What’s the News?

A US Bankruptcy Judge recently approved the sale of a package of RadioShack’s intellectual property assets—including consumer data obtained from RadioShack customers—to General Wireless Inc., the hedge fund affiliate that acquired over 1,700 RadioShack stores in February. The sale was not without controversy.

Major technology companies Apple, Inc. and AT&T Mobility Inc., as well as state and federal regulators, flagged concerns about the disposition of consumer data through the iconic technology retailer’s unwinding. In order to resolve these issues, the agreement approved by the judge places strong limitations on the consumer data that RadioShack will convey to General Wireless. Given that bankruptcy law imposes relatively few limitations on the transfer of consumer data, the conditions placed on this sale could become a standard to which other courts look for guidance.

More on the Dispute

Late last month, US Bankruptcy Judge Brendan Shannon approved bid procedures to auction off a package of intellectual property assets, including a trove of consumer data obtained from RadioShack customers. The package was said to include more than 67 million physical addresses and 8.5 million e-mail addresses. In fact, some estimated that it included the personal information of up to 37 percent of the US population.

Given this, Apple and AT&T objected to the sale of consumer data obtained from the purchase of their products at RadioShack stores. Apple filed a formal objection with the court, claiming that an agreement between Apple and RadioShack prohibited RadioShack from selling any consumer data obtained from customers buying Apple devices. Apple also claimed that the proposed sale would violate its terms of service. AT&T filed a similar objection, arguing that the information was confidential and that its reseller agreement with RadioShack prohibited the sale.

Additionally, state and federal regulators expressed serious concerns regarding the consumer data. On the state level, several states, led by Texas Attorney General Ken Paxton, filed objections to the sale. Dozens of other states wrote letters in support of Paxton’s efforts. The states expressed concerns that the sale would violate consumer protection laws, and urged the court to require RadioShack to release more information about the type and amount of data involved. On the federal level, the Federal Trade Commission joined the debate with Jessica Rich, the agency’s Consumer Protection Director, sending a letter to a court-appointed privacy ombudsman. The letter recommended that conditions be placed on the sale of any consumer data. Suggested conditions included, among other things, that the buyer be in the same line of business as RadioShack and be required to abide by RadioShack’s privacy policy.

Following the outcry, the auction went on as planned, and the intellectual property package was sold for $26 million to General Wireless, which plans to keep open the RadioShack stores it purchased as part of a joint venture with Sprint. The sale was, however, still subject to final approval from Judge Shannon, who had previously stated that he would not sign off on a sale without sufficient assurances that legitimate privacy concerns were addressed. In an effort to assuage those concerns, RadioShack agreed to mediation, led by a court-appointed privacy ombudsman, with several state attorneys general. The agreement produced from the nine-hour mediation session satisfied the judge, who finalized the sale to General Wireless at a recent hearing.

Under the terms of the deal, RadioShack agreed to severely limit the amount of consumer data in the sale package. Specifically, RadioShack agreed not to convey customers’ social security numbers, telephone numbers, birth dates, and credit and debit card numbers. Additionally, General Wireless was only permitted to obtain e-mail addresses gathered from consumers requesting product information in the last two years. Further, the deal placed use restrictions on the information that General Wireless did receive: the company is only permitted to use the data in furtherance of RadioShack’s business, and it may not share the data with any other companies, including Sprint.

The Takeaway

With the ubiquitous gathering of consumer data, the bankruptcy of a major retailer has the potential to throw a massive number of customers’ personal information into a state of flux. As shown, this can be of prime concern to companies—like Apple and AT&T in this case—who sell products through the retailer. The RadioShack consumer data episode is a lesson in the importance of establishing agreements on the front end of a business relationship governing the disposition of consumer data and other forms of intellectual property in the event of the relationship’s dissolution. These issues have the potential to arise more frequently—and in a variety of contexts—as brick and mortar establishments continue to be pushed out of an increasingly digital economy.

The bankruptcy of a business partner is only one example of how consumer data can become a source of contention. Corporate acquisitions, for example, often raise consumer privacy concerns. The FTC has remained firm that companies involved in mergers and acquisitions must be careful to maintain the privacy promises that were made to consumers regarding their data. Whatever the context, businesses should be aware of how they are collecting, using, and sharing consumer data, given the significant legal and business implications involved.