Customer data is an asset – or it is?

By now you probably know that RadioShack is going through bankruptcy proceedings and closing stores. Last week, the bankruptcy court approved a plan to sell the company to the hedge fund Standard General who would co-locate the remaining stores with Sprint stores. (The sale is actually to the General Wireless subsidiary of Standard General). But, as the Wall Street Journal reports, General Wireless/Standard General appear to only be getting the stores and the workers:

The new RadioShack has only temporary rights to its name and certain patents as it gets back on its feet. Unless Standard General comes up with more money, RadioShack might need a new name after six months.
Rival bidder Salus has first claim on the RadioShack intellectual property, including the trademark, patents and customer lists.
Owed $150 million, Salus will get only partial payment out of the sale to Standard General. The intellectual property could be sold separately, and it could be sold to Standard General. However, Salus is in active talks with other potential buyers of RadioShack’s intellectual-property, valuation adviser David Peress, of Hilco Streambank, said in court. [Hilco Streambank is handling the sale of the intangible assets.]

Now, here is where it get really interesting. Some of those intangible assets may not be assets after all. Specifically, customer lists may be subject to privacy laws that restrict their transfer to another owner. According to stories in the Washington Post and Bloomberg Business, the Attorney Generals of Texas and Tennessee have raised the possibility of filing suit to stop RadioShack from selling its customer lists. And, according to AdAge, the New York Attorney General is looking at the case. They argue that RadioShack made an explicit promise when it collected the data to not sell their customer lists. Since the sale of the lists would violate the company’s privacy policies, they argue that it also violates state law.
These lawsuits might be a bit of a stretch. What the stories don’t point out is that there is already a process to deal with these cases. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 contains a specific set of provisions known as the Consumer Privacy Ombudsman provisions. This part of the bankruptcy code describes what type of data/information is or is not considered protected under privacy restrictions. It also sets up a process to appoint a Consumer Privacy Ombudsman to report to the court as to what data is protected, what may or may not be sold and under what conditions. For example, in one case, the buyer was required to contact those on the list and allow them to be removed (an “opt out” process). The goal of these provisions is to balance the traditional mission of a bankruptcy court to maximize repayment to the debtor (by maximizing the sale of all assets) with individual’s privacy rights. [See here for a more detailed explanation of the law.]
The ruling by the Ombudsman can be complicated by the lack of a standard privacy clause. Some companies, such as Google and Facebook, have clauses in their privacy policies explicitly allowing the transfer of customer data in cases of an ownership change or asset sale. However, even in these cases questions can remain, such as which version of the company’s privacy policy applies: the policy when the data was first collected or the most recent policy? And who collected the data: the parent company or an independent franchisee?
It remains to be seen what will ultimately happen to RadioShack’s intangible assets. In the RadioShack case, the appointed Ombudsman has told the court that the lists are not yet being sold. Therefore she does not have a report for the court at this time. Obviously the Ombudsman needs to know the terms of any deal before making findings and recommendations.
But regardless of the final outcome, the case raises interesting questions about how these assets are restricted and how they may or may not be utilized. One more factor to take into account when managing your intangible assets.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s