Living.com Follows the Toysmart Saga

(In keeping with this site's design goal of extreme editing to save readers' time, the update on this story is posted in the first paragraphs. Readers wanting some background are encouraged to review the portions written earlier below.)

October 7, 2000 update

Living.com recently filed for bankruptcy and Texas Attorney General was right there to make sure that they respected their own privacy policy. Living.com, like Toysmart.com, included in their privacy policy that there would be no sale of customer’s personal data without the consent of the customers. Therefore, when Living.com filed for bankruptcy, the Attorney General almost immediately presented a settlement to them. A section of the settlement agrees that a court appointed trustee will be responsible for the destruction of customer’s credit card number, social security number, and bank account. Once all of that information is destroyed the trustee will contact all of the customers and inform them that the remaining information on the customer list (name, telephone number, and address) will be sold unless they ask that the information is removed from the list. As of the above date, the bankruptcy court in the Living.com case has yet to rule on the proposed settlement.

Inspired by the Toysmart case, the FTC recently released public comments calling for bankruptcy reform to protect consumer privacy in such cases. The Department of Justice is studying the "privacy in bankruptcy" issue in light of the developments discussed in this article.

August 18, 2000 update

As somewhat expected after comments made earlier, the bankruptcy court refused to approve a settlement agreement between Toysmart and the FTC regarding the potential sale of customer data. In this writer's opinion, the legal issue has not been finally resolved and will require action by Congress to be ultimately resolved. See the earlier material below for more history on this important consumer privacy case.

Original Story Begins Here

TRUSTe is an organization which brands a website with its seal of approval that a consumer’s personal information is protected and within the past few months has suffered some criticism that it has not been harsh enough on its members. That tide has changed . . . TRUSTe is filing suit against its member, ToysMart, for selling consumers’ personal information in order to pay off creditors. However, ToysMart had filed for protection under the bankruptcy laws, which greatly confuses the legal scenario.

August 8, 2000 update

With a push from TRUSTe, the Federal Trade Commission became concerned about the ToysMart situation and filed suit in federal district court to enjoin the sale of the consumer data. Now the attorneys general of more than forty states, including Texas, have intervened in the litigation. The legal picture was further complicated when the FTC announced that it had reached an agreement with ToysMart. Any settlement would have to be approved by the court, which today indicated considerable reservations in light of the attorneys' general announced opposition to the proposed agreement. Making good on their announcement, the state attorneys general have filed written arguments in opposition to the FTC proposed settlement.

Apparently Disney, which owns a substantial stake in ToysMart, is offering to purchase the data and destroy it - thus protecting the consumers' privacy and enhancing its own reputation. But not so fast, it has also been reported that a marketing research firm has indicated its intent to bid on the data. At this point, both offers have been rejected as inadequate. The proposed settlement between ToysMart and the FTC would put restrictions on any such sale. (Even if approved, this settlement might not end FTC interest in ToysMart.)

In reaction to the ToysMart controversy, legislation has now been proposed in Congress to protect consumer privacy rights in bankruptcy situations. The outcome of this legislative effort is in doubt given the election distracted Congress and the expected lobbying of business and creditor groups to permit the sale of customer data as one of the few valuable assets likely to remain in a business bankruptcy estate.

Advice

For businesses the message is clear, consider the value to your business of maintaining a clear and reasonable privacy policy. In today's world it can give you a competitive edge.

See related editorial.