Earlier this year, an affiliate of the hedge fund Standard General LP assumed more than 1,700 RadioShack® store leases in an auction sale in the electronics retailer’s bankruptcy. Standard General reportedly plans to partner with Sprint® to open stores within more than 1,400 of these RadioShack locations. Sprint branded mobile devices, including Boost® and Virgin Mobile®, will be sold by Sprint employees in the Sprint stores within the RadioShack stores. The storefronts and promotional materials will bear the Sprint brand, but the locations will also carry some other historical RadioShack products, services and accessories.

In addition to its store leases, RadioShack’s assets included its name and other IP assets, as well as a substantial amount of personal information collected from millions of consumers prior to the bankruptcy. This personal information includes names, addresses, telephone numbers, email addresses, and records of purchased items. In a second bankruptcy court auction, which was approved by the bankruptcy court on May 29, Standard General paid $26.2 million for these assets.

Yesterday, the bankruptcy court approved the sale over the objections of several parties, including the Federal Trade Commission (FTC) and third party manufacturers Apple and AT&T who sold products to the bankrupt retailers. The approval also came after RadioShack successfully negotiated a settlement with several state attorneys general to limit the buyer Standard General’s access to (i) RadioShack customer email to the last two years, and (ii) other RadioShack customer information to only 7 of 170 fields of data collected by RadioShack.

The FTC’s objection was made to the court-appointed consumer privacy ombudsman in the RadioShack bankruptcy. Specifically, the FTC’s letter alleged the sale of personal information constitutes a deceptive practice because in its privacy policy, RadioShack promised never to share the customer’s personal information with third parties. In its letter to the RadioShack ombudsman, the FTC requested that the Toysmart case precedent be followed to (i) prohibit the sale of personal customer information as a standalone asset; (ii) restrict any sale of such information only to a third party who is in the same business as RadioShack, and who agrees to be bound by and follow the terms of RadioShack’s privacy policies as to the acquired information and (iii) to obtain affirmative consent from consumers for any material changes to the applicable privacy policy. Alternatively, the FTC stated that the debtor could seek its customers’ affirmative consent to the transfer of data, and the information could be purged if customers did not grant consent.

In addition to the objections by the FTC and state attorneys, the RadioShack bankruptcy court heard but rejected separate objections by wireless carrier AT&T and device maker Apple. The companies claimed that they, and not RadioShack, owned and therefore controlled the personal consumer information collected from sales of their respective products at RadioShack. In the case of AT&T, if a consumer purchased an AT&T product at RadioShack, AT&T claimed ownership of that consumer’s personal information (not simply the transaction information) and wanted it withheld from the sale to Standard General. Similarly, in Apple’s motion, Apple claimed its reseller agreement with RadioShack provided that it owned all information it collected from its end users, including their identity. As such, Apple claimed ownership of the personal information related to any purchase of an Apple product at RadioShack and requested it be withheld from any sale. AT&T and Apple both expressed concern about protecting consumers’ privacy in their motions. Neither address whether RadioShack’s privacy policy adequately disclosed to RadioShack consumers that their personal information collected as part of the purchase of certain products at RadioShack would be owned and controlled by third party manufacturers, such as AT&T or Apple. Additionally, the fact that Sprint, a competitor of Apple and AT&T, is partnering with the potential acquirer of the personal information was likely a factor in Apple and AT&T challenging the transfer.

RadioShack claimed segregating this customer information was not done initially and therefore would be difficult if not impossible to do now. The RadioShack court ultimately approved the sale, and ruled against the FTC, AT&T, Apple and RadioShack customers.

See In re RadioShack Case No. 15-10197 (BLS).