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ECommerceTimes.com

One Year Ago: Deal Afoot To Destroy Toysmart Database

By Lori Enos
Jan 10, 2002 11:13 AM PT


Originally published on January 10, 2001 and brought to you today as a time capsule.
The Texas Attorney General's Office confirmed Wednesday that a Walt Disney Co. subsidiary has offered to pay bankrupt e-tailer Toysmart.com US$50,000 to destroy its customer database, including personal information about shoppers, shopping preferences and browser histories.

One Year Ago: Deal Afoot To Destroy Toysmart Database

If the offer, set to be filed Wednesday, is approved by U.S. Bankruptcy Court Judge Carol Kenner, it will put an end to the controversy that has swirled around Toysmart since it went bankrupt in May and included its customer database on the list of assets to be sold.

The Texas Attorney General's Office, which sued to stop the sale of the information last year, said that the offer had been made, though spokesperson Tom Kelley told the E-Commerce Times that it was "unfortunate" that the deal had been leaked to the press.

"It's not a done deal," Kelley said, stressing that the motion still has to be filed with the judge and that it "could fall apart." Kelley added that he hopes the fact that the settlement offer had been leaked "did not put it in jeopardy."

FTC Satisfied

However, spokesperson Eric London of the U.S. Federal Trade Commission (FTC) told the E-Commerce Times that the government agency was pleased with the settlement it helped negotiate.

"The FTC is going to continue to work to make sure that promises made to consumers are kept, even by companies that are going out of business," London said.

If Judge Kenner approves the deal, the money from Disney's Buena Vista Internet Group (BVIG) will go to pay Waltham, Massachusetts-based Toysmart's creditors, which include Disney.

Privacy Flap

When word leaked out last summer that Toysmart was trying to sell its customer database to raise money to pay creditors, privacy advocates were outraged. Before its collapse, Toysmart had adhered to a strongly worded privacy policy, promising its customers that it would never sell their personal information to a third party.

Privacy watchdogs were not the only ones chagrined by Toysmart's attempted breach of promise. The FTC, 42 U.S. states and the District of Columbia, the U.S. Virgin Islands, and the Northern Mariana Islands sued the company to keep it from selling the data.

Earlier Proposal Denied

In July, the FTC proposed allowing Toysmart to sell the customer information to a merchant in a similar market who would agree to abide by Toysmart's original privacy policy. The deal also called for the purchaser to obtain "opt-in" consent to resell the names.

Thirty-nine states filed objections, saying that consumers should have the opportunity to opt-out of the sale of their personal information before Toysmart sold their names and preferences. Judge Kenner agreed with the states and refused to approve the proposed settlement.

Burned by the firestorm of controversy that swirled around its decision to sell its customer database, Toysmart decided late in July to pull the customer information from the auction block.

Offers Rejected

This instance is not the first time that BVIG has offered Toysmart money for its customer database. BVIG, which owns 60 percent of the bankrupt e-tailer, offered to buy the list and destroy it last July. Toysmart asked BVIG for more money and no deal was reached.

The new deal is reportedly different because it requires Toysmart to push the delete key instead of transferring the data to BVIG and having them perform the action.

London said that this offer differs from the $50,000 offer last summer because "This time everyone is on board."

Toysmart reportedly rejected an offer by Kennebunk, Maine-based Digital Research to buy the customer list for $15,495.

Preemptive Strike

Texas has been working feverishly to protect consumers from having their personal information sold when dot-coms go down. In addition to being the first state to file suit to stop the sale of Toysmart's data, Texas in September reached a settlement with defunct e-tailer Living.com that required Living.com to give its customers the ability to opt-out of the sale of their personal information.

That agreement also required the bankruptcy trustee to oversee the destruction of customers' personal financial information, including credit card, bank account and Social Security numbers.


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