United States: "California Poised To Enact Broad-Reaching Consumer Privacy Legislation"

With a vote on AB-375 (the "Privacy Bill") in the California Legislature set for tomorrow (June 28, 2018), California is poised to enact sweeping privacy legislation, potentially averting a competing ballot initiative (the "Privacy Initiative") that has qualified for the November 6, 2018 ballot. The following Bulletin summarizes the key aspects of both the Privacy Initiative and the Privacy Bill, as well as areas of overlap between these measures and the European General Data Protection Regulation ("GDPR"). We will update this bulletin after Thursday's vote, so stay tuned!

The Privacy Initiative

The Privacy Initiative, currently referred to as the California Consumer Personal Information Disclosure and Sale Initiative, and to be named The California Consumer Privacy Act of 2018 if it becomes law, will appear on the November 6, 2018 ballot, unless displaced by the Privacy Bill (as discussed below), and, if voted in by a majority of California voters, would take effect November 7, 2018. Registered ballot measure committee, Californians for Consumer Privacy, San Francisco real estate developer Alistair Mactaggart, and hedge fund executive and former BlackRock director and current LendingClub chairman, Rick Arney, are behind the Privacy Initiative, the stated purpose of which is "to further the constitutional right of privacy by giving consumers an effective way to control their personal information, thereby affording better protection for their own privacy and autonomy."

The new law would provide consumers (defined as natural persons who are California residents) with significant controls over their personal information, the proposed definition of which is expansive and includes, but notably is not limited to, the following:

  • traditional personal identifying information (e.g., name, social security number, address, email address, internet protocol address, driver's license number, etc.);
  • Characteristics of protected classifications under California or Federal law (e.g., race, gender, etc.);
  • Commercial information, including records of property, products or services provided, or other purchasing histories or tendencies;
  • Biometric data;
  • Internet or other electronic network activity information, including but not limited to Internet browsing and search histories, as well as information regarding a consumer's interaction with a website, application, or advertisement;
  • Geolocation data;
  • Audio, electronic, visual, thermal, olfactory, or similar information;
  • Psychometric information;
  • Professional or employment-related information; and
  • Any inferences drawn from any such information identified above.

Such personal information would be subject to the following new consumer rights: (1) the Right to Know What Personal Information Is Being Collected; (2) the Right to Know Whether Personal Information is Sold or Disclosed and to Whom; (3) the Right to Say "No" to Sale of Personal Information ("Right to Opt Out"); and (4) the Right to Equal Service and Price. In practice, consumers would have the right to inquire into the types and details of personal information businesses collect, sell or disclose and to whom. In addition, the Privacy Initiative would allow a consumer, at any time, to direct a business to cease selling the consumer's personal information if the business is selling that information. A business may not thereafter sell the consumer's personal information without the consumer's express authorization, and the business may not request such authorization until at least twelve (12) months have passed since the consumer opted out.

Finally, the Right to Equal Service and Price would prohibit a business from discriminating against a consumer for exercising any of these new rights, or for acting to enforce any of these rights, such as by: denying goods or services to the consumer; charging different prices or rates for goods or services, including through the use of discounts or penalties; providing a different level or quality of goods or services; or suggesting in advance that a consumer may be subject to any of these forms of discrimination should they exercise any of their rights.

The Privacy Initiative would also establish detailed compliance requirements for its newly created rights. With respect to the Right to Know and the Right to Disclosure, businesses must make available to consumers two or more methods to submit requests, including, at a minimum, a toll-free number, and a website (if the business has one). Further, businesses are required to deliver requested information, free of charge, within 45 days of receiving a consumer's request. With respect to the Right to Say No, businesses must provide a clear link on website homepages titled "Do Not Sell My Personal Information" that enables consumers to opt out.

Those that do business in California and collect consumers' personal information and meet one or more of the following thresholds would be subject to the new law: (a) annual gross revenues in excess of $50M; (b) annually sell the personal information of 100,000 or more consumers or devices; or (c) derive fifty percent (50%) or more of annual revenues from selling consumers' personal information.

