Regulatory—Policy and Best Practices
FTC Report Criticizes Mobile Shopping Applications'
Data-Use Disclosure Practices
On August 1, the Federal Trade Commission ("FTC") issued a report on mobile shopping
applications. In it, the FTC found that such apps often fail to
provide clear explanations of the use of consumer data, consumer
liability, or processes for handling payment-related disputes. The
report includes recommendations to companies that provide mobile
shopping applications to consumers.
FTC Submits Comments to CFPB on Mobile Financial
Services
On September 10, FTC staff issued comments in response to a
request from the Consumer Financial Protection Bureau
("CFPB") for information regarding the use of mobile
financial services by consumers. The staff comments highlight the
risks posed to consumers by mobile financial services and provide
recommendations for industry participants.
Regulatory—International Trade
ITC Identifies Obstacles to Digital Trade
The International Trade Commission's ("ITC") August
report, "Digital Trade in the U.S. and Global
Economies, Part 2," described data localization
requirements as obstacles to digital trade. The Commission found
that 82 percent of large firms and 52 percent of small and
medium-sized enterprises in the communications sector believed such
requirements to be barriers to trade. Data localization and privacy
requirements in China, the EU, and Brazil presented the greatest
obstacles to large firms, while Canada topped the list for small
and medium-sized enterprises.
Regulatory—Financial Services
The American Bankers Association Provides Resources for
Communicating with Customers Regarding Data Breaches
On September 9, the American Bankers Association announced its release of a set of tools for bankers to use in
communicating with customers and the general public about
cybersecurity breaches. The resources include, among other things,
sample news releases and social media posts.
The American Bankers Association Releases Results of Study
on Costs Associated with Target Data Breach
On September 8, the American Bankers Association released the results of its survey of the
impact on banks from the Target consumer data breach. The study found that the average loss per
fraudulently used payment card was $331 for debit cards and $530
for credit cards.
The U.S. Department of Treasury Addresses
Cybersecurity
On September 12, at the National Association of Federal Credit
Union's 2014 Congressional Caucus, the Acting Assistant
Secretary for Financial Institutions delivered remarks encouraging financial
services providers to adopt the National Institute of Standards and
Technology's Cybersecurity Framework for Improving Critical
Infrastructure Cybersecurity ("Cybersecurity Framework")
to help reduce the risk of data breaches.
New York Department of Financial Services Proposes
Regulatory Framework for Virtual Currency Businesses, Including
Cybersecurity Requirements
On July 17, the New York Department of Financial Services released a proposed "BitLicense"
regulatory framework for firms providing virtual currency
services. The regulatory program will require each licensee to
maintain a cybersecurity program. The New York Department of
Financial Services subsequently extended the period for comments on the draft
regulations until October 21.
Government Accountability Office Report Urges Better
Information Security at FDIC
The Government Accountability Office ("GAO") issued a
July 17 report assessing the effectiveness of the
Federal Deposit Insurance Corporation's ("FDIC")
controls designed to protect the confidentiality, integrity, and
availability of the FDIC's financial systems and information.
The report recognized the steps taken by the FDIC to ensure better
information security since a 2013 GAO audit but concluded that
weaknesses in the FDIC's controls still remain.
Regulatory—Health Care
HIPAA One-Year Transition Period for Business Associate
Agreements Expires
On January 17, 2013, the Office for Civil Rights of the U.S.
Department of Health and Human Services ("HHS") issued its final HIPAA regulations, which
included a one-year transition rule relating to a new requirement
that existing business associate agreements must reflect the breach
notification rules in the HITECH Act. Under the transition rule,
business associate agreements that were in effect on or before
January 25, 2013, must be amended on the earlier of (i) the date
that such business associate agreement is renewed or modified on or
after September 23, 2013, or (ii) September 22, 2014.
