Now, as the company prepares to answer the questions put to it by the U.S. Senate Judiciary Committee, it’s hoping to set the record straight, once and for all, by publishing a definitive report (embedded below) on the functionality of its software, including an in-depth analysis of the video that inspired the allegations against it.

In an exclusive interview with AllThingsD, Carrier IQ CEO Larry Lenhart, and Andrew Coward, the company’s VP of marketing, discuss that report, why its software isn’t opt-in, and how it handles law enforcement requests.

John Paczkowski: Tell me about the new document you’re publishing. This is your third official statement on this debacle. Why is it necessary?

Larry Lenhart: I think over the last few weeks we’ve learned a lot about transparency. And we’ve spent a lot of time thinking about it, how we can reach out to everyone — consumers and carriers — and help them understand in more depth what we do and how our software works. This is an ongoing document. It took a lot of time and effort, based on meetings with industry experts, security experts, and Trevor Eckhart, who published the video that brought this issue to everyone’s attention. Of course, we also knew that we were going to have some conversations on Capitol Hill, and drafting the answers to the questions that were asked of us helped inform the document, as well.

Andrew Coward: Well, from our perspective, some of what was shown in the video was erroneous and wrongly attributed to Carrier IQ, so we obviously wanted to correct those misperceptions, and that took some effort. And, of course, there’s been a continuing clamor for understanding more about what Carrier IQ does. So we thought we’d put together a definitive document that says “Look, this is what we do, and we do want you to understand it and how we do it.”

You folks have been relatively transparent about this whole thing, once it blew up in the press. Your carrier partners have not. Do you feel the carriers have done you a disservice by not clearly disclosing their relationship with you to their customers?

Coward: Many of our customers have gone out on the record and described how they use our technology, and we have worked on this document with our carrier customers.

You say your software doesn’t keep a log of location, keylog and SMS information, yet Trevor Eckhart’s video appeared to show that. What was going on there?

Coward: What he was looking at there was an Android log file. And to be blunt, there was information there that shouldn’t have been. In order for Carrier IQ to get information off a device, we work with the manufacturers to deliver that information through an API. That information shouldn’t show up in an Android log file. We don’t read from Android log files; we don’t see Android log files. That info just shouldn’t be there. And, ultimately, what goes in that log file is up to the manufacturer.

So that’s not your log file in the video?

Coward: No. It’s just an Android system log file. And one of the problems with that video, and something we’ve been working to clear up, is that, while you could see that information had been passed to Carrier IQ, there was no video of what happened to that information afterwards. Was it actually captured by Carrier IQ; was it stored or taken off the device? No. And that’s really what we’re trying to clarify with the document we’re publishing.

The document you’re releasing today says that a bug in your software may have caused some SMS messages to be unintentionally collected. Can you talk about this a bit? Should we worry?

Coward: As we went and did a deep dive into our technology to prove to consumers that there is nothing untoward in it, we found a bug. We found that if an SMS was sent simultaneously while a user is on the phone, the SMS would be captured by our software. Obviously, this is something that doesn’t happen very often, but we discovered that it could happen, and we caught it. Now, that information was never used. It wasn’t decoded. It sat on a server in encoded format, and no one could really get to it.

Lenhart: We didn’t even know the data was being captured. The actual information is in nonreadable format. And our customers didn’t know it was there. So it was never looked at. Over the past few weeks, we worked with our customers to resolve the issue.

In the document you’re publishing today, you describe three scenarios for how your software gets on user’s phones: Preloading, where manufacturers install it on devices prior to shipment at the carrier’s request, and it has access to no more data than any other app on the device; aftermarket, where the consumer downloads and installs it at the carrier’s request; and embedded, which requires actual integration work by a device manufacturer, again at the carrier’s request. You say carriers more often than not choose the embedded option over the others you provide. Why do you think that is?

Coward: Really, it’s because embedded was the first option we offered. We’ve only added the others this year.

Why isn’t Carrier IQ opt-in? Shouldn’t it be?

Lenhart: Our technology is defined to do either opt-in or opt-out. But it’s the carrier’s call on whether or not they’re implemented.

Okay. But shouldn’t they be implemented?

Lenhart: Well, the carriers have the privacy relationships with the end user. But we’re certainly supportive on the dialogue going on around this issue.

Coward: We think there’s a quid pro quo between consumers and operators. Consumers expect their phones to work. They expect that if they have problems with their phones, the carriers will do something about them. They also expect that if they call in for help, the carrier will actually have a clue about why their phone is crashing or their calls are dropping. So there’s an implicit understanding that the carrier knows enough to be able fix the problem.

