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Main image for RadioShack Bankruptcy to Test Shelf Life of Privacy Vows
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RadioShack Bankruptcy to Test Shelf Life of Privacy Vows

Law360

4.3.2015

With state regulators raising objections to RadioShack Corp.’s potential sale of personal data of up to 117 million customers, the company’s bankruptcy proceedings will test whether privacy promises made to customers live on after a business has collapsed.

“When a company obtains customer personal information in return for a pledge not to sell it, the [Federal Trade Commission and other regulators] can enforce that agreement against the company,” McCarter & English LLP partner Scott Christie told Law360 Friday. “However, in a bankruptcy situation, the company that made the pledge may cease to exist, and the temptation is to maximize value for shareholders and creditors.”

By raising their objections, the state attorneys general have brought to center stage the issue of how broadly representations made to consumers about what companies will and won’t do with their data can be applied, and whether a change in corporate ownership can diminish those promises, attorneys say.

On the one hand, the state regulators and other data protection authorities could argue that a broad promise to not sell customer data to third parties, such as the one that RadioShack made to its customers, can be interpreted to extend to any sale, whether or not the company is still in the form it was when the pledge was made.

“The involvement [of state attorneys general] reflects that the integrity of customer personal information collected by companies in return for a promise not to sell that information will be protected even where the company that made the promise no longer exists,” Christie said. “Companies involved in bankruptcies and mergers should not expect to be relieved of their obligation to protect the privacy of customer personal information.”

And given that federal and state regulators are becoming increasingly active in enforcing privacy and data security issues that have a direct impact on consumers, a failure to clarify outward-facing statements may result in companies finding themselves in the same situation as RadioShack down the road, according to attorneys.

“Customer personal information is a valuable company asset,” Christie said. “The scrutiny of Radio Shack demonstrates that state attorneys general will seek to intervene in bankruptcy proceedings to preserve the protection of customer personal information when enforcement against the company would be challenging if not impossible.”

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