In this module you will study a real world ethical problem, the Toysmart case, and employ frameworks based on the software development cycle to (1) specify ethical and technical problems, (2) generate solutions that integrate ethical value, (3) test these solutions, and (4) implement them over situation-based constraints. This module will provide you with an opportunity to practice integrating ethical considerations into real world decision-making and problem-solving in business and computing. This whole approach is based on an analogy between ethics and design (Whitbeck).
Large real world cases like Toysmart pivot around crucial decision points. You will take on the role of one of the participants in the Toysmart case and problem-solve in teams from one of three decision points. Problem-solving in the real world requires perseverance, moral creativity, moral imagination, and reasonableness; one appropriates these skills through practice in different contexts. Designing and implementing solutions requires identifying conflicting values and interests, balancing them in creative and dynamic solutions, overcoming technical limits, and responding creatively to real world constraints.
Each decision point requires that you take up the position of a participant in the case and work through decision-making frameworks from his or her perspective. You may be tempted to back out and adopt an evaluative posture from which to judge the participants. Resist this temptation. This module is specifically designed to give you practice in making real world decisions. These skills emerge when you role play from one of the standpoints within the case. You will learn that decision-making requires taking stock of one’s situation from within a clearly defined standpoint and then accepting responsibility for what arises from within that standpoint.
Cases such as Toysmart are challenging because of the large amount of information gathering and sorting they require. Moral imagination responds to this challenge by providing different framings that help to filter out irrelevant data and structure what remains. Framing plays a central role in problem specification. For example, Toysmart could be framed as the need to develop more effective software to help negotiate the exchange of information online. In this case, a software programming expert would be brought in to improve P3P programs. Or it could be framed as a legal problem that requires ammending the Bankruptcy Code. What is important at this stage is that you and your group experiment with multiple framings of the case around your decision point. This makes it possible to open up avenues of solution that would not be possible under one framing.
Tackling large cases in small teams also helps develop the communication and collaboration skills that are required for group work. Take time to develop strategies for dividing the work load among your team members. The trick is to distribute equally but, at the same time, to assign tasks according the different abilities of your team members. Some individuals are better at research while others excell in interviewing or writing. Also, make sure to set aside time when you finish for integrating your work with that of your teammates. Start by quickly reviewing the information available on the case. This is called “scoping the case.” Then formulate specific questions to focus further research on information relevant to your problem solving efforts. This includes information pertinent to constructing a socio-technical analysis, identifying key “embedded” ethical issues, and uncovering existing best and worst practices.
A case narrative, STS (socio-technical system) description, and two ethical reflections have been published at http://computingcases.org. This module also links to websites on bankruptcy and privacy law, the Model Business Corporation Act, consumer privacy information, and the TRUSTe website.
Toysmart Narrative
Toysmart was a Disney-supported company that sold educational toys online from December 1998 to May 2000. After disappointing Christmas sales in 1999, Disney withdrew its financial support. The greatly weakened dot-com company lasted less than a year after this. On May 22, 2000, Toysmart announced that it was closing down and brought in a consulting firm, The Recovery Group, to evaluate its assets, including a customer data base of 260,000 profiles, each worth up to $500.
Fierce opposition emerged when Toysmart placed ads in the Wall Street Journal and the Boston Globe to sell this data base. Customer interest groups pointed out that Toysmart had promised not to share customer information with third parties. Toysmart also prominently displayed the TRUSTe seal which testified further to the company's obligations to respect customer privacy and security. Selling this data to third parties would break Toysmart promises, violate TRUSTe policies, and undermine consumer confidence in the security and privacy of online transactions. Toysmart's obligations to its customers came into direct conflict with its financial obligations to its investors and creditors.
TRUSTe reported Toysmart's intention to sell its data base to the FTC (Federal Trade Commission) who on July 10, 2000 filed a complaint "seeking injunctive and declaratory relief to prevent the sale of confidential, personal customer information" (FTC article) Toysmart's promise never to share customer PII with third parties provided the legal foundation for this complaint. According to the FTC, Toysmart "violated Section 5 of the FTC Act by misrepresenting to customers that personal information would never be shared with third parties, then disclosing, selling, or offering that information for sale." Finally, because it collected data from children under 13 who entered various contests offered on its website, Toysmart was also cited for violating the Children's Online Privacy Protection Act or COPPA.