But wouldn’t it be better to just ask consumers to agree to that quid pro quo right up front?

Coward: Well, that’s a good question for the industry. Should there be opt-in/opt-out? And if there is, what does that mean for customer service; what does that mean for the end-user experience?

Why do the carriers need you? Couldn’t they capture a lot of this information themselves?

Coward: Certainly, the network provides a huge amount of information. But the network can’t tell you why your battery won’t hold a charge or an application is crashing. So there’s a missing piece here in the diagnostic puzzle, and that’s what we provide. And what you need to understand is that this is a technology that’s hard to implement. If you’re a handset manufacturer, it’s much easier to work with an industry player like Carrier IQ.

Who decides what your software does and does not track?

Coward: We work with the carrier to determine that. There is a line in the sand between what we would collect and what we would not collect. And we draw that line at content. We absolutely do not intend to capture content from subscribers. We collect information about their mobile phone experience, and about what happens.

Have you been asked to collect content?

Coward: We’ve not been asked, nor would we do it if we were.

How does Carrier IQ handle the usernames, passwords and other personal information that is embedded in an HTTP’s URLs?

Coward: We’re investigating that issue at the moment. And we recognize that it’s a sensitive one. It is not our intention to capture information that might be confidential.

So you have about two more days before you have to answer the questions put to you by Al Franken and the Senate privacy panel. Can you give me an idea of what you’re going to say?

Lenhart: Well, if you read the document we’re publishing, I think you’ll find answers to most of the questions that Senator Franken asked. … We’re actually in Washington right now, and we’ll be meeting with the folks that have asked for information about Carrier IQ over the next few days.

Are people right to be concerned about Carrier IQ? Could your software be misused?

Lenhart: No. We’re a diagnostic software company. We love diagnostic information. We are not interested in content. And that’s where we draw the line. We don’t want content, and we don’t have the ability to capture it. Remember, the information that’s captured off a user’s device is determined by the carrier, according to their privacy agreement.

You say you are not permitted to analyze, resell or reuse any of the information gathered for your own purposes, or to pass it to any third party, unless required by law. Do you know if law enforcement uses Carrier IQ data, and in what manner?

Lenhart: We have been approached by law enforcement about using our technology, and every time it’s happened, we’ve determined that that’s not an appropriate use of it. A lot of data that we capture is historical, so if you really want to find out where somebody is and what they’re doing, our technology isn’t going to give you that. Remember, this is diagnostic data. And we don’t share it with anyone.

But you do say that you would hand over data if required by law.

Lenhart: We would refer them to the carriers, because the diagnostic data collected belongs to the network operators, not Carrier IQ.

How damaging has this whole ordeal been to Carrier IQ? Or has it been damaging at all? Certainly, a lot more people know who you are today than did a few weeks ago.

Lenhart: Our world has been turned upside down. We love what we do, and we have a lot of passion for it. And to see it misunderstood like this has been painful. We want to make sure people really understand who we are and what we’re doing.

Read Carrier IQ’s report on the functionality of its software:

Understanding Carrier IQ technology final 12 12 11 –

Related Posts on Carrier IQ:

• Exclusive Interview: Carrier IQ Gets Transparent About Its Mobile Monitoring
• Carrier IQ: How to Hack Back Your Phone
  
• Carrier IQ Speaks: Our Software Monitors Service Messages, Ignores Other Data
• Apple: We Stopped Supporting Carrier IQ With iOS 5
• RIM, HTC, Google on Carrier IQ: Blame the Carriers
• Carrier IQ Improves My Wireless Service by Logging My Keystrokes? Please Explain.

Full Carrier IQ Coverage »

So SVnetwork has a proposition for you: Take a quick break from the virtual farming game, click through this Toyota ad and you’ll get free credits to buy more sheep. Or whatever.

If this sounds familiar, there’s a good reason: It’s similar to the “offers” programs that generated so much controversy for Farmville publisher Zynga last year.

But there’s a big difference here: Consumers aren’t asked to sign up for anything more binding than a Facebook fan page. And generally, SVnetwork’s advertisers are happy if surfers just agree to soak up some brand advertising.

SVnetwork has done 100 campaigns like this, for big advertisers like Apple (AAPL), Disney (DIS) and Microsoft (MSFT)–that’s an example of a Bing campaign above. And CEO Jay Samit, who came to the start-up after stints in the digital divisions of Sony (SNE) and EMI Music, thinks the company is onto something. It might be.

Right now, the two big display ad strategies on the Web are:

1. Target Web surfers by tracking their online behavior, and hope that doesn’t freak them out too much, and/or…
2. Run ads at ever-increasing sizes–blotting out the whole page, if you can get away with it–and hope that doesn’t annoy them too much.

