The amendment, sponsored by Senate Judiciary Committee Chairman Orrin Hatch of Utah and top committee Democrat Patrick Leahy of Vermont, was added to a comprehensive bankruptcy bill that passed the Senate 83-15 on Thursday. That bill must be reconciled with a House version that does not contain the dot-com provision.
"The Toysmart case showed customers could be hurt by a failed dot-com's sale of their personal information," said Boston Internet attorney Warren Agin of Swiggart & Agin. "The new legislation intelligently addresses the need to protect customer information and fairly balances the interests of consumers and the bankruptcy process."
However, the amendment also states that a bankruptcy judge could authorize a sale if an independent third party selected by the court deemed that privacy harm would be minimal. In addition, the third party is free to consider alternatives to outright sale or the sale of only portions of the information.
"The new law protects customers while giving the bankruptcy court flexibility to allow a reasonable sale of customer information," Agin said.
In the Toysmart case, the Federal Trade Commission and the states' attorneys general protested the company's proposed sale, and in the end all of the consumer data was destroyed before what was left of the company was purchased by Walt Disney for $50,000.
The measure comes after members of the House and Senate have vowed to pass significant privacy legislation in 2001; they have hinted that it is more likely to come in bits and pieces than in one large bill.
If the dot-com language survives in the House and Senate conference, it is likely to become law, as President Bush has said he will sign a new bankruptcy bill.