Toysmart Ethical Dilemma Paper

When dealing with hardship you should not forget to follow your policies and be honest. Although many online businesses are accepting the importance of website, but the potential of ethical concerns still dawdles in this situation. Because of the tremendous growth of e-commerce, it has sparked ethical concerns about privacy, deception, intellectual property, and marketing to children. One such company deceived its customers about its policy and promise. On June 9, 2000 Toysmart was a Disney owned internet vender of educational toys and games filled for bankruptcy. Toysmart placed ads to pay its investors. The ad encompassed detailed information of more than 200,000 customers, each customer worth up to $500. The offer included customer’s addresses, billing information, family information and names.

Toysmart tried to sell the catalogue despite these assurances to their customer that their information was safe with them and their information would not be shared with third parties.

Toysmart faced an ethical dilemma, they could either abide by their promise to keep their information confidential and maintain more than $10 million of liability or sell the customer database to lessen their debt. Was it morally permissible for Toysmart to share or sell information given by users to third party companies without the user consent? I believe if Toysmart had no choice other then to sell the database to a third-party company then the proper ethical execution would have been to get consent from all the users in the database; notifying then what will be happing to their information and giving users the option to opt-out or opt-in of this data transfer. By proceeding in this direction, Toysmart would have been within the rules and regulation of TRUSTe and simultaneously maintaining a moral obligation of keeping their information safe. In the next section I will be describing in detail the case of Toysmart and in the following section my defense of my

thesis.

Toysmart was a Disney owned internet vender that sold educational toys and games from December 1998 to May 2000. On May 22, 2000 Toysmart announced that it is closing its operations. To meet lender’s demands, Toysmart brought in a consulting firm, The Recovery Group, to evaluate their situation. Toysmart faced an ethical dilemma, they could either abide by their promise to keep the user information confidential and maintain more than millions dollars of liability or sell the customer database to lessen their debt. Toysmart chose an unethical and immoral path, they chose to post an ad in the Boston Globe and the Wall Street Journal to sell the user database which contained more than 200,000 user’s personal information such as name, address, billing data, shopping preferences and family profile information; children’s toy interests and birthdays. It caused an uproar when customers found out that Toysmart had promised not to share their data with third parties because from September 1999, Toysmart had received permission from TRUSTe to display the TRUSTe seal, which displays that Toysmart has adopted TRUSTe polices of Disclosure; websites displaying the TRUSTe seal must post clear notice of what personally identifiable information is gathered and with whom it is shared, Choice; users must have the option, through opt-out or opt-in, whether to allow third party usage of their personal information, Access; users must have the ability to correct any incorrect information in the data collected and Security; the website must provide reasonable security to protect the data that is collected. On June 9, 2000 TRUSTe discovers Toysmart is trying to sell the user database which violates their contract. TRUSTe informs FTC (Federal Trade Commission) that by selling user data to third parties Toysmart violates TRUSTe’s guidelines and violates Toysmart’s promise to customers.

When the sale of the Toysmart user database became a public scandal, FTC intervened and stated that the transaction of this sale violated COPPA and would be an unfair and deceptive practice. FTC charged Toysmart for violating COPPA (Children’s Online Privacy Protection Act of 1998) because it collected personal information from children under 12 years old without their parent’s consent. In June 2000 Toysmart erased around 1600 users’ profiles from its database to comply with COPPA. In July 2000, the FTC accepted a settlement that allowed the of sale of the user database on one condition, if another company has same policies or was in the same type of business that complied to Toysmart’s promises of the information. The state refused the settlement because it did not contain an option for users to opt out of the program.

An outcry arose when the public found out about the sale of their information. Since Disney owned 60% of Toysmart they became concerned about the public repercussions, they decided to buy the user database for $50,000 and told Toysmart to destroy the personal information within 30 days of the company’s closure.

Because of Toysmart’s eight long months of legal dispute over the user’s personal information, eBay and Amazon decided to change their policies. eBay, as a member of the TRUSTe, consulted with them about their new policies. The new policy stated that if eBay merged or was acquired by another business entity it had the right to share the user information. Unlike Toysmart eBay explicitly gave users the option to cancel their registrations if they disagreed with the new policy. Conversely, Amazon faced backlash when it announced its new policy changes. Its new policy stated that if Amazon merged or was acquired by another business entity, the customer information would also be transferred. Since Amazon was not a member of TRUSTe, one reason Amazon faced criticism was it did not consult its new policies with TRUSTe. Another reason was Amazon did not notify its users about the policy changes and it did not allow the users to opt-out of the program.