The FTC reached a settlement with Toysmart. The bankrupt dot-com must "file an order in the bankruptcy court prohibiting the sale of its customer data as a 'stand-alone asset'. In other words, the rights bundled in the liquidation and sale of Toysmart did not include the liberty of buyers to dispose of the asset in whatever way they saw fit. According to the negotiated settlement, buyers were bound by the commitments and promises of the original owners. Toysmart creditors "can sell electronic assets only if the purchasing company abided by the same privacy policy." In essence, the FTC asked Toysmart creditors to honor the spirit, if not the letter, of Toysmart's original promise to its customers not to sell their PII to third parties. Creditors now had to guarantee that (1) the buyer had the same basic values as Toysmart (for example, a commitment to selling quality, educational toys), (2) the buyer use the data in the same way that Toysmart had promised to use it when collecting it, and (3) the buyer would not transfer the information to third parties without customer consent. In this way, the settlement proposed to protect Toysmart customer privacy interests while allowing creditors to recover their losses through the sale of the bankrupt company's "crown jewel", its customer data base.
On August 17, 2000, the Federal Bankruptcy Court declined to accept the Toysmart-FTC settlement. Instead, they argued that Toysmart and the FTC should wait to see if any parties willing to buy the data base would come forward. The Bankruptcy Court felt that potential buyers would be scared off by the FTC suit and the pre-existing obligations created by Toysmart promises and TRUSTe standards. Should a buyer come forth, then they would evaluate the buyer's offer in terms of the FTC-Toysmart settlement designed to honor the privacy and security commitments made to Toysmart customers.
A final settlement was reached on January 10, 2001. When a buyer did not come forward, Buena Vista Toy Company, a Disney Internet subsidiary who was also a major Toysmart creditor, agreed to buy the data base for $50,000 with the understanding that it would be immediately destroyed. The data base was then deleted and affidavits were provided to this effect.
Toysmart Chronology
| 1997 | David Lord, former college football player, come to work for Holt Education Outlet in Waltham, Mass. |
| December 1998 | Lord and Stan Fung (Zero Stage Capital) buy Holt Education Outlet and rename it "Toysmart." (Lorek) Toysmart focuses on providing customers with access to 75,000 toys through online catalogue. (Nashelsky). |
| August 1999 | Toysmart turns down a 25 million offer from an investment firm. Accepts Disney offer of 20 million in cash and 25 million in advertising, |
| September 1999 | Toysmart post privacy policy which promises not to release information collected on customers to third parties. At about this time, Toysmart receives permission from TRUSTe to display its seal certifying thatToysmart has adopted TRUSTe procedures for protecting privacy and maintaining information security. |
| Christmas 1999 | After disappointing Christmas toy sales, Disney withdraws its support from Toysmart. |
| April 2000 | COPPA goes into effect. (Childhood Online Privacy Protection Act) Prohibits soliciting information from children under 13 without parental consent. |
| June 2000 (approximately) | Toysmart erases 1500 to 2000 customer profiles from data base to comply with COPPA (information collected after law went into effect) |
| May 22, 2000 | Toysmart announces that it is closing its operations and selling its assets. Its initial intention is to reorganize and start over. |
| June 9, 2000 | Toysmart creditors file an involuntary bankruptcy petition rejecting Toysmart proposal to reorganize. They petition the U.S. Trustee to form a Creditors Committee to oversee the liquidation of Toysmart assets. |
| June 23, 2000 | Toysmart consents to involuntary bankruptcy petition. Files Chapter 11 bankruptcy. It rejects reorganization and works with lawyers and the Recovery Group to liquidate its assets. |
| June 2000 | Recovery Group analyzes Toysmart assets and identifies its customer information data base as one of its most valuable assets (a "crown jewel") |
| June 9, 2000 | Disney subsidiary, acting as Toysmart creditor, places ads in Wall Street Journal and Boston Globe offer Toysmart customer data base for sale. |
| After June 9, 2000 | TRUSTe discovers Toysmart ad. Informs FTC (Federal Trade Commission) that selling of customer data base to third parties violates TRUSTe guidelines and violates Toysmart's promises to customers(13,2) |
| July 10, 2000 | FTC files complaint against Toysmart "seeking injunctive and declaratory relief to prevent the sale of confidential, personal customer information." District attorneys of 41 states also participate in complaint against Toysmart. |
| July 27, 2000 | Hearing by U.S. Bankruptcy Court on Toysmart case. Includes Toysmart proposal to sell customer data base. |
| Late July 2000 | FTC and Toysmart reach settlement. Toysmart can only sell customer information to a third part who shares Toysmart values and agrees to carry out same privacy policy as Toysmart. |
| Late July 2000 | Federal bankruptcy court rejects FTC and Toysmart settlement. Suggests waiting to see if a buyer comes forth. |
| January 10, 2001 | Walt Disney Internet subsidiary (Buena Vista Toy Company?) pays Toysmart $50,000 for its data base. Toysmart then destroys the data base and provides confirming affidavit.(18,2) |
Insert paragraph text here.
