United States: All You Need To Know About LabMD's Big Win In/Over The FTC

Last Updated: January 12 2016
Article by Steven Boranian

We have been meaning for a while to write about LabMD's epic data privacy fight against the FTC.  We're sure you have read about the action, and particularly about the administrative order dismissing the government's Administrative Complaint in November 2015.  The noteworthy part of the order is its holding that the government has to prove actual injury to consumers, not merely a theoretical "risk" of future harm, in data privacy enforcement actions.  We like the sound of that.  It reminds us of the old days of medical monitoring class actions, otherwise known as "money for nothing," where uninjured plaintiffs would claim compensation for future medical surveillance, even though they had never experienced any actual complication.  We don't see those much anymore, but a similar battle has gone on in the context of data privacy.  The vast majority of data security breaches result in no tangible harm to anyone, but plaintiffs still sue, and they still want money for the theoretical risk that someone, someday might use their private information to cause them harm—fraud, identity theft, and the like. 

But back to LabMD.  The FTC has gone after many companies for allegedly lax data security practices, and in almost every case, the target comes to a negotiated resolution, usually involving a fine and a consent decree requiring certain measures to better protect private information.  What makes LabMD different is that, once it found itself in the FTC's crosshairs, it fought back.  That decision was bad for business—the company announced in 2014 that the government's action essentially closed it down—but it resulted in a complete win at the administrative level and a landmark order pinning back the government's ears.  The action has been going on for years, but here is what you really need to know:

Why do we care?  The issue is data privacy and security, and the drug and device industry holds reams of private information—employee data, customer data, consumer data, patient data, etc.  The FTC remains the biggest bully in the schoolyard when it comes to data privacy, and the LabMD order is a landmark in delimiting the FTC's usually unchallenged regulatory prerogative.

What happened?  LabMD is a clinical laboratory that conducted tests on specimen samples and reported the test results to physicians.  The company therefore held undisputedly private information on several hundred thousand individuals.  Two incidents led to the FTC taking action:  First, a third-party "cybersecurity" company contacted LabMD in May 2008 and reported that it had found a LabMD report containing personal information for 9,300 patients on a peer-to-peer file-sharing network.  The cybersecurity company was not disinterested:  Its business was to search networks for access to private information and then offer remedial and security services to the affected businesses.  Second, in October 2012, documents containing personal information for at least 500 individuals were found in the possession of criminals who pleaded "no contest" to identity theft.  Details are thin on how that information was traced back to LabMD or any breach in its data security practices, but this second incident helped lead to the FTC's complaint.

What was the proceeding?  This was not a civil action.  It was an Administrative Complaint issued by the FTC on August 28, 2013, after a three-year investigation into LabMD's data security practices.  The Complaint listed a number of alleged failures, but they all boiled down to the allegation that LabMD "engaged in a number of practices that, taken together, failed to provide reasonable and appropriate security for personal information on its computer networks."  Order at 1.  The law that LabMD was alleged to have violated was Section 5(a) of the FTC Act, which is not a data privacy statute per se.  Section 5 broadly prohibits "unfair or deceptive acts or practices in or affecting commerce" [15 U.S.C. § 45(a)], and the FTC has steadily expanded its enforcement authority under this law to include data privacy and security.  The basis for that authority is that holding private information without taking reasonable measures to secure it is an "unfair or deceptive" business practice.  That was the FTC's accusation against LabMD. 

The proceedings have been active.  The parties have filed multiple motions and requests for sanctions, and LabMD has generally challenged the FTC's authority every step of the way.  You might be asking, if LabMD announced that it was winding down in business in 2014, why is the matter still going on?  Well, LabMD's cause has been taken up by Cause of Action, a nonprofit organization that advocates for government accountability.  We don't know anything about this organization or its politics, but we do know that it has turned the LabMD administrative action into a vigorous fight against government overreaching.  An evidentiary hearing before an administrative law judge ended after introduction of over 1,000 exhibits, testimony by 39 witnesses, and more than 2,000 pages of briefing. 

What's the big deal?  After mostly taking it on the chin for two years, LabMD's victory over the FTC after the evidentiary hearing was, in a word, stunning.  On November 13, 2015, the administrative law judge presiding over the hearing dismissed the Administrative Complaint.  (You can read Reed Smith's Technology Law Dispatch on the order here). 

The core holding of the order is that the FTC failed to prove substantial injury to consumers.  You see, Section 5 of the FTC Act grants the FTC broad power, but it also sets the standard of proof for enforcement actions:  Under Section 5(n), the FTC has no authority to declare an act or practice unlawful "unless the act of practice causes or is likely to cause substantial injury to consumers."  15 U.S.C. § 45(n) (emphasis added).  That standard proved to be the undoing of the FTC's Administrative Complaint against LabMD because, similar to plaintiffs in most data privacy civil actions, the FTC could not show that the alleged data privacy breaches caused tangible harm to anyone. 

With regard to the first incident, the larger of the two, the evidence failed to show that "the limited exposure of the . . . file has resulted, or is likely to result, in any identity theft-related harm."  Order at 13.  The FTC also failed to prove that anyone was likely to suffer embarrassment or similar emotional harm because of unauthorized access to the information; and even if there were proof of such harm, "this would constitute only subjective or emotional harm" that cannot constitute a "substantial injury" absent proof of accompanying "tangible injury."  Id.  That's big.  The equivalent in tort litigation would be the physical injury prerequisite to recovery of emotional distress.

Notably, the FTC failed despite presenting two "consumer injury experts" who testified that people identified in the file were at a higher risk of identity theft than the general public.  Experts to tell us that someone has experienced an "injury" when he or she really has not?  Hmm.  We have not read their "expert" opinions, but forgive us nonetheless for being skeptical.  And also forgive us for suspecting that these same "experts" may have given opinions in support of plaintiffs in data privacy class actions.  We don't know.  Just saying. 

With regard to the second, smaller incident, the evidence did not show that the exposure of the documents "is causally connected to any failure of [LabMD] to reasonably protect data maintained on its computer network."  Id.  In other words, sure the documents were in the hands of admitted identity thieves, but how was that LabMD's fault?  The FTC failed to link it up.  And as with the first incident, the evidence again did not prove that the exposure caused or was likely to cause any consumer harm. 

Finally, the administrative law judge rejected the FTC's argument that all consumers whose personal information was maintained in LabMD's system were susceptible to identity theft because LabMD's systems were "at risk."  Id.  This part of the order has received the least press, but it's important:  It acknowledges that an FTC action should not rest solely on a company's alleged failure to reasonably protect private information—there has to be an actual data security breach followed by tangible injury.  As the administrative law judge said, "At best, [the FTC] has proven the 'possibility' of harm, but not any 'probability' or likelihood of harm.  Fundamental fairness dictates that demonstrating actual or likely substantial consumer injury under Section 5(n) requires proof of more than the hypothetical or theoretical harm that has been submitted by the government in this case."  Id. at 14.

The case is not over.  The FTC has appealed to its own commissioners, and it filed an opening brief that doubles down on its "mere disclosure is harm" and "some risk is enough" theory of substantial injury.  (You can read the brief here.)  The commission has already barred LabMD from filing a protective cross appeal, so maybe the cards are stacked in the government's favor.  But even so, the administrative law judge's decision is one for the ages.  LabMD's responsive brief on appeal is due next month.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions