United States: A Year in Review: FTC Data Privacy Actions and its Impacts on 2017 and Beyond

Last Updated: August 19 2017
Article by Stephen R. Chuk

Whether it means taking a prominent role shaping data security for the Internet of Things, or addressing high profile breaches, the FTC has adopted an active position in policing data privacy and security. And, as data becomes increasingly digital in its form and protections, data security is of paramount importance for all types of intelligence—whether financial, medical, or otherwise sensitive.  The Commission's emphasis on these areas has not slowed, even as the composition of the Bureau of Consumer Protection changes under a new administration.  The FTC's actions over the past year reflect that Commission's continued emphasis on data privacy and its recent data privacy settlements have provided companies with a trail of breadcrumbs from which they can extract lessons learned and help avoid potential FTC scrutiny.

The Commission has not adopted a particular "test" for whether they should bring an action. However, they have previously abided by a general standard that its data privacy enforcement actions were part of "an ongoing effort ... to ensure that companies take reasonable and appropriate measures to protect consumers' personal data." Though the FTC's litmus test may seem opaque, its focus has centered on two scenarios representing threats to private data: (1) when a company deceives consumers either through false representations of data security or misappropriations of private data; or (2) when a company fails to properly protect the data from hacking, and risks (or suffers) a breach. [1]

The FTC has taken a preventative approach to policing deceptive statements about privacy, in which companies' advertising presents a false front about the level of security of consumer data. Over the past year, the Commission reached settlements with three different companies—Practice Fusion, Very Incognito Technologies, and Turn, Inc.—in various actions in which the Commission alleged the companies made misrepresentations about data privacy.

Practice Fusion, an electronic health record company, was alleged to have misled customers about the privacy of their online physician reviews. Consumers believed that their reviews would be shared only with their providers, and were apparently unaware that such reviews would be publically posted and attributed to the patient, which led to the "public disclosure of patients' sensitive personal and medical information." Per the terms of its settlement with the FTC, Practice Fusion was required to delete all reviews collected during the time period of the complaint, disclose the fact that they are not protecting the confidentiality of the collected information, and obtain affirmative consent from consumers with conspicuously disclosed facts.

In another action, the Commission alleged that VipVape, a hand-held vaporizer distributor, was accused of deceiving customers by falsely claiming membership in a specific cross-border privacy system (APEC CBPR) that was founded on nine specific data privacy principles, including notice and security safeguards. According to the FTC, VipVape was not and never had been a certified participant in ABEC CBPR.  Then-Chairwoman Edith Ramirez commented on the potential harm to consumers, stating that "Consumers should be able to rely on a company's claim that it is a certified participant in an international program designed to protect their personal information." Under the terms of their settlement, VipVape cannot misrepresent its participation or membership in any privacy/security program that is government sponsored or self-regulating.

Finally, Turn, a digital advertising company, was accused of improperly collecting unique identifiers for millions of wireless customers despite language in its privacy policy that led customers to believe that they could "block targeted advertising by using their web browser's settings to block or limit cookies." Given this alleged misrepresentation, the Commission's accepted settlement terms required Turn to provide an effective "opt-out" for consumers who do not want their information used for targeted ads and provide a link on their homepage explaining what information it accepts.

The FTC takes a more retrospective and retributive approach to policing data breaches, as they represent actual harm in the FTC's view, and not simply prospective harm caused by informational misrepresentations.

Ashley Madison was recently subject to one of the more notable corporate attacks, as it failed to protect customer data for 36 million users accounts linked to the anonymous affair-friendly site—including some users that had paid for a "Full Delete" of personal information. The settlement required Ashley Madison to make $1.6 million in payments to various federal and state officials, as well as implement a comprehensive data-security program along with third-party assessments. The FTC identified four Ashley Madison practices, which together, they alleged, failed to amount to reasonable data security: (1) lack of a written information security policy; (2) failure to implement reasonable access controls; (3) failure to properly train Ashley Madison personnel about data security; and (4) failure to monitor third-party service providers.  These "basic principles," the FTC said, were all outlined in the FTC's Start with Security publication, which offers businesses "lessons learned from FTC cases."

The FTC's continued focus on the Internet of Things was evident in its settlement with ASUSTek, which suffered a steep penalty when it failed to secure cloud services for its router software from breach. Even though ASUS marketed its hardware as safe from outside attacks, security flaws in the routers allegedly placed the home networks of hundred of thousands of customers who purchased ASUS routers at risk. These risks came to roost in 2014 when hackers gained access to nearly 13,000 connected devices.  In reaching settlement with ASUS, then-Director of the FTC's Bureau of Consumer Protection, Jessica Rich commented that "the Internet of Things is growing by leaps and bounds, with millions of consumers connecting smart devices to their home networks .. . . so it is critical that companies like Asus put reasonable security in place to protect consumers and their personal information." The settlement prohibited ASUS from misrepresenting (1) the extent to which it protects security and privacy of devices and consumer information; (2) the extent to which consumers can use ASUS devices to secure networks; and (3) the extent to which ASUS devices use up-to-date software.  ASUS was also required to establish, implement, and maintain a comprehensive security program, obtain biennial security assessments from a third party professional, and notify consumers at multiple contact points when software updates are available.

There are several takeaways that businesses can gather from the FTC's recent actions. First, businesses are advised to ensure that their statements and representations about the security of their products and the confidentiality of information they collect are accurate and up-to-date, and that their data practices, which would not be obvious to the reasonably person, are conspicuously disclosed. Second, the Commission views "reasonable" data security as a constantly evolving concept, and businesses need to consider data security as an ongoing and changing obligation.  And, third, should a business suffer a data breach, the FTC's concerns extend beyond the fact of whether the breach occurred, and include whether the company that suffered the breach employed safeguards that reduce potential risk to consumers.

[1] In addition to reaching a number of settlements in the data privacy space, the FTC has also shown a willingness to litigate. The FTC is currently litigating a challenge against an Internet of Things manufacturer, in a case in the Northern District of California against D-Link Systems.  The Commission alleges violations of Section 5 of the FTC Act, including that D-Link engaged in unfair and deceptive trade practices by failing to take reasonable steps to secure their routers and IP cameras."  According to the FTC's Complaint, D-Link's routers and cameras were subject to "widely known and reasonably foreseeable risks of unauthorized access," resulting in great potential harm to consumers, including the risk that "an attacker could compromise a consumer's IP camera, thereby monitoring consumers' whereabouts to target them for theft or other criminal activity or to observe and record over the Internet their personal activities and conversations or those of their young children."

A Year in Review: FTC Data Privacy Actions and its Impacts on 2017 and Beyond

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