With respect to civil liability, consumers would have a private right of action, with a mere violation constituting an "injury in fact" sufficient to maintain an action, even in the absence of actual loss. The statutory penalties range from $1,000 (or actual damages, whichever is greater) for each violation, or $3,000 (or actual damages) per violation for a willful violation. Public entities, such as the Attorney General, may also pursue civil penalties of $2,500 per violation, and up to $7,500 for each willful violation, in enforcement actions, with 20% of any award would be deposited into a Consumer Privacy Fund. The Privacy Initiative also provides for enforcement by means of a whistleblower action, whereby any person who becomes aware, based on non-public information, of a violation may file a civil action for civil penalties, if prior to filing such action, the person requests that the Attorney General commence the action and the Attorney General takes no action after 90 days. If the Attorney General does commence an action, the person who notified the attorney General would be entitled to fifteen percent (15%) of the civil penalties awarded, with the remainder allocated to the Consumer Privacy Fund. If the Attorney General does not commence an action, the person bringing the action would be entitled to between twenty five percent (25%) and fifty percent (50%) of any damages awarded, with the remainder deposited into the Consumer Privacy Fund.

The Privacy Bill

Like the Privacy Initiative it would replace, AB- 375, introduced on June 21, 2018, and amended June 25, 2018, by California State Assembly Member Ed Chau and California State Senator Bob Hertzberg, would be called the California Consumer Privacy Act of 2018. If signed into law, the Privacy Bill's provisions would go into effect on January 1, 2020. The Privacy Initiative's chief backer, Mactaggart, has agreed to withdraw the Privacy Initiative if the Privacy Bill is signed into law by Governor Jerry Brown by the June 28, 2018 deadline for the Secretary of State to certify initiatives for the November 6, 2018 ballot.

Broadly speaking, the Privacy Bill tracks the Privacy Initiative it would replace, and grants consumers the right to request that a business disclose categories of personal information it collects (though the Privacy Bill also allows consumers to request specific pieces of personal information within each category), the sources from which the information is collected, the business purposes for collecting or selling the information, and the categories of third parties with which the information is shared. Unlike the Privacy Initiative, the Privacy Bill would require businesses that collect personal information to, at or before the point of collection, affirmatively inform consumers as to the categories of personal information collected, and the purposes for which the categories of personal information will be used. The Privacy Bill would also grant to consumers another right not extended by the Privacy Initiative: the right to request and secure deletion of personal information, and would require businesses to disclose the existence of this right.

In addition to compliance requirements carried over from the Privacy Initiative (e.g., two or more designated methods to submit disclosure and opt-out requests, and a "Do Not Sell My Personal Information" link on the business's website), the Privacy Bill would require businesses to disclose in its online privacy policy (if it has one), as well as, in any California-specific description of consumer privacy rights: (a) a description of the consumer's rights under the Privacy Bill; (b) categories of personal information it has collected in the preceding 12 months; (c) categories of personal information sold within the preceding 12 months, or that it has not sold such information; and (d) categories of personal information it has disclosed within the preceding 12 months, or that it has not disclosed such information.

While the Privacy Bill would define "personal information" just as broadly as the Privacy Initiative, the Privacy Bill's provisions would sweep a much broader base of businesses under its requirements. The Privacy Bill would apply to businesses that satisfy one or more of the following thresholds: (a) annual gross revenues in excess of $25M (as opposed to the Initiative's $50M threshold); (b) alone or in combination annually buys, receives for the business's commercial purposes, sells, or shares for commercial purposes, the personal information of 50,000 or more consumers, households, or devices, (as opposed to the Initiative's 100,000 consumer threshold); or (c) derives 50% or more of its annual revenues from selling consumers' personal information. The Privacy Bill would also apply to any entity that controls or is controlled by such a business, and that shares common branding with such a business.

According to Sen. Hertzberg, whose office led compromise efforts with Mactaggart, the most significant issue with the Privacy Initiative is the potential for liability in the form of consumer suits. Importantly, and in what appears to be among the chief differences between the Privacy Initiative and the Privacy Bill, the latter eliminates the private right of action provided by the former, vesting enforcement exclusively in the Attorney General, except in the case of data breaches. Specifically, the Privacy Bill provides for a private right of action for statutory damages (capped at $750 per consumer per violation – compared to the Initiative's provision for $1,000 per violation, and $3,000 per willful violation) only in the case of a consumer whose nonencrypted or nonredacted personal information is the subject of a data breach as a result of a business's failure to implement reasonable security procedures. Prior to bringing such an action, a consumer must provide 30 days' notice to the business of the alleged violation, with the business having an opportunity within that 30 days to cure. (This is similar to the CLRA's notice and cure provision.) The Privacy Bill further requires the consumer to provide notice to the Attorney General within 30 days of filing suit (after complying with the notice and cure provision). The consumer may only maintain the action if the Attorney General takes no action within 30 days or, if the Attorney General advises within 30 days that it will prosecute an action, the Attorney General takes no steps to prosecute within 6 months. The Privacy Bill also does away with the Privacy Initiative's provision that a violation shall be deemed to constitute an injury in fact, regardless of pecuniary loss.