HHS Inspector General Finds Security Flaws in Testing and
Certification of Electronic Health Records
In August, the Office of Inspector General ("OIG") for
HHS issued a report on the Department's Temporary Program to
test and certify Electronic Health Records ("EHRs") for
use, titled "The Office of the National Coordinator for Health
Information Technology's Oversight of the Testing and
Certification of Electronic Health Records." The OIG found
that the Temporary Program did not ensure adequate security and
protection of electronic patient information. Specifically, the
Program did not ensure that testing and certification bodies
developed procedures to evaluate whether certified EHRs continued
to meet federal standards after certification, nor did it ensure
that the testing and certification bodies developed training
programs to ensure the competency of their own personnel.
NIST and HHS Host Conference on Safeguarding Health
Information and Assurance
On September 23–24, the National Institute of Standards and
Technology ("NIST") and HHS's Office for Civil Rights
hosted a conference on "Safeguarding Health Information: Building
Assurance through HIPAA Security." The conference
presented a number of papers and best practices for HIPAA
compliance and enforcement actions.
FDA Finalizes Guidance on Medical Device
Manufacturers' Practices for Managing Cybersecurity
Risks
On October 1, the Food and Drug Administration ("FDA")
finalized its guidance to medical device manufacturers to encourage
manufacturers to consider possible cybersecurity risks when
designing medical devices. The guidance, entitled "Content of Premarket Submissions for Management of
Cybersecurity in Medical Devices," also recommends
manufacturers adopt a plan to manage system or software updates for
such medical devices to reduce information security
vulnerabilities.
FDA Announces Public Workshop and Requests Comments
Regarding Medical Device Cybersecurity
The FDA announced a public workshop entitled
"Collaborative Approaches for Medical Device and Healthcare
Cybersecurity" to be held on October 21 and 22 in Arlington,
Virginia. The purpose of the workshop is to bring together
regulators and stakeholders from across the health care and public
health sectors to discuss medical device cybersecurity risks and
foster industrywide collaboration in the identification and
management of such risks. The FDA is also soliciting electronic or
written comments on all aspects of the public workshop topics,
regardless of attendance at the public workshop. The deadline for
submitting such comments is November 24.
Regulatory—Critical Infrastructure
NIST Calls for Cryptographic Transparency
On July 14, NIST's Visiting Committee on Advanced Technology
issued a report that called for greater
transparency in the development of NIST's cryptographic
algorithms. The report follows public concern that NIST allowed its
algorithms to be weakened to allow the National Security Agency
backdoor access to information.
NIST Issues Updated Guide on Security and Privacy
Controls
On July 31, the NIST issued a draft updated guide on Assessing Security and Privacy Controls in Federal
Information Systems and Organizations under the Federal
Information Security Management Act. The updated guide contains
significant changes to the 2010 version and addresses four
fundamental needs of federal agencies: (i) the need for new or
updated assessment procedures; (ii) the need for a more granular
breakdown of assessment objectives; (iii) the need for a more
structured format and syntax for assessment procedures; and (iv)
the need to support assessments of security and privacy
capabilities and root-cause analysis of failure modes.
NIST Seeks Comments on the Cybersecurity
Framework
On August 26, NIST requested comments on the private
sector's initial experiences with the Cybersecurity
Framework, released on February 12. NIST is seeking information
about the use and awareness of the Cybersecurity Framework by
critical infrastructure entities. NIST will use the comments to
assist with adoption of the Cybersecurity Framework by private
entities and incorporate the comments into future versions.
NIST Hosts Second Privacy Engineering
Workshop
NIST furthered its Privacy Engineering initiative by holding its
Second Privacy Engineering Workshop on
September 15–16. The initiative was developed to provide
guidance to information system users, owners, developers, and
designers that handle personal information.
NIST Releases Revised Guidelines for Smart Grid
Cybersecurity
In September, NIST announced the release of "NIST Interagency Report 7628 Revision 1,
Guidelines for Smart Grid Cybersecurity." The guidelines
promote the implementation by smart grid organizations of effective
cybersecurity strategies that are tailored to each
organization's smart grid-related characteristics, risks, and
vulnerabilities.
DHS Office of Inspector General Recommends More Industry
Involvement in Cybersecurity Efforts
On August 11, the Department of Homeland Security
("DHS") OIG released a report assessing DHS's progress
in implementing the Enhanced Cybersecurity Services
("ECS") program. The voluntary ECS program was designed
to encourage the sharing of classified and unclassified information
related to cybersecurity threats between the private and public
sectors. While the OIG report identified several ECS successes, the
report also made several recommendations for program improvement,
including encouraging DHS to improve program outreach to all
critical infrastructure sectors.
Senator Asks Airline Carriers for Information on Consumer
Data Retention
On August 18, Senator Jay Rockefeller (D-WV), Chairman of the
Senate Committee on Commerce, Science, and Transportation, wrote a letter to executives of 10 airline
carriers requesting information about the airlines'
policies for retaining and protecting consumer data. In the letter,
Senator Rockefeller noted that "[n]o comprehensive federal
privacy law applies to the collection, use, and disclosure of
consumer airline information," despite the fact that air
travel requires carriers to collect an unusually large amount of
personal information. In order to gauge airlines'
responsiveness to consumer privacy concerns, the letter asked each
airline to provide the Committee with a copy of its privacy policy
and to inform the Committee about (i) what consumer data is
retained and for how long, (ii) sources from which consumer data is
obtained, (iii) measures taken to protect consumer data, (iv)
whether consumers have the right to view and correct their
information, and (v) whether and how consumer data is sold to or
shared with third parties.
Regulatory—Consumer Privacy
Retail Groups Back Tokenization to Curb Card
Crime
Several retail industry groups—including the Merchant
Advisory Group, the National Retail Federation, the National
Restaurant Association, and the Retail Industry Leaders
Association—released a statement on July 28 that called on
stakeholders in the payments industry to embrace tokenization
security standards as a means to protect consumers from cybercrime.
Tokenization technology involves the generation of a unique,
one-time-use token for every transaction.
FTC Solicits Comments on New Parental Verification
Method
The FTC invited public comment on a new method for
verifying parental consent under the Children's Online Privacy
Protection Rule, 16 C.F.R. § 312, using a third-party common
consent administrator.
DHS Issues Point-of-Sale Malware Warning
A July 31 DHS Advisory warned retailers and other
companies of a new family of point-of-sale ("PoS")
malware that recently was discovered and has been associated with
several PoS data breach investigations. Using malware called Backoff, attackers have
sought to gain access to company systems using brute force attacks
through remote desktop applications. The attackers then deploy PoS
malware to extract consumer payment data. The DHS Advisory includes
mitigation and prevention strategies to address the threat from the
Backoff malware.
Credit Union Industry Group Asks Congress to Enact
National Data Security and Breach Notification Legislation for
Retailers
On September 3, the National Association of Federal Credit Unions
("NAFCU") renewed its request to Congress to pass
national data security and breach notification legislation in the
wake of a recent data breach at a major retailer. The NAFCU's
statement described the chilling effect data breaches can have on
consumer activity and urged Congress to adopt a national data
security standard for retailers, noting that credit unions and
banks are already subject to such standards under the
Gramm-Leach-Bliley Act.
Regulatory—Drones
Executive Order Expected on Drone Privacy
Guidelines
Media outlets are reporting that President Obama plans to issue an
executive order assigning responsibility to the National
Telecommunications and Information Administration
("NTIA") for developing privacy guidelines related to the
commercial use of unmanned aircraft, or commercial drones. The
order is expected to direct the NTIA to facilitate a
multistakeholder process for drafting a voluntary code of conduct
that would establish best practices for the commercial use of
drones, including addressing privacy concerns.
Judicial Rulings and Enforcement
Court Refuses to Sanction FTC in LabMD
Case
On September 5, an administrative law judge denied LabMD's motion for sanctions
against the FTC. LabMD's motion argued that the FTC deserved
sanctions, including dismissal of the Commission's complaint,
because it failed to verify the origin of a key file containing
patients' sensitive health information that was allegedly
discovered on a peer-to-peer sharing network.
