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.

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.