FTC: Toysmart Violated COPPA; States Challenge Right to Sell Customer List
By attempting to sell its customer list, Internet toy retailer Toysmart.com is in violation of the Children’s Online Privacy Protection Act (COPPA), the Federal Trade Commission ruled Friday.
Under the terms of an agreement reached with the FTC Friday Toysmart, which filed for bankruptcy in June, will only be allowed to sell the list if it is bundled with its entire Web site, and only to a buyer in a related field who agrees to abide by Toysmart’s original privacy agreement. The FTC panel voted 3 to 2.
COPPA prohibits collection of personal information from children under 12 without their parents’ consent. By applying the act, the FTC highlighted the possibility that children’s data is contained on the customer list, although the site is alleged to have primarily targeted adults.
The agreement of the settlement is subject to the review of a United States Bankruptcy Court, Massachusetts Division judge. If the judge does not agree to the terms of the settlement, the Waltham, MA-based toy e-tailer has agreed to destroy its customer data file, according to reports.
But the agreement does not clear the deck for sale of the list and Web site. The FTC ruling followed actions taken by thirty-nine states and territories, which went to court Thursday to prevent Toysmart from selling its customer list as part of its bankruptcy proceedings.
Texas and New York have filed separate complaints against the company, according to Massachusetts assistant attorney general Pamela Kogut, whose office spearheaded the action.
The objection, which was filed with the United Sates Bankruptcy Court, Massachusetts Division, seeks to prevent Toysmart from vending its list of customers as part of its liquidation. Customer data was collected under a privacy promise that stated all information would be kept confidential and not shared with third parties.
A hearing of the states’ complaint has been set for July 26.
The Walt Disney Company, which owned 60% of ToySmart, has offered to purchase and retire the list in a nod to consumer privacy.
“I have not seen that proposal and it would be premature for me to comment on it,” Kogut told DIRECT Newsline.
“It is likely that this and other issues will be aired on Wednesday.”
The states and territories joining Massachusetts are Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, North Carolina, Northern Mariana Islands, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
