United States: Cybersecurity Update: 2015 - A Year In Review

As the close of 2015 marks a historic year for cybersecurity jurisprudence and lawmaking, this Update highlights key legal and policy developments in cybersecurity law that may impact important trends for 2016 and beyond. In addition to the passage of the Cybersecurity Information Sharing Act ("CISA") in the final days of 2015, federal and state regulators were active throughout the year in providing guidance to companies and individuals regarding data security practices. Key court rulings concerning the validity of the Safe Harbor agreement between the United States and the European Union as well as the FTC's enforcement power reshaped the cybersecurity landscape. Important rulings on law enforcement's ability to access and use electronically stored information are expected in the coming year. These decisions will no doubt impact the trajectory of cybersecurity and privacy issues in 2016.

Beyond Safe Harbor

In a landmark decision issued in October, the European Court of Justice — the highest court in the European Union — struck down the "Safe Harbor" data-transfer agreement between the EU and the United States. The Court's decision in Maximilian Schrems v. Data Protection Commissioner put pressure on the ongoing U.S.-EU negotiations to produce a new data-sharing agreement, which is expected to be completed in January 2016.

In December, the EU member states agreed to a new set of data protection rules called the General Data Protection Regulation ("GDPR"). Some of the key features of the new GDPR include the so-called "right to be forgotten"; a right to data portability that enables data subjects to transfer their personal data between services; mandatory data protection officers for the public sector, for large private enterprises, and in instances where core activities of a controller or processor consist of data processing requiring regular and systematic monitoring; and required notification to relevant national supervisory authority in the event of a serious data breach. Each member state will have two years to incorporate the provisions of the GDPR — which will come into force in 2018 — into their national laws. The GDPR will apply to any companies handling the data of EU citizens regardless of the location of the company. Liability will extend not only to data controllers (i.e., the companies deciding how and why to collect data) but also to service providers. The new data protection regime will carry heavy fines for rules violations.

Once implemented, the GDPR will have a significant impact on U.S. companies. Under the "right to be forgotten" rule, EU citizens will be able to request that data providers delete their data when there is no legitimate reason for retaining it. This rule will affect the business models of various companies that rely on consumer data. Companies will also have to expend significant resources to ensure compliance with various new rules. The GDPR specifies that companies may be fined up to 4 percent of their global revenue for violating data protection rules — an amount that could range in the billions of dollars for very large companies.

For more information on the Schrems decision, click here.

The FTC's Authority to Enforce Data Security

In August, the United States Court of Appeals for the Third Circuit unanimously affirmed the district court's ruling in FTC v. Wyndham Worldwide Corp. that the Federal Trade Commission ("FTC") has the authority to regulate a company's data security practices under Section 5 of the FTC Act. The FTC Act broadly prohibits "unfair or deceptive acts or practices in or affecting commerce." The FTC suit, filed in 2012, stemmed from three separate data breaches between April 2008 and January 2010 that exposed over 600,000 Wyndham customers' payment card information to hackers.

In December, Wyndham reached a settlement with the FTC in which the company agreed to establish an information security program designed to protect customer and cardholder data. The company also agreed to conduct annual information security audits to ensure that it is in compliance with the Payment Card Industry Data Security Standard. Further, the company committed to enacting additional security measures, including creating firewalls between its corporate servers and those of its franchisees.

For more information on the Wyndham case, click here.

An Active Year for Federal and State Regulators

Throughout 2015, federal and state regulators continued to stress the importance of cybersecurity and the need for companies and organizations to have adequate protections against — and responses to — data breaches. In addition to conducting in-depth surveys of these threats, these regulators have also released an abundance of guidance providing recommendations on how corporate cybersecurity practices should be handled.

In April, for example, the U.S. Securities and Exchange Commission's ("SEC") Division of Investment Management released guidance to registered investment companies and advisors, highlighting cybersecurity as an "important issue." The guidance was designed to aid these companies and advisors in their efforts to both understand the nature and impact of cybersecurity threats and design and implement a strategy to prevent, detect and respond to these threats. In December, the SEC also solicited comment on new cybersecurity rules that, among other things, would require registered transfer agents to implement cybersecurity guidelines that would govern how the agents safeguard certain sensitive data and personally identifiable information.

