Online Auction Site Settles FTC Privacy Charges

Online auction house ReverseAuction.com, Inc. has agreed to settle Federal Trade Commission charges that it violated consumers' privacy by harvesting consumers' personal information from a competitor's site and then sending deceptive spam to those consumers soliciting their business. Settlement of the FTC charges bars ReverseAuction from engaging in such unlawful practices in the future. It also requires ReverseAuction to delete the personal information of consumers who received the spam but declined to register with ReverseAuction; and to give those who did register, as a result of the spam, notice of the FTC charges and an opportunity to cancel their registration and have their personal information deleted from ReverseAuction's database.

According to the FTC complaint detailing the charges, ReverseAuction is an online site that features "Declining Price" and "Wanted" auctions. In the process of marketing and promoting its new site, ReverseAuction registered with eBay, a competitor site, and agreed to comply with eBay's User Agreement and Privacy Policy. The agreement and policy protect consumers' privacy by prohibiting users from gathering and using personal identifying information, such as eBay users' personal e-mail addresses, for unauthorized purposes, including the purpose of sending spam.

After agreeing to comply with the User Agreement and Privacy Policy, ReverseAuction harvested eBay users' personally identifying information and used the data to spam eBay members with a message promoting its own online auction site, according to the complaint. The message contained a deceptive subject line informing the eBay user that his or her eBay user ID "will EXPIRE soon." According to the complaint, many consumers concluded that the eBay user ID and other information had been provided to ReverseAuction, or authorized, by eBay. The complaint alleges that violation of the eBay User Agreement and Privacy Policy, sending the deceptive spam, and representing that eBay authorized the mailing are deceptive or unfair acts that violate federal law.

"The FTC takes consumers' online privacy seriously and will act quickly against those who violate privacy policies and other commitments designed to protect consumers' privacy," said Robert Pitofsky, Chairman of the FTC. "Confidence that privacy will be protected is an important element in consumers' decisions where to shop on the Internet. Self-regulatory efforts by e-businesses to protect their customers' privacy should be encouraged. But beyond self-regulation, those who violate consumers' privacy should be promptly called to task. Consumers should have confidence that their privacy choices will be protected."

Settlement of the FTC charges bars ReverseAuction from making the misrepresentations in the future. In addition, it requires ReverseAuction to provide notice to consumers who, as a result of receiving ReverseAuction's spam, registered or will register with ReverseAuction. The notice informs these consumers that their eBay user IDs were not about to expire on eBay, and that eBay did not know of, or authorize, ReverseAuction's dissemination of the spam. The notice also provides these consumers the opportunity to cancel registration with ReverseAuction and have their personal identifying information deleted from ReverseAuction's database. In addition, the order requires ReverseAuction to delete, and refrain from using or disclosing, the personal identifying information of eBay members who received ReverseAuction's spam but who have not registered with ReverseAuction. Finally, the settlement requires ReverseAuction to disclose its own privacy policy on its Internet site, and contains record keeping provisions to allow the FTC to monitor compliance.

The Commission vote to accept the proposed consent settlement was 5-0, with Commissioner Mozelle Thompson issuing a separate statement and Commissioners Orson Swindle and Thomas B. Leary concurring in part and dissenting in part and issuing a joint statement.

In their joint statement, Commissioners Swindle and Leary wrote:

"We join our colleagues in support of the deception theory in Count I. . . . [O]ur decision to challenge ReverseAuction's deception is an effort to buttress, not supplant or detract from, initiatives of private parties (like eBay) who develop and implement their own privacy arrangements. We further believe that it is in the public interest for the Commission to pursue the deception allegation in Count One because such deceptive conduct undermines consumer confidence in the nascent electronic marketplace at a critical point in time and may thereby inhibit its development.

"We do not, however, support the unfairness theory in Count One. The Commission has no authority to declare an act or practice unfair unless it 'causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.' 15 U.S.C. § 45(n) (emphasis added). . . .

"We do not say that privacy concerns can never support an unfairness claim. In this case, however, ReverseAuction's use of eBay members' information to send them e-mail did not cause substantial enough injury to meet the statutory standard. . . .

"The injury in this case was caused by deception: that is, by ReverseAuction's failure to honor its express commitments. It is not necessary or appropriate to plead a less precise theory.

" . . . The unfairness theory . . . posits substantial injury stemming from ReverseAuction's use of information readily available to millions of eBay members to send commercial e-mail. This standard for substantial injury overstates the appropriate level of government-enforced privacy protection on the Internet, and provides no rationale for when unsolicited commercial e-mail is unfair and when it is not."

In his separate statement, Commissioner Thompson wrote,

"I believe that ReverseAuction's behavior caused substantial injury to members of the eBay community, that the injury could not have been avoided by those members, and it was not outweighed by countervailing benefits. I believe the harm caused in this case is especially significant because it not only breached the privacy expectation of each and every eBay member, it also undermined consumer confidence in eBay and diminishes the electronic marketplace for all its participants. This injury is exacerbated because consumer concern about privacy and confidence in the electronic marketplace are such critical issues at this time.

"In voting for an alternative pleading, the Commission does not here declare that sending unsolicited commercial e-mail ('spamming') is unfair in all circumstances, nor does it suggest that privacy invasions cause substantial injury in all circumstances. Instead, the Commission posits that, under the facts presented here, it is unfair for ReverseAuction to improperly obtain personal information for its use. . . [T]he injury caused by ReverseAuction's conduct, far from being speculative, is a tangible misappropriation of personal protected information that enabled the company to send personalized deceptive e-mail messages to scores of consumers. In its statement on Touch Tone, a majority of the Commission recognized that, 'Section 5 of the FTC Act deliberately incorporates a flexible standard, so that the Commission may react to changes in the marketplace.' For these reasons, I believe this action is not an overly expansive view of the unfairness doctrine, but instead represents a reasoned and tailored response to the circumstances presented."

NOTE: A stipulated consent agreement and final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Stipulated consent agreements and final orders have the force of law when signed by the judge.

The proposed stipulated consent agreement was filed today in U. S. District Court for the District of Columbia. It is subject to court approval.

Copies of the complaint and stipulated consent agreement and final order are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll free at 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 002-3046)
(Civil Action No. 000032