SVnetwork’s seems like a pretty good compromise: Consumers opt in, and they know they’re getting a reward at the end. They might even generate warm feelings for the advertiser, and/or decide to share the ad with their pals via Facebook.

Zynga still runs offers, by the way, though it insists it has become very picky about the advertisers it works with, and that the offer dollars make up a small slice of its revenue.

And people familiar with the company say that offers generate more money for the game company than SVnetwork’s spots do. Advertisers pay something in the $0.50 to $1 range for each user who clicks through, while a Netflix (NFLX) may still pay Zynga north of $20 for each successful offer. But it’s possible that the ads will eclipse offers down the line.

Later today, as BoomTown previously reported, Facebook is likely to show off what it has been working on for a while now in the geo-location arena.

We’ll see whassup at 4:30 pm PT, when Facebook will hold a “news event” at the social-networking powerhouse’s HQ in Silicon Valley. (I will be liveblogging from it, natch.)

While most agree that the unveiling of the powerful social-networking site’s geo-location plans will have big impact, it will be much more interesting to see precisely what Facebook will do and how it innovates.

The company has certainly been talking about some sort of location feature for a long time–even as start-ups such as Foursquare and Booyah have grown like gangbusters–so much so that it has become a mini-waiting game in Silicon Valley.

But how Facebook integrates the hot trend into what it has built rather than bought–Facebook considered buying the New York-based Foursquare–is full of all kinds of complexities and possible sand traps.

Here is what I think it might–and should–show off:

NO PLAYING GAMES

There is plenty of that kind of silliness offered by others, and the badge, mayorships and general gaming is not really Facebook’s style.

In fact, gimmickry, which eventually becomes tiresome, is not really one of the tools in Facebook’s arsenal. Creating features–such as the Wall–that have become daily helpers is the ticket here.

In fact, it would be great if Facebook could go radically useful with a check-in feature, which would be for the rest of us who are not interested in broadcasting our presence at New York clubs into the wee hours.

Still, it would be nice to get all kinds of offers and freebies for using the service and giving up even more personal information to the hungry maw of this–still–Mark Zuckerberg production.

SEAMLESS THIRD-PARTY AGGREGATION

A must, given Facebook is all about integration and coordination for its users. It has already easily welcomed in all kinds of third-party services, and it must give developers on its platform geo-location capabilities.

So, any Facebook offering would need to integrate all the current location services, both on the Web site and in its mobile app.

That said, it is also important that Facebook also has a strong and effective offering of its own.

PLEASE MARK, I WANT SOME MORE

Location-sharing needs to be more than location-sharing, IMHO.

That’s because check-ins can become as inane as some Twitter posts.

In my bedroom! Now, in my bathroom! Now, in my kitchen. Hey from the 7-11! Aaaaaagh!

In fact, what is most useful about Foursquare is a part the service seems to give little attention to–user-generated info about various places.

Facebook could give truly helpful on-the-go info if it did a good job here, letting me know–for example–that I need to avoid the shrimp-puff appetizer at all costs or alerting me to the joys of some esoteric spa service.

Best of all, it would be nice if this info were not generated just by my friends, but by everyone. Because my friends are really boring.

WHAT HAPPENS ON FACEBOOK CHECK-IN, STAYS ON FACEBOOK CHECK-IN

Facebook has a long-running and much-deserved reputation for not treating privacy issues with enough concern and care.

While it is one thing to have a status update that you are enjoying 43 cold ones by the Jersey Shore with Snooki, it is quite another to geo-locate your trashy sojourn without a terrific level of control.

And, of course, controls that are comprehensible and easy to use.

Thus, some rules:

Any location service must be opt-in only.

Any location service must be set to private to start and allow users to change settings with each update.

Check-ins must be verified, so people cannot lie and manipulate the system.

The entire Facebook community of 500 million users must know exactly where Mark Zuckerberg is at every moment–wait, that’s just my secret wish.

Well, not a wish: All Facebook execs should publicly and actively be using the check-in services to let us all know that everyone is on the exact same page.

The senators in particular criticized the way Facebook rolled out its instant personalization feature, which currently gives three sites access to Facebook users’ data when the person visits the site and is logged in to Facebook, so that the sites can customize the visit.

“Although we are pleased that Facebook allows users to opt-out of sharing private data, many users are unaware of this option and, moreover, find it complicated and confusing to navigate,” the Democratic senators–New York’s Charles Schumer, Colorado’s Michael Bennet, Mark Begich of Alaska and Al Franken of Minnesota–wrote in the letter. They asked Facebook to make instant personalization an opt-in feature instead.

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