cybersecurity

Marriott Secures 80% Reduction in ICO Fine, but Here’s What You Missed…

Hot on the heels of the £20 million fine issued to British Airways, the Information Commissioner’s Office (“ICO“) has issued Marriott International Inc. (“Marriott“) with a long-awaited penalty notice for its failure to ensure appropriate security of the personal data it processed. The global hotel chain has been fined £18.4 million, which is a substantial reduction from the £99.2 million contemplated by the ICO’s notice of intention to fine. Unfortunately, the decision failed to give any detailed explanation for the reduction in the level of the fine from £99.2 million to £28 million. Although, a further 20% reduction to £22.4 million was designed to acknowledge Marriott’s cooperation, and a further £2 million reduction was to reflect the impact of the coronavirus pandemic. READ MORE

International Transfers at Risk – The EDPB’s Guidelines on International Transfers Post-Schrems II

On November 11, 2020, the European Data Protection Board (EDPB) published its long-awaited guidance on what parties to international data transfers should be doing to perform such transfers in a manner compliant with the Regulation (EU) 2016/679 (the General Data Protection Regulation or GDPR) in light of the European Court of Justice’s (CJEU) decision in Case C-311/18 Data Protection Commissioner v Facebook Ireland and Maximillian Schrems (Schrems II).

Unfortunately, the draft guidelines provide no panacea for companies engaged in international data transfers of personal data from the EEA to third countries. Instead, organizations face 55 pages of guidance that provide few workable solutions for international data transferors—apart from a lengthy protocol for conducting risk assessments. READ MORE

Upcoming Webinar: Data, Privacy and Cyber Security Issues in International Arbitration

Join Orrick and the Silicon Valley Arbitration and Mediation Center (SVAMC) on November 4, 2020, for a complimentary webinar on how arbitration can deal with substantive data, privacy and cyber issues arising in international disputes. Orrick’s James Hargrove (International Arbitration partner/Geneva and London) and Keily Blair (Cyber, Privacy & Data Innovation partner/London) will join other panelists to address current topics in arbitrating data and cyber issues, for example, arbitrability, mass arbitrations, multiplicity of proceedings, follow-on claims from data breaches, territorial limitations, interim and final relief and sanctions, future issues – how will arbitration deal with the ever-growing importance and value of data. Keily, James and their fellow panelists will put an up-to-date focus on data, privacy and cyber issues in arbitration proceedings, with a discussion of current practices, remote hearings and technological advances, hearings protocols, increased cyber risks and steps to protect data integrity.  Learn more and register here.

Webinar  |  November 4, 2020  |  12:00pm – 1:00pm EST

Sedona Conference Proposes Legal Test for “Reasonable Security”

The legal risks associated with cybersecurity continue to increase, as regulators and plaintiffs’ lawyers become more and more aggressive in bringing cybersecurity claims under existing laws and as legislatures continue to enact new ones. A key element of many of the cybersecurity claims brought under these laws is a requirement to show that the company in question failed to implement “reasonable” security for personal information. California’s new Consumer Privacy Act (“CCPA”), for instance, allows consumers to sue businesses for statutory damages when specified types of personal information are subject to unauthorized access and exfiltration, theft, or disclosure because of a failure to implement and maintain “reasonable” security measures and the business has not cured the alleged violation within the CCPA’s pre-suit period. Cal. Civ. Code § 1798.150. Even though consumers often suffer no injury in a data beach, the CCPA provides for statutory damages of $100–$750 per consumer per incident. READ MORE

Pending U.S. Supreme Court Cases May Restrict FTC’s Pursuit of Monetary Relief in Privacy and Cybersecurity Matters

Earlier this month, the U.S. Supreme Court agreed to hear a pair of cases that provide it with the opportunity to severely restrict the Federal Trade Commission’s (“FTC’s”) authority to obtain equitable money relief in consumer protection enforcement actions, including privacy and cybersecurity matters. Under Section 13(b) of the FTC Act, in certain circumstances the FTC is empowered to bring actions in federal court to seek temporary restraining orders and injunctions for violations of the Act. In two consolidated cases, FTC v. Credit Bureau Center, LLC and AMG Capital Management, LLC v. FTC, the Supreme Court will now consider whether, as the FTC claims, this provision also authorizes the agency to seek equitable money relief for such violations, even though the provision makes no mention of money relief. The decision will have broad implications because the FTC has relied on Section 13(b) to seek monetary relief in consumer protection enforcement actions, including privacy and cybersecurity matters. A ruling against the FTC could substantially alter the FTC’s approach to privacy and cybersecurity enforcement.

