1. © 2013 Fox Rothschild
Privacy and Data
Security
Risk Management and
Avoidance

2. Topics For Discussion
• What is a “data security breach”?
• Why do you need a response plan?
• Responding to a data security breach
• State statutory requirements
• Regulatory update
• Regulatory enforcement actions and litigation
2

3. 2012 Statistics
• According to Verizon’s 2013 Data Breach
Investigations Report, in 2012, there were 621
confirmed data breaches and 47,000 reported
security incidents.
– 92% perpetrated by outsiders.
– 76% caused by exploiting weak or stolen passwords.
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4. 2012 Statistics
• The FTC instituted 109 consumer protection
enforcement actions.
– Up from 83 enforcement actions in 2011.
• The FTC ordered civil penalties totaling $63.6
million.
– Up from $9.75 million in 2011.
• Identity theft represents the largest category of
consumer complaint received by the FTC
(approximately 18%).
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5. Cost Of A Data Security Breach
• In 2011, data breaches cost organizations an
average of $5.5 million.
– $222 per record
– Includes direct costs (communications, investigations,
legal) and indirect costs (lost business, public
relations)
– Compare to costs of having preventative measures in
place (e.g., policies related to passwords, firewalls,
mobile devices), training employees and encrypting
sensitive information
5

6. Types of Data Security Breaches
• Devices are lost or stolen
• Insider or employee misuse
• Unintended disclosure
• Security patches are not installed
• Malware
• Hacking
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7. What Is The Objective?
Fill In The Gap
• Protection
• Compliance
• Audits
• Criminal prosecution
• Civil liability
How to Manage the Data Security Breach
7

8. Why Do You Need A
Response Plan?
Thoughtful and Prepared Reaction
Better Decision Making
Minimized Risk and Loss
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9. Collect Relevant Information
• Data location lists
• Confidentiality
agreements
• Customer contracts
• Third-party vendor
contracts
• Privacy policy
• Information security
policy
• Ethics policy
• Litigation hold template
• Contact list
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10. Create A First Response Team
• Information technology (computer & technology
resources)
• Information security (physical security & access)
• Human resources (private employee information
health & medical, payroll, tax, retirement)
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11. Create A First Response Team
(cont’d)
• Legal counsel (in-house and/or outside counsel)
• Compliance
• Business heads (consumer information)
• Public relations/investor relations
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12. Assign Tasks To Members
Of The First Response Team
• Establish a point person
• Identify key personnel for each task
• Prioritize and assign tasks
• Calculate timelines and set deadlines
• Communicate with management
• Establish attorney-client privilege for investigation
and communications
Project Management Is Critical
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13. Determine The Nature
And Scope Of The Breach
• Investigate facts
• Interview witnesses
• Determine type of information that may have been
compromised
• Identify and assess potential kinds of liability
• Identify individuals potentially at risk and determine
state or country of residence
Preserve Company’s Assets, Reputation and Integrity
13

14. Understand Data Breach
Notice Laws
• State laws:
– What constitutes personal information?
– When is a notice required?
– Who must be notified? (e.g.,State Attorney General)
– Timing?
– What information must be included in the notice?
– Method of delivering notice?
– Other state specific requirements?
• Applicable industry-specific laws
• Applicable international laws
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15. Determine Appropriate Notices
• Consumers
• Employees
• Law enforcement (Federal/State)
• Federal regulatory agencies
• State agencies (State Attorney General)
• Consumer reporting agencies
• Business partners
• Insurers
• Media
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16. Data Security Breach Notification
• Alabama, Kentucky, New Mexico and South
Dakota are the only states that do not have a
data security breach notification statute.
• California statute served as a model for later
state statutes.
– State involvement began in California, after series of
breaches received national attention.
– Passed in 2002, went into effect in mid-2003.
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17. Data Security Breach Notification
• “Any person or business that conducts business in
California, and that owns or licenses computerized
data that includes personal information, shall
disclose any breach of security of the system
following discovery or notification of the breach in
the security of the data to any resident of California
whose unencrypted personal information was, or is
reasonably believed to have been, acquired by an
unauthorized person.”
See Cal. Civ. Code § 1798.29.
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18. Data Security Breach Notification
• “Personal information”
– First name or initial and last name with one or more of
the following (when either name or data element is
not encrypted):
• Social security number;
• Driver’s license number;
• Credit card or debit card number; or
• Financial account number with information such as
PINs, passwords or authorization codes.
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19. Data Security Breach Notification
• Some states have expanded the definition of
“personal information” to include:
• Medical information or health insurance information
(California);
• Biometric data (Indiana);
• Mother’s maiden name, birth/death/marriage
certificate and electronic signature (North Dakota).
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20. Data Security Breach Notification
• Last month, the California Senate passed S.B.
46 to expand the definition of “personal
information” to include:
– “a username or email address, in combination with a
password or security question and answer that would
permit access to an online account.”
– S.B. 46 is now before the Assembly.
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21. Data Security Breach Notification
• “Breach of the security of the system”
– Some states expressly require notice of unauthorized
access to non-computerized data
• New York: “lost or stolen computer or other device
containing information” or “information has been downloaded
or copied”
• Hawaii and North Carolina: data includes “personal
information in any form (whether computerized, paper, or
otherwise)”
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22. Data Security Breach Notification
• Generally, only need “reasonable” belief the
information has been acquired by unauthorized
person to trigger notification requirements.
– Certain states require risk or harm
• Arkansas: no notice if “no reasonable likelihood of harm to
customers”
• Michigan: no notice if “not likely to cause substantial loss or
injury to, or result in identity theft”
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23. Data Security Breach Notification
• Distinguish between entity that “owns or
licenses” data and entity that “maintains” data
– Data owner has ultimate responsibility to notify
consumers of a breach
– Non-owners required to notify owners
23