Supporting Documents and Tables
| Creditor | Description | Debt | Impact |
| Zero Stage Capital | Venture Capital Firm | 4 million | |
| Citibank | 4 million | ||
| Arnold Communications | 2.5 million | ||
| Children's Television Workshop | 1.3 million | ||
| Data Connections | Set up high speed cable and fiber optics for Toysmart | 85,000 | Data Connections took out loan to keep solvent |
| Integrated Handling Concepts | Set up packaging and handling system for Toysmart | 40,000 | Requires dot-coms to pay up front after Toysmart experience |
| Blackstone | Software business | 45,000 | "It puts us in jeopardy as well" |
| PAN Communications | "Public relations agency specializing in e-business" | 171,390 | Turns down deals with dot-com companies and requires up-front payments |
Insert paragraph text here.
Intermediate Moral Concept: Informed Consent
Concept and Definition
- Informed Consent: The risk bearer consents to taking on the risk on the basis of a complete understanding of its nature and breadth.
- Belmont Report: "subjects, to the degree that they are capable, be given the opportunity to choose what shall or shall not happen to them."
- "This opportunity is provided when adequate standards for informed consent are satisfied."
- Quotes take from Belmont Report
Arguments for Free and Informed Consent as a Moral Right
- Free and informed consent is essential for the exercise of moral autonomy. Absence implies force, fraud, or manipulation all of which block the exercise of moral autonomy.
- The standard threat occurs when crucial risk information is not communicated to risk taker. This could be because the risk taker cannot appreciate the risk, because the mode of communication is inadequate, or because the information has been covered up. Given this standard threat, free and informed consent is vulnerable; it must be protected.
- Informed consent must be shaped around its feasibility, that is, the ability of the duty holder to recognize and respect this right in others. If private individuals exercise their right as a veto, then they can block socially beneficial projects. There are also serious problems concerning children, mentally challenged adults, and future generations. Finally, it may not be possible or feasible to know all risks in advance.
Conditions for Recognizing and Respecting Right
- From Belmont Report
- Information: research procedure, their purposes, risks and anticipated benefits, alternative procedures (where therapy is involved), and a statement offering the subject the opportunity to ask questions and to withdraw at any time from the research.
- Comprehension: manner and context in which information is conveyed is as important as the information itself.
- Voluntariness: an agreement to participate in research constitutes a valid consent only if voluntarily given. This element of informed consent requires conditions free of coercion and undue influence.
Other Legal and Moral Frameworks
- Institutional Research Boards or IRBs now require documentation of informed consent on research projects carried out under the university's auspicies. This is in response to requirements by granting agencies such as the National Institute for Health and the National Science Foundation.
- Consenting to the transfer of PII (personal identifying information) online:opt-in and opt-out.
- Opt-in: Information is transferred only upon obtaining express consent. Default is not transferring information.
- Opt-in: Information transfer is halted only when person to whom information applies does something positive, i.e., refuses to consent to transfer. Default is on transferring the information.
- Liability Rules and Property Rules: These also have to do with consent. Sagoff makes this distinction with reference to activities that have an impact on the environment. an injunction referring to liability rules stops the activity to protect the individual who proves impact. Property rules require only that the producer of the environmental impact compensate the one who suffers the impact.
Cases Employing Informed Consent
- Therac-25: Patients receiving radiation therapy should be made aware of the risks involved with treatment by the machine. Free and informed consent is involved when shutting down the machines to investigate accident reports or continuing operating the machines while investigating accident reports. In both cases, it is necessary, under this right, to let patients know what is going on and their risks.
- Toysmart Case: Toysmart creditors are about to violate Toysmart's promise not to transfer customer information profiles to third parties. This transfer can occur, morally, but only with the express consent of the customers who have provided the information. The devil is in the details. Do opt-in or opt-out procedures best recognize and respect free and informed consent in this case?
- Hughes Case: Hughes customers want their chips right away and are pressuring Saia and crowd to deliver them. Would they consent to renegotiating the conditions under which environmental tests can be skipped?







Children Online Privacy Protection Act
Model Business Corporation Act (Revised)
Computing Cases Website


