Valued asset: user lists
Today, lists containing customer names, Web surfing and buying habits, phone numbers and credit-card information can fetch a lot more in bankruptcy proceedings than old chairs, desks and air hockey tables.
When an Internet retailer goes belly-up, the customer list is one of the most treasured assets among competitors, said Ken Cassar, senior analyst at Jupiter Media Metrix. "At the end of the day, most dot-coms only have a brand name and a customer database," Cassar said.
While those customer lists might help to pay off creditors, some defunct Internet retailers have faced roadblocks from law enforcement agencies looking to protect consumers' privacy interests.
In one of the latest battles over the lists, Texas Attorney General John Cornyn last week asked a Delaware bankruptcy judge to prevent failed dot-com e-tailer eToys from selling its list of nearly 3 million customers. A hearing on the motion has been set for June 1.
EToys' privacy policy said the company would not sell, rent, loan or transfer any personal information regarding customers or their kids to any unrelated third parties, Cornyn said.
Cornyn asked the bankruptcy court to require eToys to notify its customers of its present intention to allow the customer list to be transferred if it is sold, and to allow the customers a chance to prevent the transfer of their personal information.
Last fall, the Texas attorney general sued Living.com to stop the failed furniture retailer from selling customer data. A settlement permits the sale, but only if customers can opt out.
Authorities can prevent Internet retailers from selling their lists only if they have a privacy policy posted on their Web site promising not to sell personal data, according to the Federal Trade Commission. Many Internet retailers that go out of business do not have such policies in place.
Bankruptcy laws are fuzzy when it comes to dot-coms. Brick-and-mortar companies that go out of business typically can sell all of their assets to pay creditors, and customer lists are considered quite valuable. But brick-and-mortar businesses rarely have privacy policies regarding customer data. To date, the disposition of these lists has been handled case-by-case.
Several bills have been proposed in Congress to limit how these companies dispose of customer data. One by Sen. John McCain, R-Ariz., and Sen. John Kerry, D-Mass., would require Internet retailers to allow consumers to opt out of use or sale of their data.
Sen. Ernest Hollings, D-S.C., has proposed a more restrictive "opt-in" model that would require companies to get customer permission before any sale.
Some Internet retailers have changed their privacy policies to gain wriggle room. Six months ago, Amazon.com changed its policy to allow it to sell customer data, if the company or any its assets are sold.