24. Florida Breach Notification Statute
F.S.A. §817.5681
• Applies to “any person who conducts business in
this state and maintains computerized data in a
system that includes personal information.”
• Requires business to “provide notice of any
breach of the security of the system . . . to any
resident of this state whose unencrypted
personal information was, or is reasonably
believed to have been, acquired by an
unauthorized person.”
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25. Florida Breach Notification Statute
F.S.A. §817.5681
• Requires notification to consumers “without
unreasonable delay” and “no later than 45 days
following the determination of the breach.”
– Permits an “administrative fine” not to exceed
$500,000 for failing to comply with this section.
• Allows delay in notification “upon a reasonable
request by law enforcement”.
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26. Florida Breach Notification Statute
F.S.A. §817.5681
• “Breach of the security of the system” means an
“unlawful and unauthorized acquisition of
computerized data that materially compromises
the security, confidentiality, or integrity of
personal information.”
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27. Florida Breach Notification Statute
F.S.A. §817.5681
• “Personal information” means “an individual’s first name, first
initial and last name, or any middle name and last name, in
combination with any one or more of the following data
elements when the data elements are not encrypted:
– Social security number;
– Driver’s license number or Florida Identification Card number;
– Account number, credit card number, or debit card number in
combination with any security code, access code or password.
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28. Florida Breach Notification Statute
F.S.A. §817.5681
• Does not require notification if “after an
appropriate investigation or after consultation
with relevant federal, state and local agencies
responsible for law enforcement, the person
reasonably determines that the breach has not
and will not likely result in harm.”
– Determination must be documented in writing and
maintained for 5 years.
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29. Prepare State Law Notices
• General description of the incident
• Type of information that may have been
compromised
• Steps to protect information from further
unauthorized access
• Contact information (e.g., email address; 1-800
number)
• Advice to affected individuals (e.g., credit
reporting, review account activity)
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30. Prepare State Law Notices
• Delivery method (e.g., certified letters, e-mail,
website)
• Timing of notices
• Tailor notices based on recipient
• Use single fact description for all notices
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31. Prepare Answers To Inquiries
• Draft FAQ’s with responses
• Establish hotline
• Assign group of contact employees
• Train employees to respond to inquiries
• Develop clear escalation path for difficult
questions
• Track questions and answers
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32. Prepare Press Release
• Include the following information:
– Facts surrounding the incident
– Actions to prevent further unauthorized access
– Steps to prevent future data security breaches
– Contact Information for questions
• Review by legal counsel
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33. Consider Offering
Assistance To Affected Individuals
• Free credit reporting
• Free credit monitoring with alerts
• ID theft insurance
• Access to fraud resolution specialists
• Toll-free hotline
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34. Regulatory Update
The FTC And Mobile Applications
• In February 2013, the FTC issued a Staff Report
titled “Mobile Privacy Disclosures: Building Trust
Through Transparency.”
• The Staff Report recommends ways that key
players in the mobile marketplace can better
inform consumers about their data practices.
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35. Regulatory Update
The FTC And Mobile Applications
• The recommendations ensure that consumers get timely
and easy-to-understand disclosures about what data they
collect and how the data is used.
• The Report makes specific recommendations to:
– Mobile platform developers;
– Application developers;
– Advertising networks and analytics companies; and
– Application developer trade associations.
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36. Regulatory Update
California’s Right To Know Act
• Assembly Bill 1291
• Would require businesses that collect consumer
information to provide customers with the names
and addresses of all data brokers, advertisers and
others who were granted access to the
information, as well as details regarding the data
that was disclosed.
• Businesses would have 30 days to answer a
request for the information.
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37. Regulatory Update
California’s Right To Know Act
• Applies to businesses who “retain” personal data
or disclose the information to a third party.
• Defines “retain” to mean “store or otherwise hold
personal information” whether the information is
collected or obtained directly from the consumer
or any third party.
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38. Regulatory Update
California’s Right To Know Act
• Faced opposition by companies such as Google
and Facebook.
• Assemblywoman Bonnie Lowenthal delayed
action on the bill by turning it into a two-year bill.
• Lowenthal plans to spend the remainder of the
year educating her colleagues about the
importance of the proposed legislation.
• Assembly will consider AB 1291 again in 2014.
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39. Regulatory Update
California And Mobile Applications
• In 2012, the California Attorney General entered
into an agreement with 6 companies whose
platforms comprise the majority of the mobile
apps market (i.e., Amazon, Apple, Google,
Hewlett-Packard, Microsoft and RIM).
• The agreement is designed to ensure that mobile
apps comply with the California Online Privacy
Protection Action (CalOPPA).
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40. Regulatory Update
California And Mobile Applications
• CalOPPA requires operators of commercial websites and
online services, including mobile apps, who collect
personal information about California residents to
conspicuously post a privacy policy.
• In October 2012, the California Attorney General issued
100 enforcement letters to companies like Delta Airlines
who operate mobile apps.
• In December 2012, the California Attorney General filed
its first mobile app enforcement lawsuit against Delta
based upon alleged lack of privacy disclosures in its app.
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41. Regulatory Update
California And Mobile Applications
• On January 10, 2013, the California Attorney
General issued a report titled “Privacy On the
Go: Recommendations for the Mobile
Ecosystem.”
• The Report announced suggested changes in
how companies address consumer privacy in
their mobile applications.
41

