VTech Electronics, whose North American operations are based in Arlington Heights, says it did notify parents and the allegations are based on technical provisions of a children's privacy law.
The settlement and preceding data theft incident serve to once again remind developers of the importance of complying with the Children's Online Privacy Protection Act (COPPA) and also ensuring that the security measures protecting personal data are up to snuff. Before using Kid Connect or Planet VTech, parents were required to register and provide personal information including their name, email address as well as their children's name, date of birth and gender.
The company said in a statement that it agreed to the settlement to address issues that were resolved long ago and did not admit any wrongdoing.
VTech gathered a lot of data about children via its Kid Connect app that was bundled in with numerous electronic toys it makes.
The complaint against VTech says the company did not protect data transmissions using HTTPS, and the collected data was not encrypted at rest, either.
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The FTC accused VTech of not taking reasonable steps to protect personal information and failing to clearly inform parents of the child data it collects. "Unfortunately, VTech fell short in both of these areas".
Although children's photos and audio files were stored in encrypted files, the hacker was able to access a database that included the decryption keys that would have permitted access to the pictures and audio files. VTech also collected personal information from children when they used the Kid Connect app. The company sells portable devices known as "electronic learning products" in the United States and around the world, according to the FTC.
As of November 2015, around three million U.S. children were registered with Learning Lodge and 630,000 with Kid Connect, while 130,000 kids had Planet VTech accounts set up, the FTC revealed.
"We are pleased to settle this two-year-old investigation by the FTC", said Allan Wong, chairman and group CEO of VTech Holdings.
The FTC has pursued numerous cases alleging violations of federal privacy law over the years against developers of online games and apps. Last month, EdWeek reported on Facebook launching a new messaging app aimed at children under 13 years old, part of an effort by the tech giant to reach a younger user base.