Gateway Learning Settles FTC Privacy Charges


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For Release: July 7, 2004

Company Rented Customer Information it Pledged to Keep Private

Gateway Learning Corporation has agreed to settle Federal Trade Commission charges that it violated federal law when it rented consumers’ personal information to target marketers. The FTC alleges that Gateway Learning rented the information contrary to explicit promises made in its privacy policy. The FTC also alleges that, after collecting consumers’ information, Gateway Learning changed its privacy policy to allow it to share the information with third parties without notifying consumers or getting their consent. This is the first FTC case to challenge deceptive and unfair practices in connection with a company’s material change to its privacy policy. The proposed settlement bars Gateway Learning from making deceptive claims about how it will use consumers’ information and from applying material changes in its privacy policy retroactively, without consumers’ consent. It also requires that the company give up $4,600 it earned from renting the data.

Gateway Learning, which markets and sells products under the “Hooked on Phonics” brand name, is based in Santa Ana, California.

“It's simple – if you collect information and promise not to share, you can't share unless the consumer agrees,” said Howard Beales, Director of the FTC’s Bureau of Consumer Protection. “You can change the rules but not after the game has been played.”

Since 2000, Gateway Learning has marketed its “Hooked on Phonics” products on the Internet at www.hop.com. The site’s privacy policy stated, “We do not sell, rent or loan any personally identifiable information regarding our consumers with any third party unless we receive customer’s explicit consent.” Another statement said, “We do not provide any personally identifiable information about children under 13 years of age to any third party for any purpose whatsoever.” The policy also said that if Gateway Learning changed its policy, it would give consumers the chance to “opt-out” of having their information shared.

According to the FTC, in April 2003, despite these promises, Gateway Learning started renting personal information provided by consumers – including their names, addresses, phone numbers, and age ranges and gender of their children – to target marketers to send mailings and make telemarketing calls.

In June 2003, Gateway Learning revised the privacy policy on its Web site to say that “from time to time” Gateway Learning would provide consumers’ personal information to “reputable companies” whose products or services consumers might find of interest, the FTC complaint says. However, according to the FTC, Gateway Learning continued to rent information collected under the earlier policy. The FTC alleges that Gateway Learning did not contact consumers who had already provided their information to say that it had revised its privacy policy, nor did it highlight on its Web site the fact that the privacy policy had changed. On July 1, 2003, Gateway Learning halted its rentals of consumer data collected online.

The FTC charged that: (1) Gateway Learning’s claims that it would not sell, rent, or loan to third parties consumers’ personal information unless it received the consumers’ consent, and that it would never share information about children, were false; (2) Gateway Learning’s retroactive application of a materially changed privacy policy to information it had previously collected from consumers was an unfair practice; and (3) Gateway Learning’s failure to notify consumers of the changes to its privacy policy and practices, as promised in the original policy, was a deceptive practice. The agency charged that the practices violated Section 5 of the FTC Act.

The settlement bars misrepresentations about how Gateway Learning will use data it collects from consumers. It prohibits Gateway Learning from sharing any personal information collected from consumers on its Web site under the earlier privacy policy unless it first obtains express affirmative ("opt-in") consent from consumers, and prohibits it from applying future material changes to its privacy policy retroactively without consumers’ consent. It also requires Gateway Learning to give up $4,608 it earned from renting consumers’ information. The order contains standard record keeping provisions.

The Commission vote to accept the consent agreement was 5-0.

The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through August 6, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-159, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: This consent agreement is for settlement purposes only and does not constitute an admission by the defendant of a law violation.

Copies of the complaint and consent agreement 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. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

MEDIA CONTACT:

Claudia Bourne Farrell
Office of Public Affairs
202-326-2181

STAFF CONTACT:

Laura Mazzarella or Jessica Rich
Division of Financial Practices
202-326-3424 or 202-326-3224

(FTC File No. 042-3047)

(http://www.ftc.gov/opa/2004/07/gateway.htm)