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If all is lost, can a dot.com sell your soul?

If all is lost, can a dot.com sell your soul?

HONG KONG, China (CNN) - Desperate times can make failing dot.coms turn to desperate measures, but it's now being asked how far they can go to raise money.

When a dot.com finds its business plan in ruins and all funding lines have been cut, it might be forgiven for trying to reap the most cash out of what's left of its assets.

But when those assets include a database of customers, with private details of their lives, the option of selling them to the highest bidder becomes less of a financial issue than one for lawyers and privacy regulators.

A precedent has been set in the U.S. in just such an example, and the outcome may cause shock waves that circle the globe.

Last May, the U.S. Government stopped a bankrupt e-tailer from cashing-in one of its most valuable assets - customer information.

Customer database up for sale

Massachusetts-based Toysmart put its customer database up for sale - even though customers had earlier been told their personal details would not end up in the hands of a third party.

But it was forced to withdraw its offer after being sued by the Federal Trade Commission, setting a precedent in the US, and creating a stir in Asia.

Joanne Oswin, a liquidator with PricewaterhouseCoopers in Hong Kong, says personal data can't just be auctioned off to the highest bidder when customers have been given assurances that won't happen.

"If you make a representation, like Toysmart did, that your information will never ever be shared - the chances are I am going to have a difficult time realizing that asset," she says.

In Asia companies have not begun tearing up privacy agreements -- yet.

Asiacontent.com says it intends to protect customer data even if that means the data can't be sold. "Under no circumstances would this information be shared with third parties" says asiacontent on its Web site.

Customers must be asked

But what happens if asiacontent one day decides it wants to change that policy? According to Hong Kong law, it must first consult customers.

"When you collect data -- lets say personal data from a customer, you have to inform them about the purposes on which the data will be used," says Stephen Lau, privacy commissioner for personal data

"Subsequently if the business evolves the business might like to use the data for other purposes, which was not intended in the first place. Now, under the law, specific consent is required from the customer to allow such further usage."

But it may be hard to obtain consent from thousands or even millions of customers - many might not be able to be reached. And, of course, they may not agree to having their personal data sold.

The founders of gossip site IceRed have got around that dilemma.

Data can be used "for any purpose"

Kenny Lam and Tim Lam's business attracts thousands of postings from professionals in Hong Kong and Singapore. When they set up the site they decided to tell users their information could be "used for any purpose what-so-ever commercial or otherwise".

Kenny Lam says a company's right to sell database assets can be crucial. "I think for a community site the database and the traffic they create inside is extremely valuable," he says. "It's basically, I would say, the only asset that -- if people were to buy -- that's worth buying."

But lawyer Voon Keat Lai of Stephenson Harwood & Lo says the myriad dot.coms who ask him for legal advice know little about the rights and wrongs of privacy.

"A lot of people that we deal with -- technology people, entrepreneurs, start-ups -- the focus that they have in the last 15 to 20 months is to get their site set up, to get their business going. And very often they have not invested in the legal aspects of their web sites," he says.

"Is that dangerous? Yes."

It becomes more dangerous when the law treats this issue seriously. In Hong Kong, Internet companies that sell a database without the permission of customers can be fined.

Ultimately, top managers and even a company's human resources director can be jailed. But observers say it's doubtful the courts would ever go that far, especially when dot.coms have already been punished severely by the markets.



RELATED STORIES:
Consumer group: Online privacy protections fall short
Survey: Most in U.S. want companies to guarantee online privacy

RELATED SITES:
Asiacontent.com
IceRed.com

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