All posts by Paul E. Paray

Litigation Management, Privacy, Risk Management, Social Media

Mexico City Redux: Conference of Data Protection and Privacy Commissioners

On November 2 – 3, 2011, about 600 persons from around the world attended the 33rd International Conference of Data Protection and Privacy Commissioners.   For those unable to make the trek to Mexico City, what follows is selected insight gained from several folks who attended and were kind enough to report back what was discussed in Mexico.

The event opened with an exposition of the “big data” concerns driving many large privacy programs.   Ken Cukier of The Economist used the example of how the Sumo wrestling scandal was uncovered using big data analytics, i.e., a complete analysis of 10 years’ worth of Sumo contests, to showcase the fast, ubiquitous, and distributed nature of big data.   A common big data thread turned on the data collection activities of Facebook and Google – with an obvious concern regarding their future usage of collected data.  It was pointed out that a browser configuration is so customized now that it can act as a fingerprint indentifying its owner — leading to even more big data concerns.

Two other covered substantive topics were, not surprisingly, social media and mobile technologies.  Tied to social media was the purported “right to be forgotten.”  Building on prior conferences, it appears as if the commissioners in attendance believed future regulations will eventually create such a right in the EU.  The question of enforcement was not really deemed much of a concern – which is curious given it would be wishful thinking to think anyone can actually completely scrub the Internet of one’s personal data.   Moreover, do we really even want bad information regarding a professional such as a doctor or lawyer ever completely wiped clean?

As for mobile discussions, one session focused exclusively on the ramifications of having over five billion mobile users worldwide.  In ten years time, it was estimated there would be 20 billion SIM cards in use connecting multiple devices to each other.  In effect, chips will be everywhere processing and collecting data — leading to ever-increasing privacy challenges. 

Another area of discussion was the “interoperability” of privacy laws around the world.  The lofty notion of harmonization was abandoned in lieu of the more workable interoperability concept.  This new perspective would entail better cooperation between the various commissioners with perhaps an executive committee to assist in such coordination efforts.  The committee would deal with global issues that would require better cooperation, e.g., regulatory efforts involving multi-national corporations potentially impacting the privacy rights of persons in  many countries.

An interesting sidebar on interoperability was the ability to use of common regulations instead of directives.  Such a change in course would take much longer to implement given the need to, for example, go to a Parliament to pass such  regulations.  It was assumed this path would take 3 – 5 years to implement.  On the other hand, it would allow for much more in the way of teeth to an executive committee’s agenda.   

There was also an interesting debate between the commissioners regarding their perceived roles.  It was universally acknowledged that they are overwhelmed by the explosive privacy issues impacting their respective offices.  What was not universally acknowledges was how they should prioritize their time in meeting this challenge.  One school of thought (spearheaded by Chris Graham, the UK Information Commissioner) was that commissioners and their offices should be counselors assisting companies reach relevant privacy standards — a definitely carrot-centric approach.  The combating school of thought (voiced strongly by Jacob Kohnstamm, Head of the Article 29 Working Group and Chairman of the Dutch Data Protection Authority) was that only enforcement sticks should be used.  Mr. Kohnstamm said that companies have had enough time to be compliant and it is now time to enforce existing laws.  He also apparently stated that even if he wanted to act as a counselor he does not have sufficient advisory personnel on staff to act in that role.  Interestingly, this divide may also be attributable to a common law vs. civil law axis.  Given that Mr. Kohnstamm is up for election as head of the Article 29 Working Group, his election may end up being a referendum on this debate.

There was also interesting insight gained regarding the difference in styles between two newly installed commissioners; the newfound influence of Asia at the conference; the focus — for the first time — on privacy violations involving state actors; and a belief that the closed session resolutions may formalize the working relationships between the various commissioners and their respective offices.  

There is no doubt that the global privacy landscape is expanding at a rapid rate and that this conference will only grow over time – next year it will be at a resort in Uruguay.  Simon Davies, Director of Privacy International, even spoke about how countries such as Pakistan and Afghanistan are now starting a privacy dialogue.   The Dragon also took a privacy bow when Zhou Hanhua of the Chinese Academy of Social Sciences in Beijing gave a keynote address that discussed the new revisions to China’s penal code regarding privacy infractions as well as its revisions to Identification and Telecommunications laws to better address privacy concerns.   And, it was even mentioned Korea will host the conference in a few years. 

