As the frenzied event gets started, the auctioneer, wedged between two giant PA speakers on a mini stage, looks over the sea of potential buyers. "Are you ready for a big, big sale?!" he yells into the microphone, taunting the crowd. "Now, we're going to have another dot-com auction on Tuesday, but we don't know who it is yet." The crowd erupts in laughter.
The auctioneer, a man with heavy sideburns who could look at ease at a Texas steer auction, efficiently sells almost everything in the room. But there is something the fast-talking man didn't announce for sale, something that is more valuable than the furniture and the old computers left behind.
That something is customer information.
Traditionally, when a business goes belly up, or tries to sell itself to another company, it offers for sale its assets, like fax machines and other office equipment, to entice potential buyers. Often, the customer database-- which contains names, addresses, credit card numbers, ages, genders, hobbies, and income levels--is also available for purchase. This data is routinely exchanged in the offline world. In the online world, however, Internet companies who sell consumer information have become controversial.
The problem is that the dot-coms may be violating their own privacy policies. When the Internet was first getting started, emerging dot-coms assured privacy to consumers who were uncertain about the new medium of the Internet. In short, skeptical customers of many dot-coms were told that their personal information would never be given away or sold.
But despite these privacy policies, now-failing Internet businesses are beginning to hawk this very information. And this distresses consumer advocates, state attorneys general, and federal regulators.
One of these troubled regulators is local Federal Trade Commission (FTC) attorney Randy Brook, who routinely monitors businesses to ensure compliance with a variety of consumer protection laws. Brook says the selling of consumer information is becoming a priority for the FTC, especially in Seattle, home to many failing dot-coms. "We're concerned, absolutely, especially since we can't follow every possible merger and sale that happens," says Brook.
In fact, last month Brook had to rush to the federal bankruptcy court after he received a tip about the imminent sale of Seattle company FreeInternet.com to Los Angeles online marketing company NetZero.com ("I wore jeans and a borrowed tie," the lawyer jokes). Brook was concerned that Free Internet's million-member customer list would be sold without notifying its customers first--a direct violation of its privacy policy. After Brook intervened, NetZero agreed to honor FreeInternet's privacy policy by notifying all new customers of the sale.
State Attorney General Christine Gregoire has also gotten involved, creating a special government division earlier this year to help deal with the emerging problem. The division, called the High Tech Unit, started working right after it was established. The unit's first case involved Massachusetts-based Toysmart.com, which had Seattle customers. Toysmart had brashly placed an ad in The Wall Street Journal soliciting buyers for its customer list. Toysmart, like FreeInternet, had a privacy policy stating it would never share the list. Citing deceptive trade practices, Gregoire and 39 other state attorneys general have filed a lawsuit to stop the sale. "We just think consumers should be informed before their information is sold," says High Tech Unit senior attorney Paula Selis.
Gregoire and the FTC are going to be busy in the next few months as dot-coms continue to drop like flies. Local bankruptcy attorney Dillon Jackson of Foster, Pepper & Shefelman expects even more dot-coms to fail after the holidays. "A lot of dot-coms will be history by February of next year," predicts Jackson. Some companies, like Amazon.com, are rewriting their privacy policies to prevent trouble in the event they sell or go out of business. Amazon's new policy hedges on the issue by stating, "As we continue to develop our business, we might sell or buy stores or assets. In such transactions, customer information generally is one of the transferred business assets."
In the meantime, the auctioneers will be busy. "All of a sudden we're doing all these dot-coms. We're not complaining though," laughs Terry Moore, spokesman for auction firm James G. Murphy Company.
