- The Washington Times - Tuesday, July 25, 2000

An Internet company that certifies on-line companies' privacy protections has filed court documents in an attempt to keep the customer list of bankrupt retailer Toysmart.com from being sold.

TrustE's filing in Boston bankruptcy court last week comes on the heels of Friday's settlement between the Federal Trade Commission (FTC) and Toysmart that allows the educational toy company to sell its customer list if the buyer abides by the terms of the Web site's privacy policies.

The settlement, however, does not answer some of TrustE's questions concerning 250,000 persons, addresses and credit card numbers in that list.

TrustE, which gave its seal of approval to Toysmart about a year ago, notified the FTC about the retailer's intent to sell the list despite its policy that assured customers the information would never be shared with a third party.

"We have a lot of people here trying to figure out what to make of this settlement," said Dave Steer, a TrustE spokesman. "There are some vague things in the settlement. We're going to take a close look at it."

The San Jose, Calif., company filed documents in Boston bankruptcy court last week to stop any sale of the list.

Privacy advocates fear a sale could start a fury of activity from ailing dot-com companies that would be willing to abandon their privacy policies and sell their customer lists to the highest bidder. Customer lists, a major marketing tool, are among the most valuable assets an Internet retailer can sell.

Several years ago, when electronic commerce was in its infancy, TrustE officials figured the sale of customer lists would become a big issue as soon as the market began to tighten.

The problem is the industry itself is so new that officials are making up the rules as they go along.

Rules may have to be determined that address the specific actions taken in a bankruptcy. For instance, companies will have to look from a public relations, investor and customer perspective at putting "mechanisms in place in case the unthinkable happens," said Rick Lane, director of E-commerce and Internet Technology for the U.S. Chamber of Commerce.

Toysmart, which is majority-owned by Walt Disney Co., closed in May and began soliciting bids for its customer list before it officially filed for bankruptcy in June, said Eric London, FTC spokesman.

In a complaint filed earlier this month in U.S. District Court in Boston, the FTC said Toysmart's proposed sale of its customer list violated its own privacy policy that assured customers that their registered information wouldn't be shared with other companies.

Under Friday's settlement, Waltham, Mass.-based Toysmart must sell the list as a package that includes the entire Web site and only to a "qualified buyer" in a related market. The bankruptcy judge will determine which buyers are qualified.

Mr. London said the FTC settlement is protecting the list more than if Toysmart had been bought by another company, which could have done whatever it wanted with the information.

According to the settlement, if the buyer chooses to change the privacy policy, the company must tell the customers and allow them to opt out of the agreement.

The Direct Marketing Association (DMA), a group representing companies that advertise directly to consumers including on-line and catalog retailers, supports the FTC's actions.

"We think the FTC's efforts to ensure that the privacy notice under which the information was gathered is honored is in fact exactly what the DMA supports," said Jerry Cerasale, the group's senior vice president of government affairs.

As TrustE continues to review the FTC's settlement, Mr. Steer said the deal might be "kosher." But TrustE will continue to fight to block any sale until that is determined.

"We want this to send a strong signal to the industry of what is acceptable," Mr. Steer said.

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