In other words, there can be no denying privacy is and will forever be a global issue.  In fact, that truism may very well be the reason this year’s Conference of Data Protection and Privacy Commissioners was titled “PRIVACY: The Global Age.”

Litigation Management, Network Security, Privacy, Risk Management

First Circuit Rules Hannaford Damages Include ID Theft Insurance and Card Reissuance Fees

On October 20, 2011, the United States Court of Appeals for the First Circuit issued an opinion reversing a Maine District Court’s dismissal of negligence and implied contract claims against grocer Hannaford Brothers.  The underlying data breach publicly announced on March 17, 2008 by Hannaford led to a consolidated class action that was ultimately rejected in its entirety by the Maine District Court.   After receiving guidance from the Maine Supreme Court regarding whether time and effort alone could represent a cognizable injury — it did not — the District Court ultimately ruled that even though claims for implied contract and negligence could be alleged by the plaintiffs, because the associated damages were not cognizable in law, the action had to be dismissed. 

In reversing, the First Circuit recognized that “[t]here is not a great deal of Maine law on the subject [of damages recoverable under § 919 of the Restatement (Second) of Torts].”  Accordingly, it reviewed a good deal of caselaw outside of Maine before applying § 919’s rule that “[o]ne whose legally protected interests have been endangered by the tortious conduct of another is entitled to recover for expenditures reasonably made or harm suffered in a reasonable effort to avert the harm threatened” to the specifics of this case.   Several cited cases found such mitigation damages valid even if they exceed the potential savings and are purely financial in nature. 

Recognizing the Hannaford breach involved a large-scale criminal operation that already led to over 1,800 identified fraudulent charges and many banks issuing new cards, the First Circuit ruled that mitigation damages in the form of ID theft insurance and credit card reissuance fees were financial losses recoverable under the negligence and implied contract claims so long as they are considered reasonable mitigation damages.   There was no remand for further factual findings on the issue.  The First Circuit simply made a determination that such damages were both foreseeable and reasonable and reversed on that basis.  Now that the consolidated complaint lives another day, the District Court may certify a class but if it does it remains to be seen how far the lower court will go in sizing the class and allowing for such mitigation damages.

Litigation Management, Privacy, Risk Management

ZIP Code Litigation Update

Earlier this year, the California Supreme Court ruled on the outer reach of a state statute meant to protect consumers during credit card transactions – the Song-Beverly Credit Card Act of 1971.  See Pineda v. Williams-Sonoma Stores, Inc., 51 Cal. 4th 524 (2011).  Specifically, Song-Beverly precludes retailers from requesting and recording a customer’s “personal identification information” during a credit card transaction and the Pineda court reasoned that such information now includes ZIP code information.  The decision was largely driven by the fact current marketing firms can use a ZIP code to tap into vast stores of personal data about a consumer.  Although the law may have only applied to retail stores in California, the decision immediately gave rise to an avalanche of class action suits given class action counsels’ new-found access to statutory damages.

In fact, given this new extension of the law, California legislators quickly amended Song-Beverly to exclude from its reach retail motor fuel sales and state law obligations.  This proposed law passed both the Senate and Assembly, was presented to the Governor on September 22, 2011 and will likely soon be signed into law.   What this proposed law does not do is expressly reverse Pineda or turn the tide against class actions brought against retailers.

It appears, however, courts on their own have found ways to curtail further extensions of Song-Beverly.  In an August 2011 Order, a California trial court sustained an online service provider’s demurrer to a class action complaint under Song-Beverly.  The action involved the purchase of an online advertisement.  The Order simply states that the law “on its face does not apply to online transactions,” and “the applicable case law, legislative intent and public policy indicate that such transactions are not, and should not be, encompassed” by Song-Beverly.

Other jurisdictions have been reluctant to create Pineda-like precedent.  In an unpublished opinion filed on September 26, 2011, a New Jersey District Court Judge decided that New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA) – which provides for a civil penalty of not less than $100 per violation – was not triggered when plaintiff provided her ZIP code during a retail credit card transaction.  The statute requires that the provisions of a specific consumer contract violate a state or federal law.  In dismissing the Complaint, the District Judge found that a credit card transaction did not implicate a specific consumer contract given the card number and ZIP code at issue were merely a series of numbers and not part of a specific consumer contract.  Given that New Jersey’s version of Song-Beverly (Restrictions on Information Required to Complete Credit Card Transactions, N.J.S.A. § 56:11-17) does not provide for a private right of action, plaintiff did not claim standing under that law.  With no small sense of irony, the case was dismissed against the same defendant as in Pineda.

