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FTC-TOYSMART SETTLEMENT ESCALATES PRIVACY DEBATE

Posted on July 25, 2000

      Industry reaction to the Toysmart settlement is as mixed as the FTC's conclusion, a 3-2 vote delivered last week that is certain to incite further debate over privacy policies and acceptable terms for selling consumer data to third parties.

      Though Toysmart's privacy policy had said the company would never sell customer data to third parties, the commission said it would now approve the sale to a company in a related market, as long as that company buys the entire Web site and abides by Toysmart.com's original privacy policy. Any changes to that policy would require consumers to opt-in to the new uses of their personal information. If it fails to locate a qualified buyer, Toysmart must delete the data.

      "The rule they are applying is legitimate," asserted Richard M. Smith, an Internet consultant and security expert in Brookline, Mass. "In business-to-business settings, contracts are usually assignable if a company is acquired." Smith added that it's not in the interest of the FTC or businesses to restrict a company's options if it goes bankrupt. But Andrew Shen, from the Electronic Privacy Information Center, thought the settlement not only discredited privacy policies, a system the FTC has said it prefers to establishing specific privacy laws, but also called into question the organization's commitment to online privacy protection. "The least the commission can do is to make sure companies live up to those policies, and they clearly let this one slip by," he said. "In the future, companies wanting to sell their lists won't be foolish enough to take an ad in the Wall Street Journal."

      In addition, the FTC announced Friday that it will amend and refile its first charges under the Children's Online Privacy Protection Act of 1998, arguing that Toysmart violated the Act by collecting information from children under 13 without their parents' consent. The FTC will demand that Toysmart delete all information collected in violation of COPPA, representing data on almost 2,000 children, according to FTC spokesperson Eric London.

      "We don't have the ability to keep tabs on every single company," London said. "But what we did here sends a very strong message to companies thinking of violating their own privacy policies."

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