Price of privacy: Selling consumer databases in bankruptcy

Abstract

This article analyzes whether bankrupt Internet companies can sell consumer database information in their attempts to pay off creditors as mandated by Chapter 7 and Chapter 11 bankruptcy protection law and provides guidance to solvent e-commerce companies in regard to their privacy policies. Database sales in bankruptcy are in conflict with most companies’ own posted privacy policies and, therefore, have been contested. The question pits the commercial interests of creditors, which have as their advocates bankruptcy court judges, against the privacy interests of consumers, who have found allies in state attorneys general, privacy groups and foundations, and the Federal Trade Commission (FTC). With no clear law preventing them, bankruptcy trustees have attempted to sell the databases. Ultimately they agreed not to sell by settling claims filed by the FTC and attorneys general. There is no law specifically prohibiting such sales, and until specific legislation is passed, bankruptcy court judges will continue to be left to rule on a case-by-case, even a motion-by-motion basis, interpreting the United States Code to the best of their ability. Their options are outlined and discussed.