District Court Refuses to Dismiss Breach Case on Standing
Grounds
In a decision diverging from the national trend, the Northern
District of California held that users of software whose personal
information was compromised in a data breach alleged an imminent
threat of future harm sufficient to demonstrate standing. Many
courts have interpreted the United States Supreme Court's
recent decision in Clapper v. Amnesty Int'l USA, 133 S. Ct.
1138 (2013) as holding that an allegation of a possible future
injury is insufficient for purposes of Article III standing, but
the California court rejected that interpretation of the case. The
court held instead that the consumers' allegations that hackers
used the defendant's systems to decrypt credit card numbers and
that some of the stolen data had been posted online constituted a
sufficiently concrete and imminent threat of harm to satisfy
Clapper. [A copy of the opinion can be provided upon
request.]
Court Dismisses Neiman Marcus Class-Action Lack of
Standing
A district court in Illinois granted Neiman Marcus's motion to
dismiss a class-action lawsuit alleging the company was negligent
in failing to protect consumer credit card information. The court
held that the consumers did not have standing to bring the suit
because they could not demonstrate concrete injury. The court
explained that consumers would be reimbursed for any unauthorized
credit card charges and could not show precise costs spent
mitigating the risk of future fraudulent charges and identity
theft, and that the loss of control over consumers' personal
information was insufficiently concrete to confer standing.
Eleventh Circuit Will Hear Arguments in LabMD's FTC
Challenge
On August 20, the Eleventh Circuit announced that it will hear
oral arguments in LabMD's appeal of a district court's
decision that the court could not interfere with the FTC's
ongoing administrative enforcement actions against the company. A
date for oral argument has not yet been set.
Senator Schumer Asks FTC To Investigate Mobile Fitness
Devices
Senator Charles Schumer (D-NY) urged the FTC to investigate
whether the makers of mobile fitness trackers are engaging in
unfair and deceptive trade practices if they sell personal data to
third parties without disclosing such transactions to consumers.
His August 11 letter also asked the FTC to
consider whether consumers should be given the chance to opt out of
the sale of their personal data before they begin using the devices
and applications.
FTC Approves Settlement with Companies Over Mobile Phone
Applications
On August 13, the FTC approved final orders settling charges against two
leading companies concerning mobile application security. The FTC
alleged that by disabling SSL certificate verification and other
things, the companies failed to adequately protect consumers'
sensitive personal information, including credit card information
and Social Security numbers, leaving them vulnerable to
interception.
FTC Obtains Settlements in Two Suits Alleging Unlawful
Collection of Children's Information
The FTC announced settlements in two cases in which it alleged
that the companies' collection of children's personal
information violated the Children's Online Privacy Protection
Act. One company has agreed to pay $450,000 to
settle charges that its mobile application failed to implement an
effective age-screen, allowed customer registration by children
under 13, and collected personal information including customer
names and email addresses. The second company agreed to pay a $300,000
civil penalty to settle charges that its application targeted
children, collected email addresses, and failed to follow the steps
required under the Rule related to the collection of children's
personal information.
FTC Announces Proposed Settlement in Children's In-App
Purchase Case
The FTC announced a proposed settlement in a case in
which it accused a company of violating Section 5 of the FTC Act,
15 U.S.C. § 45, by billing customers for in-app purchases
without ensuring account-holder authorization for the charges. The
proposed settlement requires the company to provide at least $19
million in refunds to consumers, change its billing practices to
obtain express consent before billing, provide consumers an
opportunity to withdraw consent for future charges, and contact all
consumers who made an in-app charge to inform them of the refund
process.
