IP: Re: Amazon informing customers that the information they give is considered a company asset that can be sold

[Dave Farber <farber () cis upenn edu>]

> X-Sender: jnoble () pop dgsys com
> Date: Mon, 4 Sep 2000 16:07:09 -0400
> To: farber () cis upenn edu
> From: John Noble <jnoble () dgsys com>
> Subject: Re: IP: Amazon informing customers that the information they give
>  is   considered a company asset that can be sold
>
> This policy revision is fall-out from the FTC suit against Toysmart.com
> earlier this summer. When toysmart landed in bankruptcy, its customer list
> was a prime asset. The bankruptcy laws, designed to protect creditors,
> provide for the sale of the debtor's assets and distribution of proceeds to
> creditors. However, the bankruptcy laws ran smack into the Childrens Online
> Privacy Protection Act (COPPA), and the FTC stepped in to block the sale on
> allegations that Toysmart had a privacy policy that promised not to share
> customer information.
>
> The suit was settled, and the FTC issued a release claiming that "the
> agreement forbids the sale of this customer information except under very
> limited circumstances," and that "this settlement shows that the FTC is
> serious about enforcing the Children's Online Privacy Protection Act." But
> there's less there than meets the eye. As described by the FTC:
>
> > Under the settlement agreement, Toysmart will file an order today in
> > Bankruptcy
> > Court ("Bankruptcy Order"), prohibiting Toysmart from selling the customer
> > list
> > as a stand-alone asset. The settlement only allows a sale of such lists as a
> > package which includes the entire Web site, and only to a "Qualified 
> Buyer"--
> > an entity that is in a related market and that expressly agrees to be
> > Toysmart's successor-in-interest as to the customer information.
>
> In short, if you want the customer information, you have to buy the domain
> name. Commissioner Orson Swindle, who is usually not the staunchest
> consumer advocate on the Commission, dissenting:
>
> > If we really believe that consumers attach great value to the privacy of
> > their
> > personal information and that consumers should be able to limit access to
> > such
> > information through private agreements with businesses, we should compel
> > businesses to honor the promises they make to consumers to gain access to
> > this
> > information. Toysmart promised its customers that their personal information
> > would never be sold to a third party, but the Bankruptcy Order in fact would
> > allow a sale to a third party. In my view, such a sale should not be
> > permitted
> > because 'never' really means never.
>
> The upshot of all this is that Amazon, and other e-commerce businesses,
> realized that their privacy policies could be construed by the FTC (and
> class action plaintiffs lawyers) to bar the transfer of customer
> information in the context of selling the company or part of the company,
> when all they intended to promise was that they wouldn't get into the
> *business* of selling customer information. The FTC's construction would
> have had a disasterous effect on Amazon's ability to borrow or raise debt
> capital because customer information is a huge part of the company's going
> concern value.
>
> It's odd, I think, that no one is bothered by the fact that when you buy a
> brick-and-mortar bookstore (or a retail dry-cleaning operation or a pizza
> franchise) you get customer records, but when it's an online business the
> same transaction is an Orwellian nightmare.
>
> At 10:30 AM -0400 9/4/00, Dave Farber wrote:
> > Amazon.com -- apparently forgetting for the moment that it's currently on
> > the receiving end of several privacy-related class-action lawsuits --
> > yesterday posted a revised privacy policy informing customers that the
> > information they give is considered a company asset that can be sold. "As
> > we continue to develop our business, we might sell or buy stores or assets.
> > In such transactions, customer information generally is one of the
> > transferred business assets," the company said. The company also said that
> > "in the unlikely event that Amazon.com Inc., or substantially all of its
> > assets are acquired, customer information will of course be one of the
> > transferred assets." Amazon claims the maneuver was engineered to build
> > trust among its customers... (New York Times story; free subscription
> > required)
> >
> > http://www.nytimes.com/library/tech/00/09/biztech/articles/01amazon-priva 
> cy.htm
> > l
>
>
> John Noble