Victims of lost files out of luck

Until late last year, Debbie Lander was a big fan of online storage.

Lander paid $19.95 a year to keep photos of her custom embroidery at PhotoPoint.com. But shortly before Christmas, the North Prairie, Wis., resident ran into what she thought was a server snag: She was repeatedly unable to access the PhotoPoint site.

Only after searching Internet message boards did Lander discover that PhotoPoint had shut down without notifying its 1.5 million customers.

"I basically had to start over from scratch," said Lander, who used the site for years to help sell her embroidery online. She became doubly mad when PhotoPoint later said it would release files--if the owner paid $25. "To me, that's really deceitful," Lander said.

The dot-com demise has left a trail of wreckage; once-hot companies are shutting their doors and auctioning off foosball tables, and former product managers are assembling triple macchiatos at Starbucks. Among the fallen are numerous online storage companies that have gone belly-up or shut down consumer services, adding more victims to the pile: people whose files have evaporated like so much dot-com paper wealth.

But in the largely unregulated world of the Web, consumers have little or no remedy when it comes to getting their files back.

"There isn't a great deal you can do about it," said Ira Rothken, a lawyer who has successfully argued on behalf of consumers against credit card companies that accepted online gambling charges, among others. "Usually when a company shuts down, it doesn't have any money. In most instances, a person is out of luck."

A whole new game
Nearly seven years after Netscape Communications went public and the masses began discovering the Internet, policies intended to make the Web safe for businesses are looking increasingly dated. Millions of people head online as part of their daily routines and entrust bits of their lives to cyberspace. Yet some are beginning to wonder whether rules aimed at fostering e-commerce have created a double standard for consumer protection, with regulators turning a blind eye to online practices that no one would stand for in the real world.

"Usually when a company shuts down, it doesn't have any money. In most instances, a person is out of luck." --Ira Rothken, consumer attorney

High-profile failures have many people calling for federal regulation, but such recourse may be long in coming. For now, legal experts say, most companies are protected by sweeping terms-of-use contracts that consumers agree to before uploading files or saving messages.

In addition, defunct companies frequently have no assets that customers can lay claim to, particularly when they are looking to replace something that holds personal but relatively low monetary value.

Last summer, several online warehouses reached the end of the road after burning through their cash, forcing customers to scramble to retrieve their files. Others abandoned free services and started to charge customers for storage. But in most cases, it was too late.

Some companies that cut off free consumer storage, including Myspace.com and i-Drive, gave customers a few days to download their files. Other sites, like PhotoPoint, sent no warning at all.

The rapid death spiral of consumer storage caught many customers off guard. People who didn't check e-mail during the critical download period or didn't back up their records lost them.

When high-speed Net access provider Excite@Home closed its doors earlier this year, its cable partners became the exclusive providers of broadband service to its 4.1 million customers. The transfer caused massive disruptions in Internet and e-mail service, and some people were unable to access archived or forwarded e-mail for several weeks. Complaints about customer service ensued when the cable partners directed questions about old mail to Excite@Home, which declined to say whether people would eventually gain access to archived mail.

Rothken said he's received a lot of e-mail from people who've lost files and messages after a dot-com company went under. He said that concerns escalated when Excite@Home shut down, leaving people worried they would lose e-mail access and anything stored in their mail folders.

Regardless of how the Excite@Home shutdown shakes out, legal sources said that in general, companies include contract language in their customer relationships that makes it relatively easy for them to walk away scot-free.

"Usually, these organizations have click-through agreements that absolve them of a lot of liability," said Neil Smith, a lawyer with San Francisco law firm Howard Rice.

Most of the agreements warn customers that the storage company isn't responsible for preserving files should it go out of business--a prospect that may have seemed unthinkable during the dot-com heyday, as the online storage phenomenon was sweeping the Web and attracting millions of customers.

For example, in July of last year, just as PhotoPoint's then-President Dale Gass was telling customers that "recent changes at PhotoPoint.com ensure a long and stable future for the site and your photos," the company's terms-of-use agreement declared that "materials in and operations of this Website are provided as-is and there is no warranty made that they will be free from errors, interruptions, or loss of data."

These days, Gass says that notifying customers was impossible because the company was in a severe financial crunch.

"Announcing to the members we would be shutting down was not a viable option, as it would have created such a crush of traffic it would have crippled our bandwidth and servers, as well as run up significant additional networking charges that we knew would never be paid," Gass told CNET News.com.