A bench opinion recently entered by a New Jersey state judge came to the exact opposite conclusion.  In that ruling from the bench, the court found that a violation of N.J.S.A. § 56:11-17 was a sufficient predicate for a violation of the Truth-in-Consumer Contract, Warranty and Notice Act – which, in turn, allowed access to the statutory damages so eagerly sought by class action plaintiffs.  Given that it was only a bench opinion, the decision has no precedential weight.  In other words, it’s a decision that now means nothing to other retailers in New Jersey.  On the other hand, it only takes a chip here and there to sometimes break a levy – or the willing hand of an appellate court.  Stay tuned.

Update:  October 1, 2011
After reading a transcript of the oral argument and opinion, it appears the state court judge ultimately gave too much deference to NJ’s motion to dismiss standard.   Although the court concluded by saying he was “making no comment about the merits of the case”, he ultimately found that a common law privacy claim exists when a retailer obtains a customer’s ZIP code during a credit card transaction.  Moreover, he reasoned that a claim under TCCWNA could also exist given ZIP code information was was part of the writings required to complete the consumer transaction.  Accordingly, there was enough of a consumer contract to trigger the statute.

Update:  January 6, 2012
Although it ultimately dismisses an action against Michael’s Stores, Inc. given there is no cognizable common law injury and the applicable law does not provide for statutory damages, a Massachusetts federal court  rules that ZIP code information is “personal identification information”.

Network Security, Risk Management

Anonymous Supports September 17 Efforts

On August 23, 2011, Anonymous released a video endorsing the September 17, 2011 planned “Day of Rage” occupation of Wall Street and other financial areas around the world.   Specifically, in its video, Anonymous urges protesters on September 17th to “flood into lower Manhattan, set up tents, kitchens, peaceful barricades and occupy Wall Street for a few months … Once there, we shall incessantly repeat one simple demand in a plurality of voices.”

This endorsement might seem fairly harmless.  On the other hand, those in the financial sector are urged to take this implicit threat pretty seriously.  According to a duo of FBI agents talking today at a public briefing regarding the entry of Anonymous to the September 17th efforts, financial institutions are advised to step up their network security during the next few days.  In fact, a recent FBI crackdown on Anonymous may be tied to S17.   Given there is deliberately no leadership core within Anonymous, all that can be hoped is that on the 17th its members choose to take a day off from clicking on a computer; and instead take a relaxing train ride downtown.

Update:  September 19, 2011
As of Monday morning, the “Day of Rage” event showed no publicly reported increase in data security events.  It is estimated that several thousand attended the rally in New York City but there was not much in the way of media reporting given it was largely a peaceful event.

Update:  September 28, 2011
On September 23, 2011, the FBI’s Cyber Division issued the following informational bulletin to Infragard members:

For situational awareness, the following message was posted online by the hacking group Anonymous:

Anonymous announces a nationwide “Day Of Vengence” to take place in dozens of cities across the USA on Saturday – September 24, 2011 at High Noon.  In coordination with these protests across the USA on September 24th, Anonymous and other cyber liberation groups will launch a series of cyber attacks against various targets including Wall Street, Corrupt Banking Institutions – and the NYC Police Department.  We encourage the media to follow the Twitter feed @PLF2012 for ongoing reports throughout the day.

Additional public source information has identified possible targets of these attacks, to include entities in New York (state and city), public and private entities associated with the recent execution of Troy Davis in the state of Georgia, and law enforcement in general.

No further information is available at this time in regard to the specific nature, means, or potential targets of Anonymous’ plans for September 24th; however, in the past, Anonymous has engaged in distributed denial of service (DDoS) attacks, utilized SQL injection to gain unauthorized access to computer systems, conducted social engineering to gather personal identifying information, and released both personal information (i.e. “doxing”) and the contents of compromised systems (e.g. e-mail message content, passwords, etc.).

