- The Washington Times - Tuesday, July 11, 2000

The Federal Trade Commission sued a bankrupt Internet retailer yesterday to stop it from selling information about its customers.

The agency wants to prevent Toysmart.com Inc., based in Waltham, Mass., from selling information it collects on line including names, ages, addresses, family profiles and shopping preferences.

It is the first time the FTC has challenged a failing company's sale of information subject to a privacy policy.

"We think this is going to be significant as there is a shakeout in the dot-com world," said David Medine, associate director for financial practices at the FTC's bureau of consumer protection.

FTC commissioners voted 5-0 Friday to go to court against the company after settlement talks failed.

Toysmart.com officials were unavailable for comment yesterday.

Toysmart.com started in 1998 as a retailer selling children's toys. But the company, whose majority owner is Walt Disney Co., announced May 22 that it would close, and that it planned to sell all of its assets. These include the list of customer names and other personally identifiable information it has accumulated, and the company immediately began taking bids for its assets, according to the FTC lawsuit.

Toysmart's creditors filed an involuntary bankruptcy petition in U.S. Bankruptcy Court in Boston June 9, and a judge is scheduled to approve the sale of the company's assets July 26, Mr. Medine said.

The company was a member of TrustE, a San Jose, Calif.-based nonprofit, on-line privacy organization. TrustE grants its seal of approval to Web sites with comprehensive, accessible privacy agreements.

Since September, Toysmart has posted a privacy policy that says data collected from consumers never will be shared with third parties.

Internet companies are not required to have privacy policies, and the industry regulates itself.

Toysmart's decision to try to sell data about consumers proves Internet retailers can't be trusted, said Beth Givens, director of the San Diego-based privacy advocate Privacy Rights Clearinghouse.

"The Toysmart case is a good indication that self-regulation won't work. Even though they had had a privacy policy, they disregarded it when the company went belly-up," Mrs. Givens said. "Something like this has been on my horror-story horizon for a while."

Just 9.5 percent of commercial Web sites have comprehensive privacy policies, according to a Georgetown University study last year.

In May, FTC Chairman Robert Pitofsky called on Congress to require companies to post clear and conspicuous notices listing what information is collected and how it is used.

Attempts to sell personal data could increase support for legislation because it proves companies can be irresponsible, said Andrew Shen, policy analyst at the District of Columbia-based Electronic Privacy Information Center, a public interest research group.

"Ultimately, this makes consumers wary. How many people are going to want to go on line to buy a toy for their kids if they know the information can be sold?" Mr. Shen asked.

Mr. Medine said it is not clear how much data Toysmart collected from consumers or how much they stood to make from the sale, but the information clearly was a valuable commodity.

Mr. Medine said he hopes the two sides can reach a quick settlement.

Toysmart isn't the first Internet site to try to sell consumer data.

Fashionmall.com, a U.S. clothing retailer, bought London clothing retailer Boo.com's database of 350,000 customers in June but has agreed to e-mail all of them to ask their permission to use their information.

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