Playdom, Inc., an online game company owned by Disney Enterprises, Inc., and Playdom’s Chief Executive Officer, Howard Marks (the “Defendants”), agreed to pay $3 million to settle charges brought by the Federal Trade Commission (“FTC”) that they violated the Children’s Online Privacy Protection Act (“COPPA”) by collecting, using and disclosing the personal information of children under the age of 13 without their parents’ prior, verifiable consent.  According to the FTC’s settlement announcement, the $3 million settlement is the largest civil penalty ever for a COPPA violation.

The FTC’s complaint, filed May 11, 2011, alleged that the Defendants operated 20 “virtual world” gaming websites and that when children registered on the websites, the Defendants collected children’s personal information, like their ages and email addresses. Between 2006 and 2010, around 403,000 children registered for Defendants’ general audience websites, while an additional 821,000 users registered for, the Defendants’ website directed to children. Once registered, children could create their own personal profile pages, which included things like name, location, email address and instant messaging information. The FTC claimed that the Defendants failed to provide sufficient notice on their websites of what information they collected from children and how they used and disclosed such information. The FTC also claimed that the Defendants failed to provide direct notice to the children’s parents of their collection, use and disclosure practices with regard to such information and failed to obtain parents’ verifiable consent to their practices.   

The FTC’s complaint also alleged that the Defendants failed to adhere to the promises set forth in their privacy policy, specifically, that they would neither collect the email addresses of children without parental consent, nor permit children under the age of 13 to post personal information on their websites.

It is worthy to note that Playdom took ownership of the websites when it acquired Acclaim Games, Inc. in May 2010 and Disney subsequently acquired Playdom in August 2010. Although most of the violations occurred when Acclaim Games was operating independently, its acquirers ended up getting stuck with the tab.