InfraGard members are encouraged to engage in information security best practices, such as using strong passwords, not reusing passwords, updating software to protect against known vulnerabilities, and ensuring that web-based applications are not at risk to attacks, such as SQL injection.

September 24, 2011 came and went without any publicly disclosed incident tied to this threat.  The hope is that the FBI’s future warnings are not ignored given the lack of traction of these recent Anonymous warnings.  Bottom line:  Safeguarding against SQL injection exploits is obviously sound advice with or without an Anonymous threat.

Update:  October 12, 2011
Although similar to the October 8-11, 1969 “Days of Rage” riots in Chicago that led to the arrest of several hundred Weatherman radicals, the current Wall Street “Days of Rage” protesters are not facing nearly as much opposition from the police or popular media.   Moreover, despite the Anonymous threat, there have been no reports of cyber incidents directly tied to this protest.  RIM, however, has faced several recent outages.  Although RIM has publicly stated that these Blackberry blackouts were caused by a “core switch failure”, given that there is still strong Blackberry usage in the financial sector, it will be interesting to hear in a few months time whether there was anything else that contributed to these blackouts.

Update:  November 13, 2011
Much has happened since the first Day of Rage took place several months ago on Wall Street — including its morphing  into a national “Occupy” movement in cities around the country.  It’s generally been tough going for these occupiers.  There have been deaths in the Occupy Oakland and Occupy Burlington protests as well as a death at the one in Salt Lake City; a tuberculosis outbreak  hit Occupy Atlanta; and the starting point at Zuccotti Park near Wall Street has seen its share of viruses and STDs thin the ranks.  As for Anonymous, the general consensus is that the hype they generated yielded PR benefits to the organization even though to date they apparently have not been directly involved in any related cyber-security incident.

Network Security, Privacy, Risk Management

Ponemon Second Annual Cost of Cybercrime Study

A detailed study regarding the impact of cybercrime on corporations was recently released by the Ponemon Institute.  According to the Second Annual Cost of Cyber Crime Study, the median annualized cost of cybercrime incurred by a benchmark sampling of organizations was $5.9 million per year, with a range of $1.5 million to $36.5 million each year per organization.  This was an increase of 56 percent from the median cost reported in the inaugural study.

According to this Ponemon deep dive of organizations who have sustained incidents of cybercrime, more than 90 percent of all cybercrime costs were caused by malicious code, stolen devices and web-based attacks.  During a four week period, the organizations surveyed by the Ponemon Institute experienced 72 successful attacks per week, an increase of nearly 45 percent from last year.  Interestingly, according to a recent study by Webroot Research, cybercrime on social networks also continues to increase — with the number of US-based users who have experienced attacks on social networks growing from 8% in 2009 to 13% in 2010 to 18% in 2011.

Smaller-sized organizations were found by Ponemon to incur a significantly higher per capita cost than larger-sized organizations ($1,088 versus $284).  This may be given that smaller organizations do not readily negotiate much off of vendor rack rates — another reason to evaluate network security and privacy insurance as well as working with a law firm that has significant experience in dealing with breaches.

According to this Ponemon survey, the average time to resolve a cyber attack is 18 days, with an average cost to participating organizations of $415,748 over this 18 day period.  Interestingly, this represents a 67 percent increase from last year’s estimated average cost of $247,744, which took place over a 14 day period. Results of the study show that malicious insider attacks can take more than 45 days on average to contain.

On September 14, 2011, New York Metro InfraGard and Coalfire are co-sponsoring a New York City event that will feature Dr. Larry Ponemon speaking on the Ponemon Institute’s Cost of Cybercrime Study.  For details on this event, visit the Infragard site or registration site.

Law Firm, Privacy, Risk Management

NJ Court Rules No Privacy Tort Exists for Location Tracking

In what may be a case of first impression, the New Jersey Appellate Division ruled, on July 7, 2011, that the tort of invasion of privacy does not necessarily exist whenever a plaintiff alleges surreptitious location tracking by a defendant.  Specifically, the court ruled:

We hold that the placement of a GPS device in plaintiff’s vehicle without his knowledge, but in the absence of evidence that he drove the vehicle into a private or secluded location that was out of public view and in which he had a legitimate expectation of privacy, does not constitute the tort of invasion of privacy.

Villanova v. Leonard, No. A-0654-10T2, slip op. at 3 (N.J. App. Div. July 7, 2011).

