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Sale of More.com's customer list raises privacy concerns
(IDG) -- HealthCentral.com this week said it has signed an agreement to purchase the assets of floundering online drugstore More.com -- including its customer list -- and its subsidiary, ComfortLiving.com, for approximately $6 million.
But More.com's decision to sell its customer data has raised concerns among privacy advocates, who say the move seems to violate the company's promise not to do so.
Under the deal, HealthCentral in Emeryville, Calif., will also acquire More.com's Web site, trademark and its affiliate agreement with retail drugstore Phar-Mor. HealthCentral will also buy More.com's home store, ComfortLiving.com, its Web site, inventory and its lease on a warehouse and distribution center in Gaithersburg, Md.
In exchange, San Francisco-based More.com will receive 5 million shares of HealthCentral stock -- worth about $6.25 million at yesterday morning's stock prices -- which it can't sell before March 15, 2001. The deal is expected to close next month.
In effect, More.com is joining the ranks of other dot-coms that have recently gone out of business.
But More.com's decision to sell its customer list -- which also includes information about products and prescriptions customers purchased -- is generating questions among privacy advocates.
"This is another outrageous example of why self-regulation does not work," said Evan Hendricks, editor of the Washington-based "Privacy Times" newsletter. "When you say you will not sell [customer] data, you should not sell [customer] data. But when there is no enforcement by law, an individual has to depend on the good faith of the data keeper."
However, HealthCentral and More.com contend that because HealthCentral is buying More.com's entire business, including its Web site and goodwill -- not just its customer list -- HealthCentral is More.com's "successor-in-interest" and should be treated as the same company, not a third party.
"HealthCentral has bought More.com's customer list ... its Web site and goodwill," Newman said. "HealthCentral is a qualified buyer in a related market and has agreed to be More.com's successor-in-interest to More.com's protection of consumer information."
Jonathan Moskin, an intellectual property lawyer at Pennie & Edmonds in New York, said that as a general rule, in the bricks-and-mortar world, the assignment of substantially all assets of one company to a new company binds that new company to the obligations of the former company. However, he said he hasn't seen any definitive law regarding online privacy issues.
Hendricks said that if the Federal Trade Commission (FTC) decided More.com had violated its stated policy, the agency could step in and file a complaint in court for unfair and deceptive business practices against the company.
An FTC spokeswoman said she had no comment on the More.com matter. However, this summer the FTC weighed in on a decision by the now-defunct online toy retailer Toysmart.com to sell its customer list after promising customers it wouldn't sell the data to a third party. The FTC said Toysmart could sell its customer list to a "successor" company, which would also be required to buy its Web site, goodwill and business.
But the attorney generals of Massachusetts and 38 other states disagreed with the FTC's decision, saying a successor company is still a third party and continued to block the sale of Toysmart's customer list in bankruptcy court. A bankruptcy court judge has yet to make a final decision on the sale of that data.
So, he said, at the very least, all More.com's customers should be notified about the pending sale of their data to HealthCentral and should be allowed to decide if they want their information sold.
"If the More.com Web site still looks the same after the sale, customers will not know that the business [and their information] has been sold to another company," he said. "So they need to be notified."
But, Shen said, there needs to be clarification about what happens to customer data when one company merges with or is purchased by another company.
He added that the More.com issue was made thornier because in this case, it's not just customers' names, addresses and telephone numbers that will be sold, but also information about their purchases, which includes their prescriptions.
"Anytime you add health information to the mix, [you are entering different territory], he said. "So customers should be able to control what happens to their information."
"While we are moving forward in our lawsuit against More.com, we are also looking into the sale of its customer data to HealthCentral," said Nixon's spokesman, Scott Holste.
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