March 26th, 2015


RadioShack’s bankruptcy and Auctioning off Customer Data- A violation of Privacy Policy

By: Vasundhara Apte

RadioShack is a leading national retailer of technology products and services as well as products related to personal and home technology and power supply needs. RadioShack filed for Chapter 11 Bankruptcy on February 5th, 2015 after striking a deal to sell up to 2400 of its stores to the wireless service provider Sprint and a hedge fund that is its biggest shareholder.

On 23rd March, 2015 RadioShack commenced the auction of its assets which include its name and intellectual property, trademarks, patents, leases and the names, email addresses and phone numbers of its customers. According to a Bloomberg Report it is estimated that RadioShack is offering more than 13 million email addresses and 65 million physical addresses to the highest bidder.

Standard General, a hedge fund which is one of RadioShack’s creditors emerged the winner of the auction.Salus Capital Partners claims it did not get a fair hearing at the auction on a bid it made which was materially superior. The Attorney General of Texas Ken Paxton filed a challenge arguing that RadioShack made an explicit promise to its customers that it would not sell their personal data. He brought attention to the fact that it was a breach of the company’s statement wherein RadioShack clearly stated that they prided themselves on not selling their private mailing list. Hilco Streambank a subsidiary of RadioShack also remarked that the deals may not be approved by the bankruptcy court and there have already been two legal filings in attempts to block the sale of consumer data.

There have been several oppositions to the sale of customer data by RadioShack. The State Law in Texas prohibits companies from selling personally identifiable information which violates their own privacy policies. At present the states of Oregon, Texas, Pennsylvania and Tennessee are challenging RadioShack’s attempt to sell its customer data which includes personal information like their names, email addresses and phone numbers. AT&T is also trying to stop the sale of customer information as AT&T believes that RadioShack does not have the ownership of the data which it contends rightfully belongs to AT&T. AT&T claims that AT&T helped RadioShack to market phones and in the process allowed RadioShack to amass information which included among other things a list of AT&T customers. AT&T is concerned as one of the bidders plans to co-brand some of the RadioShack stores as Sprint stores and thus AT&T is concerned that this could lead to giving information to its competitor.

One of the first legal challenges to the sale of customer information was in the FTC V TOYSMART.COM case. FTC sued to prevent Toysmart from engaging in the sale of its customer information as part of a bankruptcy auction. The company’s privacy policy said that personal information of its customers would in no circumstances be shared with a third party and thus the sale of its customer’s information as part of the bankruptcy auction was a clear violation of its privacy policy. The customer data was the company’s most valuable asset in bankruptcy. Toysmart did eventually destroy the information and the case resulted in a federal legislation that imposed a restriction on the sale of assets in bankruptcy.

While addressing the Bankruptcy of Borders, a bookstore chain the FTC realized that bankruptcy was a special case and consented to allowing the sale of personal data with certain conditions. The data could not be sold as a stand-alone asset it would have to be sold in connection with its goodwill, the buyer would have to be in the same line of business as the seller and the buyer must abide by the same privacy policy as the seller. The FTC went on to add that if any changes were made to the privacy policy the consent of the customers would have to be obtained.

The RadioShack bankruptcy filing and sale of its assets particularly consumer information has been a major concern. RadioShack promised its online customers that it would not sell their personally identifiable information to anyone at any time. The signs at RadioShack’s sentiment also sent out the same message that a customer’s information would be treated with respect and dignity and that RadioShack prided itself in not selling its private mailing list. However despite these promises to its customers RadioShack has done just the contrary. A customer’s data has vast market power and is of great economic value but adequate precaution must be taken to ensure that a company does not go back on its word and violate its own privacy policy.

There has been widespread opposition against RadioShack’s plans of selling its customer data. The State of Texas said it had received support from 21 governmental consumer protection entities to its objection of RadioShack’s planned sale of personally identifiable information (PII) of 117 million RadioShack customers. Although New York has not signed on the Texas challenge the the Attorney General Eric. T. Schneiderman said that New York would take appropriate action to protect New York customers if RadioShack violated its customer privacy policy and went ahead with the sale of its customer data.

Approval of the deal is expected to come on Thursday (26TH March, 2015 when the bankruptcy court is scheduled to rule on the case.