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.

CollegeNET’s complaint alleges that nowhere on the site does XAP specify how it intends to distribute this information or that it will be paid for doing so.

Notaras says contact information and other sensitive student data are sent to the lender strictly on an opt-in basis, meaning prospective students must request these solicitations before the company will provide the data. But CollegeNET claims the process is misleading. Even if applicants choose to receive the information, there is no guarantee they know just how much personal information is being distributed, and to whom, said Anton Leof, vice president of business development for CollegeNET.

“We went to several of [XAP’s] web sites and found nowhere where students actually gave their consent for the sale of their data,” he added. “We brought the suit because we believed colleges were being misled.”

Leof accused XAP of using vague language in its privacy policies and said the company is unclear as to its stance on student confidentiality. He also said the mentor sites themselves are misleading, because it’s often not evident whether the sites are official extensions of a state agency, or whether they receive outside funding from some other entity–a bank, perhaps.

Notaras fired back, saying that student confidentiality has always been a priority at XAP and that she is confident her company has done nothing wrong. As long as the applicant opts to receive the information, she said, XAP is within its bounds to distribute the data–even if it does so for a price.

XAP’s chief technology officer, Boris Shimanovsky, wasn’t surprised by the lawsuit. This isn’t the first time CollegeNET has taken the competition to court, he said.

CollegeNET already has a patent infringement lawsuit pending against XAP for allegedly copying part of its online application design. Another online application provider, Apply Yourself Inc., faces a similar complaint. But the only other suit related to data privacy was settled three years ago, Leof said. The competitor, Embark, has since gone out of business.

“This is their way of doing business,” Shimanovsky said, referring to the litigation.

Leof said CollegeNET doesn’t need the courtroom to beat its competitors. The company provides its online application service to more than 630 colleges and universities nationwide, including graduate, undergraduate, and doctoral programs. “What’s the point of having a patent if you can’t defend it?” he said.

Notaras said XAP has yet to receive a single complaint from a student questioning why his or her information was given out–evidence, she claims, that the privacy policies her company uses are explicit enough. She said more than 70 percent of student applicants opt in to receive loan and financial aid information.

A judge has yet to rule on the case, and both parties say the lawsuit is still in the early stages of discovery.

Links:

XAP Corp.
http://www.xap.com

CollegeNET Inc.
http://www.collegenet.com

Alabama Mentor
http://www.alabamamentor.com