By Jonathan Krim Washington Post Staff Writer
Thursday, July 8, 2004; Page E01
The maker of the Hooked on Phonics learning system yesterday settled a Federal Trade Commission complaint that the company rented out data about its customers to outside marketers despite promising to keep the information private.
The FTC said that Gateway Learning Corp., of Santa Ana, Calif., provided marketers with information that included names, addresses, phone numbers and the ages and sexes of children of families who bought the program, which is used to help children learn to read.
At the same time, the company's privacy policy on its Web site promised not to "sell, rent or loan any personally identifiable information regarding our consumers with any third party unless we receive a customer's explicit consent," according to the complaint.
The company agreed to pay a fine of $4,600, the amount it earned in leasing the data.
The case arose from a July 2003 Washington Post story identifying Gateway as one of several companies renting or selling customer data in violation of their privacy policies. In Gateway's case, it rented the information for $95 per 1,000 names.
"It's simple: If you collect information and promise not to share, you can't share unless the consumer agrees," said J. Howard Beales III, head of the FTC's consumer protection bureau.
In a written statement, the company said it was happy to have resolved the matter, and that its current privacy policy is not at issue.
But the FTC targeted Gateway in part because, after inquiries from the Post, the company changed its privacy policy to allow for data to be shared with third parties "from time to time." The FTC said changing policies retroactively without telling customers first and giving them a chance to remove their data is an unfair practice.
The case highlights the enormous value of personal information for marketing purposes, and the tension posed by privacy concerns. Instead of customer data being used only to seek renewed business, the lists themselves can generate income.
Assisted by list managers and brokers, firms also are constantly searching for ways to refine customer lists to better target consumers who might be interested in certain products or information.
