In the first enforcement case of its kind, the Federal Trade Commission last month disclosed the settlement of its claims against Gateway Learning Co., which owns Hooked on Phonics, under Section 5 of the FTC Act for misrepresenting its data-collection and -sharing policies. (Section 5 of the FTC Act covers unfair and deceptive practices, as well as consumer fraud, misrepresentation, and false claims.)
Gateway was required to pay a fine of $4,600, the proceeds it received from sharing its users' personal information with marketers. The information shared included personal information about children under the age of 13.
The provision regarding sharing of personal information with third parties was changed, however, to provide that the company would, from time to time, share personal information unless customers expressly ask them not to. (See Exhibit B to the FTC's complaint against Gateway.)
Specifically, the FTC charged Gateway with:
The full FTC release can be accessed here. According to Howard Beales, director of the FTC's Bureau of Consumer Protection, the issue is simple. "If you collect information and promise not to share, you can't share unless the consumer agrees. You can change the rules but not after the game has been played."
What does the decision tell us about changes to privacy policies and terms of service at Web sites? It tells us that if you don't adhere to your promises, the FTC will come knocking on your door. To look at the issue from a legal enforceability standpoint, visit my blog or my Web site.