Trading in information

As internet retailers fall by the wayside and creditors clamour for funds, what happens to the customer lists? For many e-tailers, such data is their most valuable asset.

Soon after the Disney-backed e-tailer Toysmart.com went bust in late May, an advertisement appeared in the Wall St Journal seeking bids for its assets.

Up for grabs was its customer list - names, addresses, emails, credit card details.

Toysmart.com ceased operations in late May

On Monday, the United States Federal Trade Commission filed a lawsuit against the failed toy retailer on the grounds that the company broke its privacy promise to customers.

The following day, Disney stepped in and offered to buy the list to ensure it remained confidential.

Moves by Toysmart and other bankrupt e-tailers such as Boo.com to cash in on customer information have drawn protests from internet privacy campaigners.

Although the European Union has data protection laws, the US takes a self-regulatory approach.

Even free services, such as the New York Times, require you to register your details

Yaman Akdeniz

In March, the EU and US reached an agreement over online privacy. After two years of wrangling, the EU declared itself happy with leaving American companies to police themselves.

According to Dr Yaman Akdeniz of Cyber-Rights and Cyber-Liberties, this means little protection for individuals using internet sites based abroad.

"Consumers should take this into account - their data could be passed on to another company. Even free services, such as the New York Times, require you to register your details.

"What can you do if they say, 'We won't pass on these details' and the next day they go bust and try to sell their data?"

What are the rules?

John Woulds, director of operations for the UK's Data Protection Commissioner, says it would be illegal for a UK company to sell its customer data without first informing those on the list.

Data held in the UK must be:

Adequate, relevant and not excessive

Accurate

Secure

Fairly and lawfully processed

Used for limited purposes

Not kept longer than necessary

Processed in accordance with your rights

Not sent to countries without adequate protection

"If customers are given an assurance that the list would not be sold for marketing or otherwise disposed of, that would be a clear breach of the Data Protection Act."

Once the liquidators are called in, the same rules apply.

"If [the lists] were sold to a similar company, the liquidator could do this. Those on the list would have to be advised that this would happen, so they could choose to get themselves off it."

On the commissioner's website, customers are advised to think carefully before providing personal information to an organisation.

"They may ask about your income, hobbies, interests, or family life. Do they need this information? You may not have to provide it," the website says.

With internet companies, it is not always clear where the organisation is based, says Mr Woulds.

"In principal, the rules apply if they are dealing with customers in the UK. However the law is hard to apply outside our jurisdiction."

Global market

Thanks to the internet, shopping is now a global, rather than local, activity.

Fashionmall.com bought some of Boo.com's assets

Yet it is also a cut-throat business in which even the top names have seen their share price tumble.

Because few internet companies own tangible assets such as warehouses, intangibles such as customer lists are considered valuable assets.

When online travel firm lastminute.com floated on the stock market in March, its one million-plus customer list helped push the share price from 380p to 487.5p on the first day of trading.

The price has since plummeted.

"It's not like shopping in Marks and Spencer or WH Smith anymore," says Dr Akdeniz.

"If there is an item you want, you have to give your details. Once you are in their system, many websites don't let you unsubscribe.

"We need to have similar protection laws all over the world. Otherwise consumers in Europe will, in the long run, suffer in the information age."