Senate approves limits on dot-com database sales

In a move that could have repercussions for the increasing number of failing dot-coms, the U.S. Senate yesterday voted 83 to 15 to approve a bill that toughens rules on when bankrupt companies can sell customers' personal information.

The legislation forbids companies from selling customers' personal information at the time of bankruptcy if they had previously promised they wouldn't do so. However, a sale or lease of the data can go through if it is consistent with pre-existing company policy or if the move has come under court consideration.

The U.S. House approved a similar bankruptcy bill two weeks ago. House and Senate members will meet in a conference committee to work out differences between the two measures. The final bill is expected to go to President George W. Bush perhaps as soon as the next few weeks.

Bush has said that he will sign the legislation into law.

The measure, part of a broad bill revamping U.S. bankruptcy laws, appears to take aim at the widely used online business practice of collecting as much consumer information as possible.

Internet companies, often valued by their number of users, find compiling a large and detailed user database essential. In today's rougher financial times, with many dot-coms going bust, those user databases are considered valuable assets.

The issue arose to public prominence last year when online toy retailer Toysmart.com Inc. filed for bankruptcy and attempted to sell its customer database to raise cash during bankruptcy proceedings.

Truste, the online watchdog group that accredited Toysmart's privacy policy, complained, and an online civil rights riot broke out. In late January of this year, U.S. bankruptcy judge Carol Kenner gave Toysmart.com the green light to destroy its customer list, ending the controversy (see story).

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