Real vs. virtual
Legal issues surrounding the storage of online files or photos differ from those dealing with the warehousing of physical items, such as those sitting in a paid storage shed along the highway. For example, storage landlords cannot avoid liability if damage or loss results from their own negligence, even if they specifically spell that out in a contract.

What's more, a warranty on a parking-garage ticket saying that the company isn't liable for loss under any situation probably wouldn't hold true if a parking attendant were to give his friend the keys to your car so he could steal your stereo.

"The digital imaging industry, including PhotoPoint, has not done a good job educating people about backup and security of digital content." --Dale Gass, former president of PhotoPoint.com

"There are things you just can't contract your way out of," said David Maher, a lawyer with Miami-based law firm Harke & Clasby.

But online, the gray areas are wider. For one, digital copies are much easier to duplicate--and therefore back up and replace--than, say, your great grandma's antique dresser. Furthermore, many people have little sympathy for people who didn't back up their files.

Because online storage is so new, there's little legal precedent for consumers to pin potential lawsuits on. In addition, pursuing legal action is expensive and time consuming.

Those who do decide to head down a legal path have a few choices. They can sue under their state's unfair business practices act. However, even if they can identify a defendant--a challenge once a company has gone bust--and even if they win, they still face the problem of extracting monetary damages from a defunct company. In most cases, they'll have to get in line behind all the other creditors pursuing the company through bankruptcy action.

Class-action lawsuits are also an option, but plaintiffs' attorneys would need to find numerous other victims of similar circumstances--and even then, how do you put a price on a lost photo of your family's summer trip to Thailand?

Finding a solution
For many consumers, it's not the money they're after--it's their files.

As storing files on third-party Web sites becomes more popular, consumer advocates say, companies that want to survive are going to have to reassure consumers that their files are safe.

Jamie Love, director of Ralph Nader's Consumer Project on Technology, said this is one area where he'd like to see some regulation. "The idea would be for a very minimal approach to make it clear for people so they could make better decisions," he said.

"The fact that they're selling you this service and then turning around and telling you 'We're not responsible for anything' is just abhorrent." --Nanette Gallas, former PhotoPoint.com customer

Love said his group has received several complaints about the issue, but it has yet to take up the cause. He thinks the problem could be alleviated if companies were to give more information to consumers.

"I like starting out with a light touch," Love said. "An industry code of conduct would be helpful."

For example, sites could be required to spell out the site's liability through an easy-to-understand agreement; have a set way of notifying consumers when their files are at risk; and give people a standard amount of time to retrieve their files.

PhotoPoint's Gass said he doesn't think official regulations are needed, but that a consumer education campaign and industry-backed guidelines could solve many of the problems. Gass said he had no idea that so many people kept the only copy of their photos on the PhotoPoint site.

"The digital imaging industry, including PhotoPoint, has not done a good job educating people about backup and security of digital content," Gass said. "Just like people would not leave their previous film negatives at a store, but instead would keep them safe in a closet at home, similarly, people should always keep copies of any valuable digital data safe at home as well."

Meanwhile, online storage companies continue to receive mixed reviews from consumers.

Mark Wyatt called his divorce from free online storage company Myspace.com "amiable," saying he used the site for backup and was able to retrieve his files.

"Don't expect something that's free to last forever," he wrote in an e-mail to CNET News.com. Representatives of Myspace and i-Drive did not return requests for comment.

Other consumers were less sanguine, especially those who paid to store their files.

After PhotoPoint's demise, Nanette Gallas spent hours reprogramming her gift and collectible-selling site so it would point to another server containing photos of her goods.

Although Gallas kept digital and physical copies of many of the photos she stored on PhotoPoint for an annual fee of about $10, she's angry about lost time and lost business. Gallas said pictures of her gifts were unavailable to potential online buyers for a couple of weeks when she didn't know whether PhotoPoint was gone for good.

"They screwed us over, that's what they did," she said.

Gallas, who lives in Cheney, Wash., also lost a photo album she had compiled containing photos of her deceased brother and her parent's 50th wedding anniversary.

Like many victims of online storage failures, Gallas is frustrated about her lack of recourse.

"The same business laws that apply to any business you can walk into should apply to businesses on the Web," she said. "The fact that they're selling you this service and then turning around and telling you 'We're not responsible for anything' is just abhorrent."