United States: Privacy Updates - May 2014

Keywords: privacy, data security, data breaches, cybersecurity,

Privacy and data security have become increasingly critical topics, making it even more important for companies to remain up to date on global privacy developments. In this article, we provide an overview of some of the privacy and data security developments that have taken place in 2014.

Data Breaches

There have been several high-profile data breaches since the beginning of 2014, which have received increased coverage due to heightened sensitivity after Target's breach in late 2013. Affected organizations include retailers such as Michaels and Neiman Marcus, hospitals such as St. Joseph Health System and universities such as the University of Maryland. Due to the varied ways in which the data was compromised from each organization, the cyber attacks do not appear to be part of a coordinated breach campaign.1 The hackers have usually been very sophisticated and have used methods such as targeting a company's vendor or giving their malware a nearly identical name to common software used by a company (e.g., its payment software) to increase the likelihood that any resulting security alerts would be disregarded.2

In response to these breaches, a number of US senators have proposed new federal data breach notification laws, including the Personal Data Privacy and Security Act, the Data Security and Breach Notification Act, and the Personal Data Protection and Breach Accountability Act. As of the date of this writing, none of these laws have been passed; however, both the US Attorney General and the Federal Trade Commission have urged Congress to pass a federal data breach law.3

Cybersecurity

In the United States, two cybersecurity guides were released in February 2014. Though not mandatory, they do offer good policies for companies to consider.

In response to President Barack Obama's Executive Order 136364 from last year, the National Institute of Standards and Technology (NIST) released the final version of its voluntary cybersecurity framework on February 12, 2014, titled "Framework for Improving Critical Infrastructure Cybersecurity."5 The Framework urges banks, utilities and operators of other critical infrastructure to adopt the Framework's set of industry standards and best practices to manage their cybersecurity risks. While the Framework is aimed at critical infrastructure, organizations of any size or degree of cybersecurity sophistication are able to use the Framework as a guideline to assess their existing cybersecurity program or to build one from scratch.

The California Attorney General also issued a cybersecurity guide in February. Unlike the Framework, this guide is targeted toward small businesses rather than critical infrastructure. The guide, titled "Cybersecurity in the Golden State,"6 urges small businesses to take steps such as encrypting sensitive data and developing an incident response plan to protect against cyber intrusions. It offers "specific and straightforward" recommendations to help businesses better protect against and respond to the increasing threats of malware, data breaches and other cyber risks.

Lawsuits

Two companies, LabMD and Wyndham Hotels, have recently challenged the Federal Trade Commission's (FTC) authority to enforce data security. The FTC had charged both companies with "unfair and deceptive acts and practices" due to their data security practices.7 Both companies responded by disputing whether the FTC has the authority to regulate data security, especially since there is no definitive legal security standard for the FTC to enforce. Both companies were unsuccessful in their challenges. LabMD closed its doors in January, blaming the FTC enforcement action, and a New Jersey district court recently denied Wyndham's motion to dismiss, stating that there is "binding and persuasive precedent" upholding the FTC's authority to enforce data security.8

In the United States and several other jurisdictions, a number of new laws and amendments were passed in early 2014.

With the increasing number of data privacy and security breach-related lawsuits, the courts have been split with regard to whether actual injury is required in order to have standing in such lawsuits. For example, a Kansas federal judge dismissed two proposed class actions related to a data breach at Nationwide Mutual Insurance Company, stating that there was no evidence that anyone had been harmed.9 A Florida judge, on the other hand, approved a class action settlement involving AvMed, Inc.'s, breach that resulted in the release of 1.2 million sensitive records from encrypted laptops, even though the class members may not have experienced identity theft or actual financial harm.10 Similarly, in a decision against Spokeo Inc., the US Court of Appeals for the Ninth Circuit held that the plaintiffs did not need to allege actual injury to demonstrate standing.11

New Laws

In the United States and several other jurisdictions, a number of new laws and amendments were passed in early 2014.

California amended several of its privacy laws. It amended its data breach notification statute12 by expanding the definition of "personal information" to include data elements that permit access to an online account (e.g., user name and/or email address in combination with a password). This change now makes data breaches that do not compromise traditional sensitive financial information subject to its data breach notification law. California also amended its California Online Privacy Protection Act (CalOPPA)13 to require websites to tell visitors how they respond to "Do-Not-Track" signals from web browsers, and enacted the Privacy Rights for California Minors in the Digital World law (effective January 1, 2015), which gives minors the right to erase content they post on websites.14

Kentucky enacted a data breach notification statute, H.B. 232, in April 2014, making it the 47th state to enact such a law. Prior to its enactment, Kentucky was one of four states (including Alabama, New Mexico and South Dakota) that did not have data breach notification legislation. H.B. 232 is similar to other states' data breach notification statutes but differs in that it also protects student data in the cloud by prohibiting cloud service providers from selling, disclosing or otherwise processing such data for any commercial purpose.

