of Things Conference in San Francisco. And the consensus was that developers should take those concerns head on, thinking early about how they will disclose privacy issues to users.

As the landscape around connected devices begins to take shape, the privacy that surrounds the copious amounts of data that devices will be collecting on consumers ad nauseam. Even a firm like SV Angel, which hasn’t traditionally backed connected devices, is getting in on the game, with eight or so investments in the firm’s portfolio including Nest, Jawbone and Lockitron, says partner Topher Conway. But all those devices potentially hitting the market present a sticky situation for those concerned with privacy.

That is, while your Fitbit gives you useful information about your own body and how you can better stay is shape, that data is also going to the company in a steady stream. And the use of a customer’s personal data is still a gray area.

That gets even more problematic when it comes to data aggregation – where that data goes after your device collects it. Or example: a wearable device can track a heart problem, then tell your healthcare provider. Ditto with a car keeping track of your driving habits then telling your insurer, causing your premiums to skyrocket. (Indeed, that promise is what might eventually get auto insurers to come around on car-sharing.)  PandoDaily contributor Kevin Kelleher has already explored the privacy issues around Google Glass.

“Third parties are getting at the way you live your life in a very intimate way,” says Matt Brown, an attorney with Cooley, who has represented Facebook, LinkedIn and Instagram.

He gives a drawn out, but realistic example: A connected fridge collects data about the food in it. This, coupled with Safeway knowing what you buy with your rewards card, can give third parties enough data to assume your religion. Taking it further, they can surmise if you are observant or not. That equals marketing gold.

The question is, then, how consumers and startups can make sure everyone is happy. Of course, as these devices start to proliferate, peoples’ views on privacy will evolve, but for now, there is still a way to shape the discussion. Vrunda Rathod, from Engine.is, an organization that works with startups and government to create public policy, says the key is transparency.

“Consumers are going to give up privacy if they know what they are giving it up for,” she says. She mentions attempts in California legislature to make privacy policies no longer than 100 words, written at an eighth-grade level — though she adds that writing a comprehensive privacy policy short seems impossible. But the intent behind it is that a user knows exactly what he is getting into from the very start, instead of being surprised along the way.

But really, there is no right answer beyond common sense. And even then, there’s no set of best practices. Still, the future of connected things, and the inherent problems that come with it, is yet unwritten. Brown sums it up: “There’s really no roadmap here.”

[Image courtesy Deluxx]