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Walt Disney’s offer to pay $50,000 for the destruction of customer data held by Toysmart.com, a defunct e-retailer, is on the verge of approval by a federal bankruptcy judge. Toysmart filed for Chapter 11 bankruptcy protection in June, and it attempted to sell its customers’ data to raise cash during bankruptcy proceedings. TRUSTe, the online watchdog group that accredited Toysmart’s privacy policy, then complained to the Federal Trade Commission and the Massachusetts state attorney general’s office. TRUSTe said a data sale would violate Toysmart’s policy, which declared that personal data such as names, addresses, credit card numbers and shopping preferences would never be shared with a third party. The episode was quickly seized upon by advocates for a broad new Internet privacy law who point to Toysmart as a prime example of why industry cannot be trusted to regulate itself on privacy. The FTC, TRUSTe and all 50 states eventually filed a series of complaints and objections in U.S. Bankruptcy Judge Carol Kenner’s court. Disney, a majority shareholder in Toysmart, offered to buy and retire the data then, but its offer was rejected by the FTC, TRUSTe and the states. In July, the FTC voted 3-2 to accept a settlement whereby Toysmart would be sold lock, stock and barrel to an entity in the “family commerce market” that agreed to be Toysmart’s successor in interest. The FTC also accused Toysmart of violating the Children’s Online Privacy Protection Act of 1998. The destruction of the data means that the commission will drop its COPPA allegations. “It’s a great settlement,” says FTC spokesman Eric London. “It achieves the goals we wanted to achieve from the beginning.” TRUSTe spokesman Dave Steer says the deal sets a precedent “that no data will be shared with anybody.” Since last summer, no suitors have publicly emerged to swallow Toysmart whole. Meanwhile, Disney’s offer was changed from cash for buying and retiring the data to cash for the destruction of the data by Toysmart. Kenner is expected to approve Disney’s offer within the next couple of weeks. The action comes as the new 107th Congress begins to mull fresh Internet privacy legislation, which will be the top tech policy issue on Capitol Hill this year. “This agreement sends a strong signal to Internet businesses, as well as all others who collect personal information, that consumers’ privacy rights must be protected, even when a company goes out of business,” New York Attorney General Eliot Spitzer said in a statement. An attorney for Toysmart declined to comment. “We are grateful that Toysmart, the attorneys general and the FTC have now accepted our proposal,” Disney said in a statement. “We hope this matter can be brought to a swift conclusion with confidence that the privacy of all affected consumers is protected.” Related Articles from The Industry Standard: Magic Kingdom Sued for Toysmart Debts Toysmart.com: Back in the Middle Again FTC-Toysmart Agreement Criticized Copyright � 2001 The Industry Standard

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