(Christopher A. Albanese, Jeffrey S. Berkowitz)
December 2, 2011
Though you may not realize it, this data may be extremely valuable—for instance, Google and Facebook’s business models are built on leveraging their users’ personal information into user-targeted ads. In a real sense, these businesses could not function without PII, a fact the former CEO of Google recently expressed, saying “We cannot even answer the most basic questions because we don’t know enough about you. That is the most important aspect of Google’s expansion…The goal is to enable Google users to be able to ask the question such as ‘What shall I do tomorrow?’ and ‘What job shall I take?’”1 Cleary, PII has value.
As more people are made aware of the privacy implications of their online habits, many users are beginning to pay closer attention to privacy policies. Facebook’s never-ending privacy battles, and On-Star’s (abandoned) attempt to track former On-Star users are just some of the recent headlines, along with increased European Union and state level regulations, that have forced companies to reconsider how they go about collecting PII. In response, companies are moving to more restrictive uses of PII which has the unintended result of decreasing its value.
If you were to check your wallet right now, chances are you have at least one “shopper reward” card (whether it be from your supermarket, drug store, or bookstore) or credit card that you have authorized to track PII. The PII of the customers who participate in these programs is worth millions of dollars to the right buyer. Yet some companies ignore the value of this asset by imposing ultra-restrictive privacy policies or constantly changing those policies, which in turn seriously impedes their ability to transfer that asset.
In the recent Borders bankruptcy case, creditors learned the price of such ultra-restrictive policies. Borders filed a bankruptcy petition in February 2011. Though Borders sought to reorganize and emerge as an electronic-book retailer, these plans failed when a buyer could not be found. As a result, just a few short months after the case was filed, the company liquidated.
As part of its liquidation, Borders sought to sell the PII of its Borders Rewards program members. The Bankruptcy Code requires that anytime a debtor proposes to transfer its PII, a “Consumer Privacy Ombudsman,” or “CPO,” must be appointed by the government. The CPO is tasked with assisting the bankruptcy court in the consideration of any sale or lease of PII. Pursuant to this provision of the Bankruptcy Code, a CPO was appointed to evaluate the proposed sale of Borders’ members PII.
Prior to the auction, PC Mall, Inc., an internet and mail order catalog retailer of computer equipment and software, agreed to serve as the initial, or stalking horse, bidder at the auction and made an initial bid of $3.5 million for the 48 million names in Borders’ customer database. This bid, from a business in what is essentially an unrelated industry, amply illustrates the potential value of PII. Ultimately, Borders agreed to sell its customers’ PII to its direct competitor, Barnes and Noble, for $13.9 million.
Borders, however, prior to its bankruptcy filing, had several privacy policies in place that severely restricted their ability to transfer PII to third parties. Three different policies were in effect at various times, none of which provided for retroactive modification of the policy, and some of which completely prevented the transfer of PII. When the CPO issued his report regarding the sale of PII to Barnes and Noble, these problems were exposed.
While this is all fine and well in the bankruptcy context, few executives and corporate board members envision themselves leading a company into bankruptcy. But that risk, even for the largest and most successful companies, cannot be placed at zero over the long term. Understanding the value of PII as an asset, and the views of the business’s core customers on how their PII should be treated, is an important element of how the company’s officers and directors should go about discharging their fiduciary duties as they strive to maximize shareholder value.
Related ArticlesTaxpayers Beware: The New 3.8% Medicare Tax on Net Investment Income
The Kodak Bankruptcy: Why Intellectual Property Licensees Should Pay Close Attention to Kodak’s Planned Auction Sale
Bankruptcy Court Service of Process Rules Set Traps for the Unwary
Pennsylvania's Alcohol Sale Privatization Debate: What Does It Mean for Retail Beer and Wine Sellers?
Third Circuit Issues Precedential Decision on Deepening Insolvency Cause of Action Under Pennsylvania Law
View All Articles
Related PracticesFinancial Restructuring & Creditors' Rights