On May 12, 2011, the Federal Trade Commission announced that the operators of 20 online virtual worlds have agreed to pay $3 million to settle charges that they violated the Children’s Online Privacy Protection (COPPA) Rule by collecting and disclosing personal information from hundreds of thousands of children under age 13 without their parents’ prior consent. The FTC noted that this settlement is the largest civil penalty for a violation of the FTC’s COPPA Rule.

The FTC’s COPPA Rule requires that website operators notify parents and obtain their consent before they collect, use or disclose children’s personal information. The Rule also requires that website operators post a privacy policy that is clear, understandable and complete. The FTC alleged that Playdom, Inc., a leading developer of online multi-player games, and a company executive, Howard Marks, failed to meet these requirements in violation of the Rule.

Specifically, the FTC alleged that Playdom and Marks operated 20 virtual world websites where users could access online games and other activities, including 2 Moons, 9 Dragons and My Diva Doll. The FTC alleged that at least one of these virtual worlds, Pony Stars, was a website specifically directed to children. According to the FTC, the company’s other sites intended for a general audience also attracted a significant number of children. The FTC alleged that between 2006 and 2010, approximately 403,000 children registered on the defendants’ general audience sites, and 821,000 more users registered in the Pony Stars children’s site.

The FTC complaint alleges that the sites collected children’s information, including ages and email addresses, during registration and then enabled children to publicly post their full names, email addresses, instant messenger IDs, geographic location and other information on personal profile pages and in online community forums. The FTC charged that the sites' failure to provide proper notice of these practices or obtain parents’ prior verifiable consent before collecting or disclosing children’s personal information violated the COPPA Rule.

The FTC further alleged that Playdom and Marks engaged in deceptive or unfair trade practices in violation of Section 5 of the FTC Act because the sites' privacy policies misrepresented that the sites would prohibit children under 13 from posting personal information online.

In addition to the $3 million civil penalty, the settlement order permanently bars Playdom and Marks from violating the COPPA Rule and from misrepresenting their information practices regarding children.

Takeway

The FTC continues privacy enforcement onslaught and gets serious about COPPA. Expect more to come; the FTC announced on May 10, 2011 that it has mobile privacy enforcement settlements in the pipeline.