In September, the SEC reached a settlement in an enforcement action against a registered investment adviser that failed to adopt proper cybersecurity protocols. According to the SEC, an unauthorized intruder gained access to the adviser's server, which contained the sensitive personally identifiable information of more than 100,000 individuals. The SEC determined that the adviser had violated the Commission's Safeguards Rule by failing to adopt written policies and procedures reasonably designed to safeguard its clients' personally identifiable information. The adviser agreed to adopt various cybersecurity measures and pay a civil penalty of $75,000 to the SEC.

Additionally, in November, the New York Department of Financial Services ("DFS") released a letter outlining proposed cybersecurity regulations for the financial institutions it regulates. In addition to initiating a dialogue among various state and federal regulators, the DFS intended the proposals to bolster cybersecurity defenses within the financial sector by requiring mandatory quarterly audits, multifactor authentication, comprehensive written policies and procedures, and more stringent requirements for cyber incident notification and the management of third-party service providers.

For more information on these regulations, click here.
For more information on these surveys, click here.

Key Data Security Cases

In September, a three-judge panel of the United States Court of Appeals for the Second Circuit heard arguments in Microsoft's appeal of the district court's ruling in In the Matter of a Warrant to Search a Certain E-mail Account Controlled and Maintained by Microsoft Corp. The appeal concerned a 2013 search warrant that the Department of Justice served under the Electronic Communications Privacy Act ("ECPA") directing Microsoft to seize a suspect's digital documents. Microsoft objected to turning over certain data that it had stored in a data center in Dublin, Ireland. In April 2014, S.D.N.Y. Magistrate Judge Francis, who issued the warrant, denied Microsoft's motion to quash the warrant with respect to the data stored in Ireland. In July, Chief Judge Preska affirmed Judge Francis's ruling and held Microsoft in contempt for refusing to comply with the warrant. Microsoft subsequently appealed. The Second Circuit's decision will address the significant question of whether a U.S. law enforcement agency can compel a U.S. company to disclose electronic data that it has stored abroad.

In another likely precedent-setting case concerning law enforcement's ability to access electronically stored information, the Second Circuit, sitting en banc, also heard arguments last September in United States v. Ganias. In 2003, pursuant to a search warrant, the government seized and cloned three computer hard drives belonging to Stavros Ganias. At the time, the government had not been investigating Ganias and instead had obtained the warrant to acquire information responsive to an investigation of government contractors for which Ganias had performed accounting services. The government did not return the nonresponsive material, however, and instead retained the full cloned hard drives. Nearly two and a half years later, the government obtained an additional warrant to search Ganias' records for evidence of tax evasion, but — unable to access the records from Ganias — it returned to the hard drives cloned years earlier to conduct the search. The evidence obtained from this warrant was used to convict Ganias of tax evasion. Ganias appealed his conviction, arguing that the government's conduct violated his Fourth Amendment protection to be free from unreasonable searches and seizures. A Second Circuit panel agreed, vacating his sentence and ruling that the government's conduct had in fact violated the Fourth Amendment. The en banc ruling is expected to address whether the government's retention and subsequent search of the nonresponsive data violated Ganias' Fourth Amendment rights. Prior to the en banc hearing, Kramer Levin submitted an amicus brief on behalf of the Center for Constitutional Rights in support of Ganias.

In March, Target agreed to pay $10 million to settle a consumer class action lawsuit stemming from a 2013 data breach that affected at least 40 million credit cards. The settlement followed a Minnesota federal judge's December 2014 ruling that rejected Target's argument that the consumers could not establish any injury and allowed the case to proceed. Just last week, a different judge in the same court dismissed a class action brought by SuperValu shoppers alleging that they were harmed after hackers accessed the supermarket chain's payment systems. In this case, the judge found that the consumers' claims of possible future injuries were too speculative to give them standing. The judge distinguished this case from the Target class action, stressing that the Target consumers alleged facts reasonably suggesting that hackers had succeeded in stealing their data and using it for fraud. The SuperValu plaintiffs, on the other hand, identified only a single unauthorized charge affecting one person.

For more information on the Microsoft case, click here.
For more information on the Ganias case, click here.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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.

Disclaimer

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.

Registration

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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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.