United States: Wyndham And FTC Agree To Consent Order Ending Data Security Breach Litigation

On Friday, December 11, 2015, the U.S. District Court for the District of New Jersey entered a consent order between the Federal Trade Commission (“FTC”) and hospitality company Wyndham Hotels and Resorts, LLC (“Wyndham”) along with several of its affiliates, putting to an end an FTC lawsuit alleging that Wyndham’s data security practices violated Section 5 of the FTC Act. The Wyndham order is of interest to all companies that collect or receive payment card information and/or are subject to an FTC data breach investigation, not only because it ends the first ever fully contested FTC action over the application of Section 5 to data security, but also because it provides guidance on the FTC’s position as to the elements of a reasonable data security program for payment card data. The Wyndham order is also notable for imposing narrower obligations on Wyndham than the FTC has typically obtained against the targets of its data security investigations.

The suit giving rise to the Wyndham order was brought by the FTC in 2012 in connection with three criminal network intrusions that may have compromised payment card information collected by several Wyndham-branded hotels. The FTC alleged that Wyndham and several of its affiliates committed “unfair” and “deceptive” practices prohibited by Section 5 of the FTC Act, 15 U.S.C. § 45, in connection with purported information security deficiencies at the Wyndham-branded hotels. Prior to this time, potential defendants in data security cases brought by the FTC had almost always entered into pre-litigation settlements with the agency, and the rare instances of litigation were merely brief precursors to entry of a consent order. In this case, however, Wyndham chose to aggressively defend against the FTC’s allegations.

In 2014, the U.S. District Court for the District of New Jersey denied Wyndham’s motion to dismiss the suit for failure to state a claim, but certified a portion of its ruling for appeal to the U.S. Court of Appeals for the Third Circuit. On appeal, the Third Circuit affirmed the denial of Wyndham’s motion to dismiss, holding that the FTC has the power to regulate data security under the “unfair practices” prong of the FTC Act and that Wyndham had constitutionally sufficient notice that data security could fall within the ambit of the Act. The Third Circuit also suggested, however, that the FTC would have to meet a high burden of proof at trial – including, for the agency’s “unfair practices” claim, proof of substantial, unavoidable consumer injury (beyond mere consumer inconvenience) that is not outweighed by countervailing benefits, and (potentially) proof that Wyndham acted deceptively or engaged in other misconduct beyond just having caused consumer injury of that sort.

Last month, in an FTC administrative proceeding against a lab testing company (LabMD), an FTC administrative law judge reinforced the Third Circuit’s suggestion that the burden of proof for an unfairness claim is a demanding one in the data security context. Ruling on an unfairness-based claim brought by the FTC against LabMD over allegedly deficient data security practices, the judge held that FTC staff had failed to prove substantial consumer injury, and therefore ruled for LabMD on the merits. The FTC staff has appealed that decision to the FTC Commissioners.

It was against this backdrop that the FTC and Wyndham, along with the Wyndham affiliates that the FTC had included as defendants in its suit, agreed to the Wyndham order to terminate the FTC’s lawsuit. The Wyndham order requires Wyndham to have in place a comprehensive information security program for payment card data Wyndham collects or receives in the United States from or about consumers. Thus, in contrast to the FTC’s typical data security order, the Wyndham order does not cover all personal information; instead, it covers only the type of personal information that the FTC alleged was put at risk in the cyberattacks that gave rise to its lawsuit, namely, payment card data. The distinction is significant, because companies like Wyndham that collect payment card data already are obliged by virtue of card brand rules to have in place a comprehensive information security program for payment card data, so this aspect of the order does not impose any additive obligation on such a company.

The order also requires Wyndham to obtain annual assessments as to whether it complies with specified data security standards for payment card data, and those assessments must include or be accompanied by the following certifications: the extent of Wyndham’s compliance with the specified standards; whether Wyndham implements certain restrictions on unauthorized traffic coming into its network from Wyndham-branded hotels; the extent of Wyndham’s compliance with a risk assessment protocol; and that the assessor is adequately qualified, uses accepted standards and is free from conflicts of interest. Here again, because large companies that collect payment card data already are required by virtue of card brand rules to undergo independent annual third-party assessments of their compliance with the applicable data security standards for payment card data, and because those assessments already encompass the company’s compliance with the specified risk protocol, its protection of its network against unauthorized traffic emanating from external networks, and the assessor’s qualifications, standards and freedom from conflicts of interest, these aspects of the order do not impose any additive obligations on such a company. The order also imposes limited reporting and record-keeping obligations.

The Wyndham order is also notable for not addressing several allegations the FTC included in its complaint. The FTC’s complaint had alleged that Wyndham made deceptive statements about data security in its online privacy policy, but unlike other data security cases where the FTC has alleged deception the Wyndham order contains no restrictions on the statements Wyndham can make about data security. The FTC’s complaint also sought to hold Wyndham responsible for the data security measures at independently owned Wyndham-branded hotels, but the Wyndham order places no such responsibility on Wyndham, and instead it merely requires that Wyndham take steps to protect Wyndham’s own network against risks emanating from those hotels. The FTC’s complaint alleged that not only Wyndham, but also one of its sister companies and two of its parent companies, were liable under Section 5 of the FTC Act. The Wyndham order imposes no obligations, however, on the sister company at all, and it merely requires the two parent companies to perform limited record-keeping and other administrative obligations and guarantee Wyndham’s performance of the substantive obligations described above. The Wyndham order also does not include any monetary relief, even though the FTC’s complaint requested it.

Finally, and perhaps most importantly, the Wyndham order is also the first FTC data security order to provide detailed compliance guidance. First, the Wyndham order states that the comprehensive information security program for payment card data shall consist of the following five enumerated requirements: designation of accountable employees, a risk assessment, use of reasonable safeguards, use of reasonable steps to retain certain service providers, and adjustment of the program over time. While these five requirements had been included in prior FTC data security orders, the Wyndham order is the first to clarify that these requirements are not merely necessary, but also sufficient, to satisfy the requirement to implement a comprehensive information security program.

Second, the Wyndham order is the first to include a safe harbor shielding the company from potential claims that it failed to implement the comprehensive information security program required by the order. Specifically, the Wyndham order provides that if Wyndham’s annual assessment certifies that it fully complies with the specified data security standards, and also contains certain other required certifications, Wyndham will be deemed compliant with the requirement to maintain a comprehensive information security program for one year or until the next annual assessment deadline, whichever is earlier. This safe harbor is subject to two narrow qualifications. First, Wyndham will not obtain the safe harbor as to any company practice about which it made a representation to the assessor that misrepresented or omitted material information that would likely affect a reasonable assessor’s evaluation, and if the misrepresentation or omission was made for the purpose of deceiving the assessor, Wyndham will not obtain a safe harbor as to any of its practices. Second, if Wyndham significantly changes a practice after an assessment, then in order to maintain the safe harbor as to that practice, it must obtain a certification from an assessor that the change does not cause Wyndham to become non-compliant with the data security standards that were used in the assessment.

These two pieces of guidance amount, in effect, to statements by the FTC that compliance with the five enumerated security program requirements and/or the requirements for the safe harbor are sufficient to reasonably safeguard payment card information. For this reason, all companies that collect or receive payment card information may want to consider whether their practices comply with the five enumerated security program requirements and/or the requirements for the safe harbor.

Ropes & Gray represented Wyndham in the FTC lawsuit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.