Disney had proposed a plan to buy the list from Toysmart for $50,000 and then have it destroyed. Thursday, U.S bankruptcy Judge Carol Kenner approved the plan to destroy the list, which could finally put to rest one of last year's most controversial Internet privacy issues.
Disney-backed Toysmart, which closed down last May, came under fire after CNET News.com reported in June that the company tried to sell its customers' personal information--which it promised never to do--as part of its liquidation. The Federal Trade Commission and more than 40 state attorneys general filed suit to stop the sale last summer.
Several lawmakers introduced legislation that would prevent similar sales. Arizona Sen. John McCain, R-Ariz., helped draft a bill that would require online merchants to disclose the kind of personal information they collect as well post a "conspicuous notice" of how they intend to use that information.
When Disney took a controlling interest in Waltham, Mass.-based Toysmart in 1999, it had no way of knowing it was buying into a public-relations nightmare. Analysts speculate that Disney offered to buy and destroy the list to kill off the negative publicity.
"We're pleased with the court's decision," said Disney spokeswoman Michelle Bergman.
Harry Murphy, the attorney representing Toysmart creditors, said that his clients are also pleased that the matter is resolved but cautioned that "the underlying legal issue remains unresolved."
Guidelines on how online stores are required to handle their customer information are yet to be written, Murphy said.
Toysmart, Murphy said, did nothing that isn't done every day in the brick-and-mortar world, where selling customer information is a common practice. The "hysteria" that the Toysmart case attracted was unfounded, he maintains.
And it cost his clients a lot of money, he added. The $50,000 creditors received for the customer list was much less than what it probably would have gotten, he said.
The FTC has held that anytime a business promises customers to do something, the company must fulfill that promise.