Playdom, Inc. Pays $3 Million in FTC COPPA Settlement

Last week, Playdom, Inc., agreed to pay $3 million to settle charges that online virtual worlds it operated violated federal rules designed to protect the safety and privacy of children younger than 13 on the Internet. Playdom, Inc., a developer of online multi-player games, operates twenty virtual world websites where users could access online games such as 2 Moons, 9 Dragons, My Diva Doll and Pony Stars. Pony Stars was a website specifically directed to children, while many of the other websites were intended for a general audience but also attracted a significant number of children. Over the past five years, over 400,000 children registered on the defendants' general audience sites, and 821,000 children registered on the Pony Stars website The a complaint, the FTC alleged that Playdom Inc. illegally collected and disclosed personal information from hundreds of thousands of children under age 13 through these websites without their parents' prior consent, in violation of the FTC's Children's Online Privacy Protection Act (COPPA). In many instances, Playdom, Inc. allegedly allowed children to publicly post information, including their names, emails, and location, on personal profile pages and in online forums. COPPA was originally enacted in 1998 to protect the online privacy of children under the age of 13. The law, which governs online sharing by, and collection of information from, children under age 13, went into effect in 2000. Among its numerous provisions, COPPA requires that operators of websites directed at children obtain parental consent before collecting, using or disclosing personal information from children. COPPA also requires that website operators post a privacy policy that is clear, understandable, and complete. The FTC alleged that Playdom, Inc. failed to meet these requirements. This settlement is the largest civil penalty to date for a violation of the FTC's COPPA Rule and signals that the FTC intends to take an aggressive stance towards this behavior. Jon Liebowitz, Chairman of the Federal Trade Commission, emphasized, "You owe it to parents and their children to provide proper notice and get proper consent. It's the law, it's the right thing to do, and, as today's settlement demonstrates, violating COPPA will not come cheap." The fine comes at the same time as Reps. Joe L. Barton (R-Texas) and Edward J. Markey (D-Mass.) are signaling their intent to introduce a bill to increase online privacy protections for children. Their proposed "Do Not Track Kids Act" would ban companies from using children's personal information for targeted ads and marketing. Not all COPPA violations necessarily result in enforcement action. In a staff letter from March of this year, the FTC closed another COPPA investigation against after the company took prompt action to respond to concerns raised by its online policies, including deleting the personal information of children previously collected, implementing a reasonable means of obtaining verifiable parental consent and revising its privacy policy to reflect changes to its website. Which COPPA violations will result in consent orders and penalties and which will result in a closing letter? Best not to find out, and instead to comply. The FTC has issued guidance documents that are helpful (here and here) and has blogged on COPPA requirements. There are also approved self-regulatory programs that can provide a safe harbor if implemented. It is important to remember that COPPA is not limited to websites directed to children under the age of 13 but also applies if a website operator knowingly collects information from kids; defining actual knowledge can be tricky. – Tiana Russell and Amy Mudge

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