Amazon Bid to Make an (Expensive) Privacy Point

This column was written by Evan Schuman, the editor of StorefrontBacktalk, a site that tracks retail technology, e-commerce and security issues. Retail Realities appears every Friday. Evan can be reached at E-mail and on Twitter.

North Carolina asked that Amazon turn over to the state the names, addresses and purchase history of all North Carolina residents who purchased anything from Amazon since 2003. Amazon's federal court protest and concerns are legitimate, because such details-in the possession of a government agency-could easily morph into a public records situation. And if such disclosure is permitted, it could be mimicked by many other states, which might discourage people from purchasing products from any larger e-tailers.

That said, there's no small amount of irony that Amazon, which has a well-earned reputation of leveraging every piece of customer information in any way possible to boost sales, is the one making this privacy argument. It's as though Amazon is channeling a classic line from Animal House: "He can't do that to our pledges. Only we can do that to our pledges."

Gosh darn it, if anyone's going to invade the privacy of Amazon customers, it's going to be Amazon.

Fortunately, the Animal House line is not quite Amazon's argument. In court filings, it argues that the North Carolina Department of Revenue "does not need personally identifiable information about Amazon's customers in order to audit Amazon's compliance with state tax laws.

All it needs to know is what items Amazon sold to North Carolina customers and what they paid, and Amazon has already provided that information."
To be fair, North Carolina is being asked to trust Amazon and, in this instance, Amazon does have a strong incentive to recall such information selectively. The act of random spot checks with those state residents might give Amazon an incentive to be more forthcoming.

North Carolina's apparent strategy is that it wants a way to verify-or at least spot check-the information Amazon produces.

That's a fair request, but a judge needs to weigh that against the extreme privacy violations. North Carolina would presumably counter that all material received will be strictly confidential, in the same way its state tax returns gather petabytes of ultra-confidential salary and medical expense information and, presumably, it has never let any of that data leak.

The spot check rationale has a logic flaw, though. Assuming for the moment that Amazon chooses to be dishonest about its filings and underreport revenue from North Carolina, it's logical to assume that instead of underreporting specific customers' transactions (saying that Jane Smith purchased $20 worth of goods when she actually spent $2,000), Amazon-if it wanted to cheat-would probably simply not mention groups of customers while accurately reporting others.

How would North Carolina possibly spot check that? Start calling state residents who are not on any of Amazon's lists, hoping to stumble on someone who shopped there?

A huge number of U.S. states have been trying to see how far-and how creatively-they can push E-Commerce to boost state tax revenue, including California and Colorado. The biggest complaint from retailers is that the state E-Commerce tax rules are inconsistent, changing constantly and, by the way, are quite possibly illegal.

States and Sales Tax

But it's not only states that are pushing back against major e-tailers. Many of the largest physical retailers resent that they have to pay state taxes and yet their virtual rivals don't. Sears, for example, has been among the most vocal. And even Amazon itself has been scared away from some business areas partially because of the tax debate, such as its intent to sell wine. Bookseller Borders even cited state tax issues as one of the key reasons it severed its multi-year relationship with Amazon and launched its own E-Commerce site.

Amazon's filing made the clean argument that it has been cooperative thus far.

North Carolina "is auditing Amazon's compliance with state sales and use tax laws. To date, Amazon has cooperated fully with the audit, providing [North Carolina] with voluminous information about its sales to North Carolina, including, for each transaction: the order ID number; the city, county and Zip code to which the item was shipped; the total price for the transaction; the date of the transaction; and Amazon's standard product code for each item (known as the Amazon Standard Identification Number or ASIN)," Amazon's filing said.

"With these product codes, [North Carolina] is able to immediately find on Amazon's Web site the full description of every product purchased by Amazon's North Carolina customers since 2003-nearly 50 million items in all."
Amazon added a really nice touch by trying to convince some of North Carolina's more powerful residents-celebrities and politicians-that it's in their interest to help out Amazon. Yes, a little implied threat never hurts.

"The identities and expressive choices of these customers have become subject to government scrutiny only because those products were purchased from an out-of-state retailer. [North Carolina's] actions threaten to chill the exercise of customers' expressive choices and to cause Amazon customers not to purchase certain books, music, movies or other expressive material from Amazon that they might otherwise purchase if they did not fear disclosure of those choices to the government," Amazon wrote, and then it moved into the threat:

"This privacy concern is even greater for public figures who have purchased items from Amazon, because their purchase histories may generate significant political or press interest or otherwise be made public."

A little Marlon Brando from his Godfather character: "It would be so unfortunate were anything to accidentally happen to those records. In the To field of an E-mail, sending to 'A federal judge' might sometimes be auto-filled as 'Associated Press.' That Outlook auto-complete can be stupendously dangerous. I'd hate for that to inadvertently happen."

In case the earlier suggestion was too subtle, Amazon's filing gets very specific about what constitutes embarrassing titles. Among the books Amazon's North Carolina customers purchased, according to the filing, are:

• He Had It Coming: How to Outsmart Your Husband and Win Your Divorce, by Stacy Schneider
  
• Outing Yourself: How to Come Out as Lesbian or Gay to Your Family, Friends, and Coworkers, by Michelangelo Signorile

Some of the movies Amazon's North Carolina customers have purchased include:

• Lolita (1962) (DVD) (ASIN B000UJ48VI)
  
• Brokeback Mountain (2005) (DVD) (ASIN B00005JOFQ)
• Fahrenheit 9/11 (2004) (DVD)

"Other Amazon customers have purchased potentially controversial music, including recordings by Eminem such as The Marshall Mathers LP (ASIN B00004T9UF) and The Slim Shady LP (ASIN B00000I5JQ)." Hmmmm. We guess these are titles Amazon considers embarrassing.

Amazon makes its case directly and then repeats the threat to politicians: "These and other books, movies and music could be considered sensitive, personal, controversial or unpopular. Each order of a book, movie, CD or other expressive work potentially reveals an intimate fact about an Amazon customer. Public figures who have purchased expressive works and other items from Amazon have the additional concern that their purchase histories will be scrutinized and used for political purposes, appear in the press or otherwise be made public."

By Evan Schuman
Special to CBSNews.com