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Wyndham Hotel & Resorts LLC ("Wyndham") has filed
a Motion to Dismiss the Federal Trade Commission's (the
"FTC") Complaint against it, which alleges that Wyndham
committed unfair and deceptive acts related to three data security
breaches that Wyndham has suffered since 2008. More
information about the FTC's Complaint can be seen in an earlier
blog post
here.
The Wyndham counter-volley takes an interesting approach.
In its Motion, Wyndham argues that the FTC lacks authority
under Section 5 of the FTC Act to regulate data security
standrads. Section 5 of the FTC Act prohibits "unfair or
deceptive acts or practices in or affecting commerce."
Notably, Wyndham does not dispute that the FTC may bring
enforcement actions against companies that make
"deceptive" statements to consumers, i.e., misleading
statements in a company's privacy policy. Wyndham
contends, however, that the FTC is overextending its authority to
regulate "unfair" acts or practices by attempting to
regulate data security standards for the private sector.
As an example, Wyndham lists various statutes that grant the FTC
explicit authority to regulate data security standards in specific
contexts:
The Fair Credit Reporting Act – imposes
requirements for the collection, disclosure, and disposal of data
collected by consumer reporting agencies;
The Gramm-Leach-Bliley Act – mandates data-security
requirements for financial institutions; and
The Children's Online Privacy Protection Act
– requires websites to establish and maintain reasonable
procedures to protect the confidentiality and security of
information gathered from children.
Wyndham asserts that the FTC's authority to regulate data
security standards is limited to specific circumstances, and that
Section 5 of the FTC Act does not provide the FTC with the broad
authority upon which it relied in bringing its enforcement action
against Wyndham.
As further support for its claim, Wyndham cites the FTC's Report to Congress in 2000 (the
"Report"). In the Report, the FTC admitted that it
"lacks authority to require firms to adopt information
practice policies or to abide by the fair information practice
principles on their Web sites, or portions of their Web sites, not
directed to children." What's more, in the Report,
the FTC asked Congress to enact broader legislation requiring
websites to "take reasonable steps to protect the security of
the information they collect from consumers" and "provide
an implementing agency with the authority to promulgate more
detailed standards pursuant to the Administrative Procedure
Act."
The implications of Wyndham's Motion are far-reaching.
Indeed, if the court finds for Wyndham and dismisses the FTC's
enforcement action, the FTC will likely have a tough road ahead
when attempting to settle future claims with companies that have
suffered from data breaches as a result of inadequate data security
standards. Such a ruling for Wyndham could potentially
provide enough ammunition to prompt Congress to step in and grant
the FTC the authority that it requested over a decade ago in the
Report. Wyndham's Motion brings to light a possible gap
in the FTC's authority to regulate data security standards,
despite all of the settlements that the FTC has made with companies
on the basis of that authority.
This is an argument worth watching. Stay tuned.
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