Complaint Alleges Noncompliance with Safe Harbor
Framework
The Center for Digital Democracy ("CDD") has filed complaints with the FTC for alleged
noncompliance with the U.S.–EU Safe Harbor Framework by
various U.S. companies. The CDD's actions may lead to increased
enforcement by the FTC. In June, the FTC announced that it has approved final orders
settling charges against 14 companies for falsely claiming to
participate in the U.S.–EU Safe Harbor Framework. Generally,
the Safe Harbor Framework is under review, and the European Union
has made recommendations to improve it.
SEC Charges a Bank's Business Unit for Failing to
Protect Confidential Trading Data of Subscribers
On July 25, the business unit of a large bank operating an
alternative trading system ("ATS"), agreed to pay $5 million to settle the SEC's
charges for violating sections of Rule 301 of Regulation ATS.
The regulation establishes safeguards for protecting the
confidential trading information of subscribers. The unit was
alleged to have violated the regulation by allowing a technology
affiliate to access and use the confidential trading information of
subscribers without their consent and without disclosing the
practice in its regulatory filings.
Verizon Settles with FCC Over Notice and
Consent
On September 3, the FCC announced its settlement with Verizon following an
investigation into potential violations of the FCC's privacy
rules. The settlement represents the largest payment for an FCC
case based solely on privacy.
State Attorneys General Respond to Home Depot Data
Breach
In the wake of the data breach at Home Depot, attorneys general
for Pennsylvania, Illinois, and others are investigating and
advising victims on how to secure their personal information.
Legislative—Federal
U.S. House of Representatives Passes Cybersecurity
Bills
On July 28, the United States House of Representative passed four
bills regarding cybersecurity. The National Cybersecurity and
Critical Infrastructure Protection Act (H.R. 3696) would codify the responsibilities
of DHS and foster collaboration between DHS and the private sector
to improve critical infrastructure protection and incident
response. The Critical Infrastructure Research and Development
Advancement Act of 2014 (H.R. 2952) assigns responsibility to DHS for
creating a new cybersecurity technology research and development
plan. The House also passed bills that would improve DHS's
ability to hire talented cybersecurity personnel (H.R. 3107) and require federal government
websites to obtain certification before initiating a process that
collects personal information (H.R. 3635). The bills must be approved by the
Senate and President Obama before becoming law.
DHS Secretary Calls for Cybersecurity
Legislation
On September 9, The Hill published an editorial by the Secretary of DHS
that urged Congress to pass cybersecurity legislation, stating that
"DHS has reached a point that requires the help of
Congress" and noting that "some private companies can and
do resist sharing information with DHS about cyber attacks on their
systems, for fear of potential liability."
Legislative—States
California Enacts Amendments to Breach Notification
Law
California bill A.B. 1710 was approved by lawmakers in August
and signed into law by Governor Brown on September 30. Set to take
effect on January 1, 2015, the bill extends data security
requirements to businesses that "maintain" personal
information and prohibits entities from selling, offering for sale,
or advertising an individual's Social Security number. Please
refer to the Jones Day Commentary, "California Adds More Teeth to Its Data Breach
Notification Law," for more information.
Canada
Canada Claims China Responsible for National Research
Council Cyberattack
On July 29, Canada announced that it believed the National
Research Council ("NRC"), Canada's research and
technology organization, was the victim of a Chinese
state-sponsored cyber intrusion. The Canadian government confirmed
that the NRC's networks do not operate within the broader
network of the federal government and there was no evidence of a
broader data compromise.
GPEN Publishes Results of Online Sweep on Compliance of
Mobile Applications with Data Protection Framework
The Global Privacy Enforcement Network ("GPEN"), a
gathering of 27 data protection authorities worldwide, recently examined more than 1,200 mobile apps,
both paid and free of charge, and public and commercial, in
categories such as leisure, health, physical exercise, and bank
transactions. The analysis determined that (i) only 15 percent of
the apps examined provided clear information to users as to how
their personal data was to be collected, used, and disclosed, (ii)
nearly a third of the apps analyzed requested excessive permission
regarding their functions, and (iii) in 59 percent of the apps, it
was not easy for the participants to find information relating to
privacy before installation.
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