Disney Heroics Postpone Inevitable

While Disney moved this week to kill the national privacy controversy surrounding Toysmart.com’s attempt to sell its customer file, the issue appeared certain to arise again if more e-tailers begin going belly up.

One day after the Federal Trade Commission’s July 10 filing of a lawsuit against online retailer Toysmart to block the sale of its customer database, The Walt Disney Co., the majority owner of Toysmart, offered to purchase and discontinue the file. According to privacy advocates, the move postpones the resolution of crucial issues surrounding the protection of customer data.

“While there are great intentions here on the part of Disney, it could be a bad precedent to set because these things could happen again. Consumers shouldn’t have to rely on a knight in shining armor to come in and save the day,” said Dave Steer, spokesman for TrustE, San Jose, CA.

“If Disney is able to buy and delete that data, that’s great, but this is a longer-term, precedent-setting case,” Steer said.

TrustE alerted the FTC to this case. Whether the FTC would allow Disney to buy the Toysmart customer file is unknown. The FTC declined comment.

Toysmart was a member of the TrustE seal of approval program before its demise. Upon hearing that Toysmart put its database up for sale, TrustE issued an advisory on the TrustE Web site and filed a brief in bankruptcy court attempting to block the sale of the database.

“TrustE believes that we have a solid legal case to prevent the sale of that data, period,” Steer said.

However, privacy advocate Jason Catlett does not see how the sale of the Toysmart database could be stopped if Disney is not allowed to purchase the file because of the current lack of privacy regulations, and that bankruptcy law negates contracts.

“[Toysmart] did intend to respect people’s privacy, just as they intended to repay their creditors,” said Catlett, president of Junkbusters Corp., Green Brook, NJ.

“I actually would prefer this problem not go away, because I think the FTC has raised an extremely important question about protection of consumers’ privacy,” Catlett said.

And as more e-tailers appear on the verge of going bankrupt, it would appear Catlett will probably get his wish.

Because bankruptcy proceedings are public, this issue is likely to reappear even if Toysmart’s case is settled, said Ari Schwartz, policy analyst at the Center for Democracy and Technology, Washington.

Schwartz added he doubts companies will water down their privacy policies as a result of Toysmart’s troubles.

“I don’t think that many companies plan to go bankrupt, so it should not affect the way they craft their privacy statements,” Schwartz said.

Companies should have and follow good privacy practices, he added.

Meanwhile, Steer claims the nonprofit is getting positive feedback from its members.

“We’re getting a lot of encouraging signs from the industry that the aggressive action we’re taking is what they want to see,” said Steer.

Toysmart announced its intention to sell its assets, including customer information, in late May, regardless of its own privacy policy which claims that personal information is “never shared with a third party.”

The FTC complaint was filed in the United States District Court of Massachusetts and alleged that Toysmart had violated Section 5 of the FTC Act, which protects consumers against unfair and deceptive business practices.

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