Saturday, April 21, 2001

Privacy issue at stake in dot-com case

AUSTIN - Texans who purchase items over the Internet should closely monitor a case before a Delaware bankruptcy judge.
   The case involves Los Angeles-based eToys.com, a popular online toy retailer that filed for bankruptcy in Wilmington, Del., in March. At stake is the privacy of the company's three million customers, including many in Texas.
   The bankruptcy court approved eToys.com selling its assets, which includes customer information and credit card numbers. Company officials, however, have said they will sell their customer list only to someone who purchased the stock of the reorganized company.
   That didn't' satisfy Texas Attorney General John Cornyn, who filed a motion to prevent eToys.com from selling its customer list. A hearing on the motion has been scheduled for June 1.
   Selling customer data
   This case has implications for the future, especially since more and more dot-coms and e-retailers are going bankrupt and looking to sell customer lists to pay off their creditors. The concern for consumers is that someone other than the original online retailer could purchase and use credit card numbers and personal information.
   This issue is a particular concern in Texas because 51 percent of computer users in Texas said they used a credit card to purchase products online, according to a Scripps Howard Texas Poll in August.
   The good news is that 75 percent of Texans who buy items online check a company's privacy policy. But only 21 percent were confident that online companies are using confidential information properly.
   And a privacy policy is only as good as the company's willingness to adhere to it. Many online retailers often find that their customer databases are valuable assets to pay debts under bankruptcy laws. But many have promised their customers that their personal information would be confidential and not provided to a third party.
   The eToys.com privacy statement said: ''eToys respects your privacy. We do not sell, rent, loan or transfer any personal information regarding our customers or their kids to any unrelated third parties. Any information you give us about yourself or your kids is held with the utmost care and security and will not be used in ways to which you have not consented.''
   Cornyn requested that the bankruptcy court require eToys to notify its customers of its intent to transfer the customer list if its stock is sold, and give customers an opportunity to block the transfer of their personal information.
   Honoring privacy policies
   "I have consistently maintained that companies need to honor their privacy agreements in or out of bankruptcy,'' Cornyn said. Cornyn is right. Requiring companies to honor their privacy statement is important whether the company is in the black or red. Otherwise, the company's privacy statement means nothing and is simply a ruse to ease the fears of people who are skeptical of buying items online.
   The end result of the eToys.com case should be similar to what happened to Toysmart.com, another online retailer that went bankrupt. Toysmart.com assured its customers that it would not share their personal information with a third party. But the company took out an advertisement in The Wall Street Journal to sell the database after going bankrupt.
   This infuriated Internet privacy activists, who said such action would encourage other failing dot-coms to abandon their privacy policies and sell off their customer lists.
   The Federal Trade Commission and the attorneys general of all 50 states sued Toysmart to keep it from divulging the data. That case was settled and required Toysmart to destroy its customer records instead of selling the information.
   Courts need to be diligent and require failed dot-coms to comply with their promises to consumers. Otherwise, consumers will continue to fear - and rightfully so - that their personal information could fall into the wrong hands.
  

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Ty Meighan is chief of the Scripps Howard Austin Bureau. You can reach him by phone at (512) 334-6640 or by email at meighant@scripps.com.

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