Toysrus.com, NJ Privacy Settlement Likely Moot

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The recent privacy settlement between New Jersey and Toysrus.com will likely have no effect on whether its customers' personal information will be shared with third parties.


On Dec. 26, Toysrus.com agreed to pay a $50,000 fine and clarify its online privacy policy to settle a New Jersey investigation into its data sharing practices. However, though Toysrus.com claims it never shares or sells or rents information to third parties, its online partner Amazon.com makes no such promise.


Toysrus.com partnered with Amazon.com in mid-August 2000 to outsource its site development, order fulfillment and customer service -- tasks that proved troublesome for Toysrus.com during the previous holiday season.


As a result, customers of Toysrus.com became subject not only to its privacy policy but also Amazon's policy. At the time the deal was struck, Amazon's privacy policy said it would not share information with third parties.


But on Aug. 31, 2000, Amazon changed its privacy policy to say that it would share data with business partners and that its customer database could be sold as an asset.


As a result, Toysrus.com customers are now required to also surrender their personal information to Amazon.com and are in turn subject to both privacy policies.


The Toysrus.com privacy policy spells this out in the following statement: "Because we are working with Amazon.com to provide our products to you over the Internet, your personal information will also be subject to Amazon.com's privacy policy when you provide personal information while visiting the Toysrus.com/Imaginarium.com/Amazon.com toy store." It also contains a link to the Amazon.com privacy policy.


And as long as Toysrus.com makes its relationship with Amazon clear, it has nothing to worry about, said Marc Roth, an Internet marketing attorney at New York's Brown Raysman Millstein Felder & Steiner LLP.


"If a Web site intends to share information with third parties it's advised to also include in their privacy policies that once they share information with a third party they won't be responsible for any use thereof," he said.


The New Jersey Division of Consumer Affairs began its investigation of Toysrus.com in December 2000 four months after customers of the Internet retailer filed class action law suits alleging that the firm's relationship with a tracking and analysis firm, Coremetrics, was a violation of its privacy policy. The policy stated data was not shared with third parties. As a result of the lawsuits, Toysrus.com dropped Coremetrics in mid-August 2000.


Toysrus.com and New Jersey settled the investigation without litigation and without Toysrus.com admitting to any misconduct.


"We agreed to pay $50,000 to the state to be used for consumer education regarding Internet privacy as well as covering the cost of the inquiry," said Jeanne Meyer, vice president of corporate communications at Fort Lee, NJ-based Toysrus.com Inc., a privately held subsidiary of Toys "R" Us Inc., Paramus, NJ. "Under the agreement we also agreed to make changes including making the links to the Toysrus.com and Babiesrus.com privacy policies more prominent."


Despite the settlement of the New Jersey investigation and the modification of its privacy policy, Toysrus.com still faces the class-action suits that have been consolidated in multidistrict federal court in Northern California, according to Meyer though she would not comment further.


According to Roth, the settlement with New Jersey will not have any bearing on the class-action suits since no litigation took place.


"It appeared that the parties felt it was in everyone's best interest to settle," he said. "Particularly, New Jersey may not have wanted to litigate and Toysrus.com felt that the proposed settlement terms would be fair or more favorable than pursuing litigation to resolve the matter."


However, the outcome of class-action suits is of greater interest to Roth.


"No one has yet to figure out what the injury is to a consumer for sharing his or her information," he said. "I'm still waiting to see how a court is going to monetize a customer's name."


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