A nationwide provider of online admissions applications for colleges is defending itself against allegations from a competitor that it misled hundreds of institutions by collecting private information from prospective students and selling it for a profit to other vendors without applicants' consent.

Portland, Ore.-based CollegeNET Inc., a seller of web-based scheduling and admissions services for schools, is accusing one of its largest competitors, Los Angeles-based XAP Corp., of making false representations to colleges and universities, assuring them of the confidentiality of student data collected by XAP on their behalf.

CollegeNET on June 10 filed suit against XAP under the federal Lanham Act, which regulates issues such as false advertising, privacy, and unfair competition. In its complaint, CollegeNET alleged XAP has regularly provided student information--including home addresses and social security numbers--to education loan associations and other for-profit entities without disclosing to the schools that it was doing so, and without obtaining informed consent from the students involved.

XAP denies any wrongdoing. The company says it does get consent from prospective students before distributing such information. CollegeNET, XAP says, is merely using the litigation to undermine the competition.

"This [complaint] absolutely holds no water," said XAP's chief executive officer, Martha Notaras. "We are confident that we are protecting student privacy."

The ensuing battle ultimately could change how personally identifiable student information is collected and distributed for a profit across the internet.

But first, CollegeNET must prove its case in court. That might not be easy, considering the complex nature of most online privacy agreements.

The sites in question involve XAP's family of "Mentor" web sites, online engines built to receive and processes admissions applications on behalf of participating colleges in 26 states. The company now operates 35 web sites overall.

Instead of charging students or universities for what it maintains is a free service, XAP enters into various contracts with state loan agencies and other government lenders to build and maintain the application sites. After prospective students fill out and submit their applications online, they are asked whether they would like to receive additional information about financial aid and other loan programs. If students choose "yes," XAP forwards their information to the lender.

In some cases, the complaint alleges, XAP receives a nominal fee for each profile it provides. Depending on the contract, the company also might receive money up front for developing the site, as well as a portion of any proceeds generated from a referral.

One example involves XAP's "Alabama Mentor" site. Developed through a contract with the Kentucky Higher Education Assistance Authority (KHEAA), a lender that serves students in several different states, the site is intended for students applying for acceptance to college in Alabama. KHEAA reportedly paid XAP $500,000 to build the web site and up to $10 for each student who requests additional information about a loan.