All other authority for enforcement of alleged violations of the Privacy Bill is vested exclusively in the Attorney General in the form of a civil action for civil penalties brought in the name of the people of the State of California. Civil penalties provided under the Privacy Bill are identical to those under the Privacy Initiative, including with respect to the 20% of any civil penalties awarded to be deposited into the Consumer Privacy Fund created by the bill.

Political Landscape

On June 25, 2018, California Secretary of State Alex Padilla announced that the Privacy Initiative had received enough valid California voter signatures to appear on the November 6, 2018 ballot. Secretary Padilla is expected to certify the Privacy Initiative for the November ballot on June 28, 2018, unless Mactaggart withdraws the bill first.

In the face of mounting opposition to the Privacy Initiative – including nearly $2.2M in contributions from technology and telecommunications companies and industry groups to the Committee to Protect California Jobs, sponsored by the California Chamber of Commerce, $1.04 of which contributions have come in the last two months – California democratic lawmakers, on June 21, 2018, reached a tentative deal with the Privacy Initiative's backers, introducing the Privacy Bill as legislation that would provide California residents with similar privacy rights. After the Privacy Bill emerges from committee, its authors will present it for a vote in both the Senate and the Assembly on June 28, 2018, which is also the deadline by which Mactaggart must withdraw the Privacy Initiative if he is going to do so.

According to Sen. Hertzberg, the tech industry "still hates" the Privacy Bill he's put forward, but their only options at this point are to back this slightly more moderate bill, or pour vast sums – some estimates reach $100M – into opposing the Privacy Initiative in advance of the November vote. And while the Privacy Bill would by its terms only apply to California residents, Hertzberg hopes that if it (or the Privacy Initiative) passes, businesses affected would have to decide whether to create separate processes for handling the personal information of California residents, or apply these new standards nationwide.

Relation to the GDPR

While the Privacy Initiative, the Privacy Bill and the GDPR address businesses' collection of  personal information, there are several key differences.

The GDPR regulates businesses' collection of personal data to ensure its privacy. Data may only be collected for legitimate purposes, and businesses are prohibited from processing personal data outside of the legitimate purpose for which it was collected. Moreover, businesses may not request personal data beyond that which is necessary to effect the purposes for which it is collected, and are required to delete such data once the purpose for which it was collected is fulfilled. Further, the GDPR requires that data subjects provide affirmative consent for any use of collected data beyond that for which it was collected. The GDPR also requires businesses to design systems that collect and store personal data with technological mechanisms in place so as to ensure the protection of such data. The GDPR further requires that businesses subject to its jurisdiction provide a privacy notice to data subjects.

The Privacy Initiative and the Privacy Bill do share some similarities with the GDPR's rights and requirements. Namely, all three provide a right to obtain from businesses that collect personal data information about the categories of data collected, and for what purpose. Moreover, both the GDPR and the Privacy Bill provide a right to receive not just the categories of personal information collected, but also the specific personal information collected and stored. Further, both the GDPR and the Privacy Bill establish a right to request deletion of personal information collected (referred to in the GDPR as the "Right To Be Forgotten"). However, apart from the affirmative consent requirement, the GDPR contains no separate provision establishing a right to request personal information not be sold, found in both the Privacy Initiative and the Privacy Bill. Moreover, while the GDPR requires that businesses subject to its jurisdiction proactively provide privacy notices to data subjects, neither the Privacy Initiative nor the Privacy Bill impose privacy notice requirements beyond those under existing law. Rather, the California measures place the onus on consumers to exercise the rights created thereunder and affirmatively request disclosure. Nor does either California measure require, as the GDPR does, that businesses which collect large scale personal information of California residents hire a Data Protection Officer to ensure internal compliance with regulations.

Some provisions of the California measures go beyond and are more stringent than those established by the GDPR. The definition of personal information under both the Privacy Initiative and Privacy Bill is far more sweeping than that of the GDPR by its inclusion of such categories as "audio, electronic, visual, thermal, olfactory, or similar information," geolocation data, "psychometric information" and any inferences drawn from any such information. Further, the California measures both would preclude businesses from offering free or discounted versions of their services (e.g., a free or discounted app) in exchange for granting the business the right to market personal information collected, or a paid version that brings with it no right to market such information.

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.

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