The facts of the case are likely not that uncommon.  A woman hired an investigator to track her husband (who she suspected of infidelity) and the investigator suggested she place a GPS tracking device in the glove compartment of the car shared with her husband.   After related divorce proceedings were concluded, the husband sued the investigator in state court.  In a summary judgment motion, the husband’s privacy claim against the investigator was dismissed by the trial court.  In affirming, the court reasoned there was “no direct evidence in [the] record to establish that during the approximately forty days the GPS device was in the Denali glove compartment the device captured a movement of plaintiff into a secluded location that was not in public view, and, if so, that such information was passed along by Mrs. Villanova to defendants.”  Id. at 11.

The court certainly took pains to limit the impact of its decision by pointing out that if the car did travel to “secluded locations”  there would be more of an issue with the conduct of defendants.  It is hard to envision, however, situations where a person traveling in a car would ever have much of an expectation of privacy sufficient to trigger an invasion of privacy claim.   See Id. at 16 (“‘A person traveling in an automobile on public thoroughfares has no reasonable expectation of privacy in his [or her] movements from one place to another.'”)  (quoting United States v. Knotts, 460 U.S. 276, 281 (1983)).

In seeking to avoid dismissal, the plaintiff conjectured that secluded places might include “a private parking garage, an impound yard, or a stretch of a lonely beach.”  Id. at 6.   In strongly worded dicta, the court left the door open to such an argument:  “Although these hypothetical circumstances might well exist, there is nothing in this record to suggest that any such incident ever occurred during the time the GPS device was in place.”  Id.

As well, the court pointed out several times that the GPS data was likely not provided to the defendants.  This factor obviously undercuts by some measure the impact of the decision.  For example, if the same general set of facts were presented in a new case but the data was actually sent to numerous third parties, would a future court have more leeway in allowing a privacy claim to proceed?   Did the court inadvertently create a test whereby some allegations regarding  “secluded excursions” coupled with evidence of third party release of the location data is enough to withstand a motion for summary judgment?

Although it remains to be seen how persuasive this decision will be outside of New Jersey, it is nevertheless helpful given how unsettled location tracking remains as an area of privacy and constitutional law.   Further guidance, however, may be right around the corner given a recent privacy class action based on location tracking and the fact that, on June 27, 2011, the United States Supreme Court agreed to hear United States v. Jones — actually directing the parties to brief and argue the following question:  “Whether the government violated respondent’s Fourth Amendment rights by installing the GPS tracking device on his vehicle without a valid warrant and without his consent.”

Network Security, Privacy, Risk Management

Betterley Report on Cyber Insurance is Now Available

The highly-anticipated annual Betterley Report on cyber insurance was released right before the 4th of July holiday weekend.  In the free summary of the issue, there is mention of the 29 insurers now providing some form of network security and privacy insurance.  Betterley projects the existing market to be in the $800 million range — which would make it probably the fastest growing insurance product in the current soft insurance market.

In the free summary there is also an article written regarding cloud exposures and how such exposures may impact coverage under a network security and privacy policy.  As recently reported in the Wall Street Journal, a World Economic Forum report found “that 90% of suppliers and users of cloud services consider privacy risks to be a ‘very serious’ impediment to widespread cloud adoption.”  Given this concern, having the right privacy insurance in place becomes that much more important.

Litigation Management, Risk Management

Supreme Court Rules in Favor of Wal-Mart

In a widely anticipated decision, the United States Supreme Court today unanimously reversed a U.S. Court of Appeals for the Ninth Circuit ruling that allowed a class action to go forward against Wal-Mart.   And, in its majority ruling, the Court found that the action should be completely dismissed given that plaintiffs could not ultimately overcome Federal Rules of Civil Procedure requirements regarding class action certification.

In essence, the Court rejected the Court of Appeals reasoning that 1.5 million women could litigate their discrimination claims in a single action.   In rejecting the appeals court’s finding that individual backpay claims were allowable, the Court ultimately accepted Wal-Mart’s argument that the class action deprived it of its ability to defend itself.

