On May 13, an affiliate of Standard General LP agreed to pay $26.2 million for a portfolio of the bankrupt RadioShack Corp.’s intellectual property, including a database of 67 million RadioShack customer addresses, 8.5 million email addresses and associated purchase history. However, former RadioShack suppliers and several state attorneys general have lodged objections to the sale of this data on privacy grounds.
AT&T Mobility LLC disputed a proposed March sale of assets, including the personally identifying information of AT&T’s customers, on the grounds that RadioShack had obtained some of it from the sale of AT&T’s products, and that the data therefore was not properly a part of the bankrupt estate. AT&T and RadioShack settled in April on terms prohibiting RadioShack and its successors from disclosing or transferring the AT&T customer data. Last week, AT&T objected that the present auction again appeared to include its customers’ information, arguing that the sale would violate its April settlement agreement and could expose AT&T to liability as a regulated entity under the Federal Telecommunications Act. AT&T now seeks to avoid a sale on terms that would release the buyer from any liability in the event it misuses AT&T’s data.
Apple Inc. filed a similar objection, alleging that its own contract with RadioShack expressly disallowed the sale of “information collected by RadioShack regarding purchasers of Apple products.” Apple argues that the terms of the companies’ resale agreement effectively remove data collected from Apple’s customers from the estate.
Finally, thirty-three state governments and the United States Trustee have also objected to the sale of customer data, citing RadioShack’s privacy policies’ commitment not to sell its customers’ personally identifiable information. These objectors argue that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 prohibits a sale of consumers’ personally identifiable that would contravene the debtor’s privacy policies, without a specific determination that the sale would not violate applicable law (11 USC § 363(b)(1)(B)(ii)). Here, the state government objectors argue that the contravention of RadioShack’s privacy policies would violate state privacy laws.
In the aftermath of its winning bid on Wednesday, it remains unclear whether General Wireless Inc. has actually purchased the customer data in question. Judge Brendan Shannon of the U.S. Bankruptcy Court for the District of Delaware has scheduled a hearing on the issue for May 20.
The technology industry will be paying close attention to the outcome of that hearing. Bankrupt retailers like RadioShack typically have an assortment of assets, of which customer data may be only a small part. However, a significant number of firms now count their data, rather than any tangible property or traditional intellectual property portfolio, as their most valuable asset. The RadioShack dispute suggests that, at a minimum, these firms would do well to expressly permit the transfer of this data in bankruptcy or other acquisitions when drafting any privacy policies or other commitments. Meanwhile, firms who receive data on “their” customers through third-party agents should consider both contractual and technical measures to limit these agents’ ongoing access to this data.