The FTC’s privacy and cybersecurity enforcement actions typically rely on Section 5 of the FTC Act, which prohibits unfair or deceptive trade practices. The FTC takes the position that a failure to implement “reasonable” cybersecurity or privacy practices can constitute an “unfair” practice, and that making false or misleading statements about such practices can be a “deceptive” trade practice under the statute.

The FTC can enforce Section 5 in two ways. First, it can rely on its traditional administrative enforcement authority, which allows the FTC to initiate an administrative proceeding to issue an order to “cease and desist” violations of Section 5, but only provides for monetary relief in limited circumstances. Second, in certain situations the FTC can sue directly in federal court under Section 13(b) of the FTC Act. Although Section 13(b) authorizes only “injunctions,” the FTC often brings cases under this section in federal court seeking monetary relief under equitable doctrines such as restitution, disgorgement and rescission of contracts.

Until recently, courts universally accepted the FTC’s expansive view that its authority under Section 13(b) to obtain “injunctions” enables it to seek equitable monetary relief. But that has begun to change. In Credit Bureau, the Seventh Circuit rejected the FTC’s position that Section 13(b) authorizes monetary relief on the ground that an implied equitable monetary remedy would be incompatible with the FTC Act’s express remedial scheme. Most notably, the court observed that the FTC Act has two detailed remedial provisions expressly authorizing equitable money relief if the FTC follows certain procedures. The FTC’s broad reading of Section 13(b) would allow the agency to circumvent these conditions on obtaining equitable money relief, contrary to the intent of Congress. And in AMG Capital Management, although the Ninth Circuit considered itself bound to follow its prior precedent allowing the FTC to obtain money relief under Section 13(b), two of the three panel members joined a special concurrence arguing that this position is “no longer tenable.” And a decision from the Third Circuit last year, while not addressing whether the FTC is barred from pursuing money relief under Section 13(b), held that to pursue such relief the FTC must, at a minimum, allege facts plausibly suggesting that the company “is violating, or is about to violate,” the law.

If the Supreme Court restricts or eliminates the FTC’s pursuit of equitable money relief under Section 13(b), its decision would represent a significant setback for the FTC’s recent attempts to expand its remedial authority in privacy and cybersecurity cases, among others. In June 2018, medical laboratory LabMD obtained the first-ever court decision overturning an FTC cybersecurity enforcement action, convincing the Eleventh Circuit that an FTC cease-and-desist order imposing injunctive relief requiring LabMD to implement “reasonable” data security was impermissibly vague. (The team directing that effort – led by Doug Meal and Michelle Visser – joined Orrick in January 2019.) In the wake of LabMD, the FTC’s new Chairman, Joseph Simons, stated that he was “very nervous” that the agency lacked the remedial authority it needed to deter allegedly insufficient data security practices and that, among other things, the FTC was exploring whether it has additional untapped authority it could use in this space. The FTC has followed through on that promise in the ensuing years, pursuing a wide range of additional remedies, including equitable money relief. An adverse ruling by the Supreme Court could strike a severe blow to the FTC’s efforts on this front.

Such a ruling is entirely possible. Just last month in SEC v. Liu, the Supreme Court recognized limits on the disgorgement power of the Securities and Exchange Commission, determining that it is restricted to situations where the remedy does not exceed a wrongdoer’s net profits and is awarded for victims. However, unlike the FTC Act, the SEC Act specifically authorizes the SEC to seek “equitable relief.” Therefore, the consolidated AMG and Credit Bureau cases afford the Supreme Court an opportunity to recognize even greater restrictions on the FTC’s authority to obtain equitable money relief under Section 13(b) – or, as the Seventh Circuit did in Credit Bureau, to reject such authority altogether.

While in the short term such a ruling may reduce the monetary risks of FTC privacy and cybersecurity enforcement for companies collecting personal information, it could serve as a catalyst for a legislative proposal that would provide the FTC significant new authority to police privacy and security violations and assess civil penalties.