The reoccurring theme of the Court’s decision can largely be distilled to the following:

Quite obviously, the mere claim by employees of the same company that they have suffered a Title VII injury, or even a disparate-impact Title VII injury, gives no cause to believe that all their claims can productively be litigated at once. Their claims must depend upon a common contention—for example, the assertion of discriminatory bias on the part of the same supervisor.  That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

As detailed in a prior post, “[a]lthough named plaintiffs in the Wal-Mart case ‘waived any claim for compensatory damages, forfeiting the rights of individual class members to recover damages authorized by Congress solely in order to facilitate class treatment’, an important commonality ruling remains likely given the Court specifically requested that the parties brief the applicability of Federal Rule of Civil Procedure 23(a).  See Petitioners Brief at 35, dated January 20, 2011.”

In rejecting the notion that Fed. R. Civ. P. 23(a)(2)’s commonality requirement was satisfied, the Court went beyond the Court of Appeals decision to provide needed clarity on this important class action requirement.  Frankly, none of this is surprising given the Supreme Court’s cert wording.  See Dukes v. Wal-Mart Stores, Inc. , 603 F.3d 571 (9th Cir. 2010), cert. granted, Wal-Mart Stores, Inc. v. Dukes, 178 L. Ed. 2d 530 (2010) (“Petition for writ of certiorari to the United States Court of Appeals for the Ninth Circuit granted limited to Question I presented by the petition.  In addition to Question I, the parties are directed to brief and argue the following question:  ‘Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a).’”).

In future class actions, defendants will also look to this decision to justify using sharper substantive arguments within class action certification motions.   Although courts have previously had the ability to rely on evidentiary hearings to resolve class action motions, the Court here seems to have turned the judicial discretionary dial to a much wider setting.   Specifically, in finding there was insufficient commonality to proceed with this case, the Court  ruled:

Here respondents wish to sue about literally millions of employment decisions at once. Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.

And, in reaching this decision, the Court wholly rejected one of plaintiffs’ substantive arguments:  “The second manner of bridging the gap [to a common defense] requires ‘significant proof’ that Wal-Mart ‘operated under a general policy of discrimination.’  That is entirely absent here.”  This particular form of class action substantive adjudication — which will likely be looked upon by courts as viable in future class certification motions – was part of the majority opinion rejected by four Justices.  See also In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 318 (3d Cir. 2008) (“A contested requirement is not forfeited in favor of the party seeking class certification merely because it is similar or even identical to one normally decided by a trier of fact.”).

The Court was also coy — sometimes offering the opposite of clear guidance.  For example, the Court recognized that the District Court “concluded that Daubert [ v. Merrell Dow Pharmaceuticals, Inc., 509 U. S. 579 (1993)] did not apply to expert testimony at the certification stage of class-action proceedings. 222 F. R. D., at 191.”   Rather than adding clarity as to whether the Daubert standard for expert witness testimony actually did apply during the class action certification phase, the Court casually responds to the district court’s opinion concerning the applicability of Daubert:   “We doubt that is so, but even if properly considered, Bielby’s testimony does nothing to advance respondents’ case.”  It is interesting to read how the Court skirts the issue of whether one of its decisions would apply to a given procedural stage of a case.  How much weight such language has on future courts remains to be seen.

Finally, in a unanimous ruling that will certainly curtail the sort of tactical maneuverings done by plaintiffs’ counsel in this case, the Court offered the following clarity regarding how future courts should decide class actions involving declaratory or injunctive relief:

Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages….Contrary to the Ninth Circuit’s view, Wal-Mart is entitled to individualized determinations of each employee’s eligibility for backpay.

Although future courts may only choose to apply the Wal-Mart decision in an large employment discrimination context, there can be no denying the decision will be hailed as pro-business given it further assists large companies in avoiding class actions — whether employment based or not — brought by disparate plaintiffs with individualized claims.   As for plaintiffs’ counsel, he has vowed to take up the cause by filing potentially thousands of individual cases.  It will be interesting to see how long that hubris will last.

Litigation Management, Privacy, Risk Management

Round Four of The Personal Data Privacy and Security Act

On June 7, 2011, Senator Patrick Leahy introduced “The Personal Data Privacy and Security Act” — the fourth time he has introduced this particular piece of legislation.  According to the senator’s press release, the law would “establish a national standard for data breach notification, and require American businesses that collect and store consumers’ sensitive personal information to safeguard that information from cyber threats.”  This latest reincarnation of the law was likely prodded by the White House’s recent legislative call to action — a call to action that had listed first a national data breach notification law.

