• by Wendy Davis , Staff Writer @wendyndavis, September 22, 2011

Starting in 2005, Borders began amassing a database of more than 48 million email addresses of customers who participated in its loyalty program. Now that the company is in bankruptcy, that email database is seen as valuable property by Barnes & Noble, which won an auction to purchase Borders' assets for $13.9 million.

The problem for Barnes & Noble is that Borders originally promised many of the customers in its loyalty program that it wouldn't disclose their personal information without their permission. Borders changed its policy in May of 2008, but collected millions of email addresses and other data before then.

A "consumer privacy ombudsman" recently filed a report with the bankruptcy court in the Southern District of New York, recommending that information about consumers collected prior to May of 2008 shouldn't be turned over to Barnes & Noble without conditions. The ombudsman recommended two options. The first is that Borders obtains consumers' permission to disclose their data; the second is that Barnes & Noble follow Borders' old privacy policy for those consumers.

Barnes & Noble says neither option is feasible. "Requiring Borders to obtain an opt-in consent ... effectively means the information would not be transferred to Barnes & Noble (as it is completely unrealistic to expect customers to affirmatively respond to a request from Borders, a company that has gone out of business)," Barnes & Noble says in a recent court filing. The company also says that having multiple privacy policies would be confusing.

The ombudsman additionally recommended that no information about people's video or DVD purchases -- including not only the titles they bought, but even the genre of movie they purchased -- be turned over to Barnes & Noble because of the federal Video Privacy Protection Act. That law says that movie rental records can't be disclosed without consumers' permission.

Barnes & Noble isn't thrilled by that proposal either. "Barnes & Noble cannot accept the recommended exclusion of genre information and other details," the company says in its court papers. "Neither Borders nor Barnes & Noble have sold videos in genres which may be considered pornographic or particularly sensitive," the retailer adds.

Of course, what's sensitive is a matter of opinion. It's worth noting, however, that Netflix was sued two years ago by a subscriber who feared that disclosure of her movie rental history could reveal that she was a lesbian. Netflix ended up canceling plans to release "anonymized" data about users.

The matter now is in the hands of Bankruptcy Judge Martin Glenn, who reportedly said today he needed more time to sort out the issues.