Australia and Canada each had significant privacy developments. In Australia, the Office of the Australian Information Commissioner issued the final iteration of the Australian Privacy Principles (APPs), which became effective on March 12, 2014.15 The Privacy Amendment (Enhancing Privacy Protection) Bill 2012 also became active. It gives the Australian Privacy Commissioner the right to seek civil penalties of up to $340,000 for individuals and $1.7 million for businesses in cases of serious breaches. The APPs and the Privacy Amendment apply to both public and private organizations.

CASL is far broader and more punitive than the CAN-SPAM Act (the US anti-spam law), and it does not deal solely with email "spam."

In Canada, certain provisions in Canada's Anti-Spam Law (CASL) become effective starting this year.16 The provisions governing commercial electronic messages (CEMs) will become effective on July 1, 2014; the provisions governing unsolicited installations of computer programs will become effective on January 1, 2015; and the private right of action provisions will become effective on July 1, 2017. CASL is far broader and more punitive than the CAN-SPAM Act (the US anti-spam law), and it does not deal solely with email "spam." The new law applies to all CEMs sent to instant message and social network accounts and by short message service (SMS) texts to cell phones, and also regulates the installation of computer programs. When the new law is fully in force, it will apply to all CEMs sent from, or accessed by, a computer system located in Canada, thereby governing CEMs that are sent from other countries, including the United States.

Originally published 9 May 2014

Footnotes

1 See Danny Yadron, Cyberattacks on Retailers Not 'Coordinated,' Says FBI, The Wall St. J. Law Blog (Feb. 10, 2014), http://blogs.wsj.com/law/2014/02/10/cyberattacks-on-retailers-not-coordinated-says-fbi/.

2 See Neiman Marcus Hackers Set Off 60,000 Alerts
While Bagging Credit Card Data, Bloomberg Businessweek (Feb. 21, 2014), http://www.businessweek.com/articles/2014-02-21/neiman-marcus-hackers-set-off-60-000-alerts-while-bagging-credit-card-data.

3 See Prepared Statement of the Federal Trade Commission on Protecting Personal Consumer Information from Cyber Attacks and Data Breaches before the United States Senate, Mar. 26, 2014, available at http://www.ftc.gov/system/files/documents/public_statements/293861/140326datasecurity.pdf.

4 Exec. Order No. 13636, Improving Critical Infrastructure Cybersecurity (Feb. 19, 2013), available at http://www.gpo.gov/fdsys/pkg/FR-2013-02-19/pdf/2013-03915.pdf.

5 NIST Framework for Improving Critical Infrastructure Cybersecurity, Version 1.0, NIST.gov (Feb. 12, 2014), available at http://www.nist.gov/cyberframework/upload/cybersecurity-framework-021214.pdf.

6 Cybersecurity in the Golden State (Feb. 2014), available at https://oag.ca.gov/cybersecurity.

7 See, e.g., FTC Files Complaint Against LabMD for Failing to Protect Consumers' Privacy, http://www.ftc.gov/news-events/press-releases/2013/08/ftc-files-complaint-against-labmd-failing-protect-consumers.

8 Federal Trade Commission v. Wyndham Worldwide Corporation, et al., Civil Action No. 13-1887 (D.N.J. Apr. 7, 2014).

9 Galaria v. Nationwide Mutual Insurance Co., Case No. 2:13-cv-118 (N.D. Ohio) and Hancox v. Nationwide Mutual Insurance Company, Case No. 2:13-cv-257 (N.D. Ohio).

10 See Curry v. AvMed, Inc., No. 10-cv-24513, available at http://www.databreachsettlement.com/docs/sa.pdf.

11 Robins v. Spokeo Inc., Case No. 11-56843 (9th Cir.).

12 Cal. Civ. Code § 1798.82.

13 Cal. Bus. and Prof. Code §§ 22575-22579.

14 See SB-568, available at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB568.

15 See Australian Privacy Principles, Australian Government – Office of the Australian Information Commissioner, http://www.oaic.gov.au/privacy/privacy-act/australian-privacy-principles.

16 S.C. 2010, c. 23, available at http://laws-lois.justice.gc.ca/eng/acts/E-1.6/FullText.html.

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