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 Topics
 
Related Articles
 
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
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.

Disclaimer

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.

General

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