To discuss these cases in more detail, or for advice on the FTC’s privacy and cybersecurity enforcement program more generally, please feel free to contact any member of our privacy & cybersecurity team, which has immense experience in this area.

Practical Tips for In-House Counsel From Recent Cybersecurity Decisions

The possibility of a cybersecurity incident—and ensuing litigation—is a fact of life for almost every business. Even companies that do not process or handle consumer information collect personal information about their employees that can be targeted by hackers or phishing scams or even inadvertently disclosed, exposing the company to potential liability.

While eliminating cybersecurity litigation risk entirely likely is not feasible, recent cases do highlight some steps that companies seeking to reduce potential exposure to cybersecurity litigation can take: READ MORE

Seventh Circuit Rejects FTC Authority to Obtain Equitable Money Relief Under Section 13(b) of the FTC Act

On August 21, 2019, the U.S. Court of Appeals for the Seventh Circuit held in FTC v. Credit Bureau Center, LLC, 2019 WL 3940917 (7th Cir. 2019) that the Federal Trade Commission (“FTC”) lacks authority to obtain monetary relief under Section 13(b) of the FTC Act. The FTC has relied on Section 13(b) to seek money relief in consumer protection enforcement actions, including privacy and cybersecurity matters, and had, prior to the Credit Bureau decision, suggested an intent to do so more frequently in the future. READ MORE

Recent FTC Cybersecurity Settlements Highlight Benefits and Risks of Settling vs. Litigating

Amidst mounting pressure to pursue cybersecurity more aggressively, the Federal Trade Commission (“FTC”), the federal government’s most active enforcer in the space, has recently imposed increasingly stringent cybersecurity requirements in its consent orders. Given that FTC consent orders typically carry 20-year terms and a potential fine of $42,530 (which the FTC may contend applies to each consumer subject to a breach), it is vital for companies faced with an FTC cybersecurity investigation to take every possible step to narrow the scope of relief requested by the FTC. Several recent FTC cybersecurity settlements illustrate an emerging pattern: a company that litigates may secure a better deal than it would have received in an initial settlement, if not defeat the action entirely. But when considering whether to settle or litigate with the FTC, companies must still balance the various legal, business, and reputational risks at stake.

How the decision to settle or litigate can directly affect the relief imposed is evident in the FTC’s 2019 cybersecurity settlements: Unixiz, ClixSense, LightYear, Equifax, and D-Link. READ MORE

Supreme Court Leaves Standing for Privacy and Cybersecurity Cases Unresolved

Privacy & Cybersecurity Litigation partner Michelle Visser, counsel David Cohen and associate Nicole Gelsomini authored this blog post for the Washington Legal Foundation on the unsettled state of the law on constitutional standing in privacy and cybersecurity cases in the wake of two recent Supreme Court developments. Constitutional standing challenges are, and will continue to be, an important potential tool for privacy and cybersecurity defendants seeking to dismiss certain class actions brought in federal court. To establish standing, a private plaintiff must show, among other things, that he or she faces an actual or imminent concrete injury from the defendant’s conduct. As explained in the Washington Legal Foundation post, however, the Supreme Court recently passed on two chances to clarify the test that will govern this standing inquiry, leaving defendants to wade through conflicting and ambiguous lower court precedent. The uncertain and nuanced state of this area of law underscores the importance of retaining experienced cybersecurity and privacy defense counsel when faced with this type of suit.

Third Circuit Shire Decision May Spell Trouble for FTC Cybersecurity Enforcement Plans

In June 2018, medical laboratory LabMD obtained the first-ever court decision overturning a Federal Trade Commission (FTC) cybersecurity enforcement action. (The team directing that effort – led by Doug Meal and Michelle Visser – joined Orrick in January 2019). There, the Eleventh Circuit held that an FTC cease-and-desist order imposing injunctive relief requiring LabMD to implement “reasonable” data security was impermissibly vague. In the wake of LabMD, the FTC’s new Chairman, Joseph Simons, stated that he was “very nervous” that the agency lacked the remedial authority it needed to deter allegedly insufficient data security practices and that, among other things, the FTC was exploring whether it has additional untapped authority it could use in this space. In this regard, Chairman Simons and Commissioner Rebecca Kelly Slaughter announced that the FTC is examining whether it can “further maximize its enforcement reach, in all areas, through strategic use of additional remedies” such as “monetary relief.” READ MORE