Wyndham vs. FTC: Corporate security pros need to lawyer up about data breach protection, experts say

U.S. court ruling says FTC does have the authority to punish businesses over stolen customer data

Corporate security executives need to meet with their legal teams to find out whether the way they protect customer data will keep them out of trouble with the Federal Trade Commission should that information be compromised in a data breach.

Based on a U.S. Circuit Court of Appeals decision yesterday, the best course of action is to learn what kinds of actions the FTC has taken in the past – and why - against companies whose defenses are cracked and whose customer data is stolen.

Lisa Sotto
Lisa Sotto

Then organizations should take steps to make sure security meets “reasonable industry standards,” says Lisa Sotto, an attorney with Hunton & Williams who focuses on privacy and cybersecurity law.

That’s because the court says it’s OK for the FTC to find businesses at fault for data breaches and to tie them up with consent decrees that force them to submit to third-party security assessments every two years for 20 years, she says.

But it’s still unknown what impact the ruling will have on the fervor with which the FTC goes after breached companies, says Jason Straight, senior vice president and chief privacy officer for UnitedLex, a legal and technology consultancy. “The worry is that [the Wyndham decision] will enable the FTC to be more aggressive,” he says. “The court says it will let the FTC decide what’s reasonable.”

The 3-0 court ruling shot down Wyndham Worldwide Corp.’s claim that federal law doesn’t give the FTC power to punish companies for bad security that results in customer-data theft. “The 3rd Circuit says firmly the FTC does have authority to regulate in the infosec arena,” Sotto says.

Avoiding sanctions by the FTC isn’t typically that onerous, she says, because historically the commission only goes after businesses “for failure to have reasonable security for data entrusted to them by consumers … They typically only go after companies that have deeply insecure systems.”

Wyndham suffered three breaches in 2008 and 2009 and failed to encrypt credit card data, says Straight.

The more than 50 cases the FTC has pursued since the early 2000s have been pretty clearly about businesses failing to create such security, she says. All but Wyndham and one other signed consent decrees with the FTC, and the other is winding down its business.

+ ALSO ON NETWORK WORLD Court: FTC can bring down the hammer on companies with sloppy cybersecurity  +

Some businesses are exempt from FTC authority – banking and healthcare are typically among those – but otherwise security executives should find out what the FTC’s regulatory agenda has been concerning data breaches. That represents 10 years or more of decisions that it’s not likely security pros will have the time to research themselves, so they should call in legal help, Sotto says.

The FTC doesn’t issue a list of specific protections that businesses must provide in order to avoid being cited for failing to deliver reasonable security, but it’s likely that CSOs and others charged with protecting customer data who try to meet a higher standard - corporate best practices for security - won’t run afoul of the commission, she says.

Security pros who try to keep up with defending against the latest known threats should be in good shape, Sotto says. Over the past two years the FTC has gotten better at keeping up with what steps are reasonable, and has hired a chief technologist to lead that effort.

Some guidance from the FTC would be welcome, says Pat Clawson, CEO of Blancco Technology Group. He says the FTC is “more trusting and willing to work together towards a resolution with a company ‘that has reported a breach to the appropriate law enforcers and cooperated with them.’ So setting up written parameters around how those steps are taken – and the subsequent communication around it – could very well impact which businesses fall into the good graces of the FTC and which ones become top targets for investigation and court cases.”

Wyndham could appeal the 3rd Circuit’s decision to the U.S. Supreme Court, but the court would have to decide to hear it, Sotto says, and that’s a very difficult thing to make happen.

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