January 19, 2001, 12:00 AM

Sad Toy Story

The Federal Trade Commission earlier this week filed a complaint against the now bankrupt online "good toy" retailer Toysmart.com Inc., seeking injunctive and declaratory relief to prevent the sale of confidential, personal customer information collected on the company's Web site in violation of its own privacy policy. The complaint alleges that Waltham, Mass.-based Toysmart.com violated Section 5 of the FTC Act by misrepresenting to consumers that personal information would never be shared with third parties, and then disclosing, selling, or offering that information for sale.

Through its Web site, Toysmart.com collected detailed personal information about its visitors, including name, address, billing information, shopping preferences and family profiles with the names and birthdates of children. Since September 1999, Toysmart.com has posted a privacy policy which states that information collected from customers will never be shared with third parties.

Toysmart.com announced on May 22 that it was closing its operations and selling its assets, which would include the private information. The FTC learned about the possible violation of the privacy policy from TRUSTe, a nonprofit privacy seal organization that had licensed Toysmart.com to display its seal. FTC staff investigated this information and discovered that Toysmart.com was offering its customer list for sale in violation of its own privacy policy. Meanwhile, Walt Disney Co., Toysmart.com's majority owner has said that it has offered to purchase the company's customer list to ensure consumers' privacy. In a prepared statement, Disney said that despite the fact it is not involved in the lawsuit, it is working with the FTC to ensure the list stays confidential.

"If the bankruptcy court ... allows us to purchase the list, we will do so, and retire the list,'' Disney said. "If we are not allowed to purchase the list, we will urge the court, as the FTC has, to permit a sale only to a purchaser of all the assets of Toysmart.com who will maintain the confidentiality of the information contained in the list.''

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