The 70 page bill proposes significant changes to existing laws – many of which make sense now that the theft of personal data has become a mainstay of organized crime.  For example, as recommended by the recent White House proposal, it amends the Computer Fraud and Abuse Act to add RICO-like language.  There are also significant obligations for data brokers as well as money penalties assessed to data brokers who violate these obligations.  Throughout the proposed law; and including the section regarding data broker duties, state attorney generals are given broad powers to bring civil actions and can obtain significant money penalties for violations of the law.

Another section of the proposed law seeks to ensure that any business “engaging in interstate commerce that involves collecting, accessing, transmitting, using, storing, or disposing of sensitive personally identifiable information in electronic or digital form on 10,000 or more United States persons” must adhere to “standards for developing and implementing administrative, technical, and physical safeguards to protect the security of sensitive personally identifiable information.”  Unlike the Red Flags regulations promulated by the FTC and subsequently clarified by Congress, these requirements would reach beyond creditors.  And, those businesses already subject to existing data safeguarding laws such as HIPAA and Gramm-Leach-Bliley would be exempt from these new requirements. Violations of this section would bring with it significant money penalties as well as possible enforcement by either the FTC or state attorney generals.  As with the other sections of the proposed law, there is no private right of action.

The final section of the proposed law provides for nationwide data breach notification which generally requires that all subject breaches be reported without unreasonable delay.  Again, state attorney generals are given broad enforcement rights:

The Attorney General may bring a civil action in the appropriate United States district court against any business entity that engages in conduct constituting a violation of this subtitle and, upon proof of such conduct by a preponderance of the evidence, such business entity shall be subject to a civil penalty of not more than $1,000 per day per individual whose sensitive personally identifiable information was, or is reasonably believed to have been, accessed or acquired by an unauthorized person, up to a maximum of $1,000,000 per violation, unless such conduct is found to be willful or intentional.

Without the ability to bring a private right of action, these enforcement powers and penalties still only indirectly stir the class action pot. 

Of the many competing privacy and data security laws being offered up in Congress, it remains to be seen which is the front runner.  Given that both parties have endorsed a federal breach notification law that would serve to harmonize the 47 state breach notice laws and this one apparently seeks to combine the best of current state law, it seems at least the breach notification section of Leahy’s proposed law might have a chance of passing both houses.    As well, this proposed law is not likely to upset privacy advocates given the Department of Commerce is given no new powers.  Most importantly, given that it has much of what was outlined in the recent White House proposal, the entire proposed law would likely be signed into law by the President.  For good or for bad, with only 40 legislative days left before the election that wouldn’t be happening any time soon.

Network Security, Risk Management

Defense Contractors May Be Impacted by RSA Breach

On the heels of the breach that potentially exposed RSA’s source code for its SecurID tokens– the same tokens used every day by thousands of employees to access their corporate VPNs –  a defense contractor acknowledged on May 27, 2011 that its network may have been compromised as an indirect result of the RSA breach.  As reported by Reuters, Bloomberg, and the New York Times, the defense contractor “detected an intruder trying to break into its networks last Sunday. It shut down much of its remote access and has been providing new tokens and passwords to many workers.”

It is still not certain whether the two breaches are related but it is interesting to note that this story was first broke by a blogger and not the broader media.   Given the fact this incident may  involve military information, it is likely we will never fully learn what has happened.  When it comes to divulging secrets, misinformation is usually the stock in trade of the military.

What remains clear, however, is that advanced persistent threats continue to pose long term threats to corporate and governmental interests.   The good old days of naive hackers stumbling upon exposed databases and inadvertently helping to plug a previously unknown hole are no more.   We are now in the age where a state actor or sophisticated cyber criminal will gladly sit on vulnerabilities for as long as it takes.  Simply put, with enough patience, a determined and sophisticated thief will eventually get whatever information a buyer may want.

[Update:  June 10, 2011]
RSA conceded that the defense contractor breaches may be related to RSA’s March breach and has offered to replace corporate SecurID fobs.  There is some supposition that a large defense bid was the catylist leading to both the RSA breach and subsequent defense contractor breaches.  We may never know who caused the various attacks or why.   What we do know, however, is that RSA has decided to appoint its first chief security officer.