It pains me how little thought and effort most website operators put into the legal documents of their site. This is an area where you want to spend money to both protect yourself and prevent business issues down the line. In this piece, we take a look at how your privacy policy most likely will prevent you from selling the site to a third party.
Selling Your Site
Ask yourself a simple question. What is the exit strategy for your website? Are you going to take it public, try to sell it or just run it until you’ve made so much money you can’t see straight? The actual answer for most website operators is…they haven’t given it much thought.
Practically speaking, most website operators face one of three exit strategies. The first is the site never takes off and is simply abandoned. The second is the site makes enough money the operator just runs it in perpetuity. The third result is the site is sold. It is this last scenario where you can run into real problems with your site documents if you are not careful.
User Email Addresses
Did you have an internet attorney write up your website documents when you started your site? If not, your privacy policy is most likely going to kill any sale of the website to a third party. Why? Open another window and pull up your site. Now click onto the privacy policy and start looking for the clause regarding the sale of user email information. Most will read something like:
“We respect your privacy. We will never sell, rent or disclose your email address to another party.”
This is a quaint notion. It can also be a death blow to any sale of the website. Why? The party buying your site undoubtedly wants all of the assets associated with the website. This includes the user email addresses that you’ve promised not to sell!
Oh, No
Your privacy policy acts as a contract with your users. You are bound by the terms of that policy. The party buying your website understands as much since any remotely sizeable deal will be done with legal counsel handling the transaction. How do you think the purchasing party is going to react when they read you cannot sell the email addresses and personal information of users of the site? Let’s look at a real life example.
Real Life Example
Plenty of Fish is an online dating website. The company recently sought to purchase the dating site known as True.com, which was available thanks to the bankruptcy of its parent company True Beginnings. Plenty of Fish had agreed to pay $700,000 into the bankruptcy estate for all the assets associated with True.com.
The office of the Texas Attorney General took note of the sale and filed an objection to it with the bankruptcy court. The basis of the objection was a clause in the privacy policy of True.com that read:
“True does not sell, trade, or otherwise disclose customer list names, addresses, birth dates, email addresses or other individually identifiable information to unaffiliated third parties without your permission.”
[Read the Objection.]
Look familiar? It probably does because your privacy policy most likely contains something similar.
How did Plenty of Fish react to the objection? In theory, they could have asked True.com to send out an email to all members asking for permission to transfer the user data to Plenty of Fish. How many members do you think would have agreed to such a transfer? Plenty of Fish thought the percentages would be so low that it canceled the deal.
$700,000 Circles The Drain
Imagine if a third party offered you $700,000 for your site and terms in your privacy policy scuttled the transaction. We might have to coin a new term known as “privacy policy rage.” The startling thing, however, is perhaps 95 percent of the websites on the web suffer from this privacy policy defect. Yes, this probably includes your website as well.
Privacy law is evolving at a rapid rate and it is vital website operators stay on top of the changes. Contact me today for a free consultation to find out if your privacy policy is up to snuff or not. After all, you don’t want to lose out on a potential lucrative sale.
Richard A. Chapo, Esq.
@richardachapo
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