42. Regulatory Update
California And Mobile Applications
• Examples of the recommendations in the
California Attorney General’s Report:
– Personal information is not limited to name and email
address.
– Maintain list of what information app will collect, as well as
how it will be used and stored.
– Only collect personal information necessary to an app’s
functionality.
– Privacy policies must be “readable.”
– Companies should not rely upon their general privacy policy.
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43. Enforcement Actions
• Federal Trade Commission – Section 5 of FTC Act
– Enforce privacy policies and challenge data security
practices deemed “deceptive” or “unfair.”
• State Attorney General – State Notification Statutes
– Connecticut: “Failure to comply . . . shall constitute an
unfair trade practice . . .”
– Virginia: “The Attorney General may bring an action to
address violations.” Moreover, “nothing in this section
shall limit an individual from recovering direct economic
damages.”
• Litigation in federal and state courts.
43

44. Federal Trade Commission
• In June 2012, the FTC instituted litigation in federal
court against Wyndham Worldwide Corporation.
• In its complaint, the FTC alleges that, beginning in
April 2008 and through January 2010,
cybercriminals hacked into Wyndham’s computer
network and the networks of certain Wyndham
hotels, exposing credit card information of hotel
guests.
44

45. Federal Trade Commission
• The FTC alleges that hackers compromised
administrator accounts and installed memory-
scraping malware to access credit card
information.
• The FTC contends that hackers compromised
over 619,000 credit card account numbers and
that the incidents caused more than $10.6 million
in fraud losses.
45

46. Federal Trade Commission
• Under Section 5 of the FTC Act, which prohibits
“unfair and deceptive acts or practices,” the FTC
alleges that:
– Wyndham’s data security protections amounted to
“unfair” trade practices because they were not
“reasonable and appropriate”; and
– Wyndham “deceived” consumers by stating on its
website that it used “commercially reasonable efforts” to
secure credit card information that it collects from
consumers.
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47. Federal Trade Commission
• In an unprecedented move, Wyndham refused to
settle this dispute and filed a motion to dismiss the
complaint.
– Wyndham argues that the FTC is overreaching its authority
because “Section 5’s prohibition on ‘unfair’ trade practices
does not give the FTC authority to prescribe data-security
standards for all private businesses.”
– Wyndham argues that, because Congress has not yet
passed data security legislation, the FTC has the authority to
regulate data security in limited contexts (e.g., Gramm-
Leach-Bliley Act).
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48. Federal Trade Commission
– Wyndham further argues that Section 5 of the FTC Act
“provides no meaningful notice to regulated parties”
because it does not contain any guidance about what
practices might be deemed “unfair” or “deceptive.”
Similarly, the FTC has not published any rules or
regulations “explaining what data security practices a
company must adopt to be in compliance with the statute.”
– As such, “businesses are left to guess as to what they must
do to comply with the law.”
– This case is pending in the United States District Court for
the District of New Jersey (Civil Action No. 13-01887).
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49. Federal Trade Commission
• This is the first litigated case challenging the FTC’s
authority under Section 5 of the FTC Act related to
data security.
• Generally, FTC enforcement actions result in a
settlement.
– FTC provides a defendant with a proposed draft
complaint.
– FTC “negotiates” the terms of a consent order.
49

50. State Attorney General
• Last month, the Connecticut and Maryland Attorneys
General questioned LivingSocial Inc. about the
specifics of a recent data breach that exposed the
personal information of approximately 50 million
users.
• The Connecticut and Maryland Attorneys General
issued to LivingSocial 15 written questions regarding
the scope of the breach, as well as its privacy and
security policies.
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51. State Attorney General
• Examples of questions posed by Attorneys General
include:
– Detailed timeline of the incident
– Number of affected individuals in each state
– Types of personal information compromised
– Steps taken to determine that no financial or credit card
information was compromised
– Steps taken to protect user passwords
– How the company collects user data and how long it retains
such data
– Copies of any privacy policies
– Plans developed to prevent another breach
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52. State Attorney General
• Both Connecticut and Maryland have statutes
that require a company to report a data security
breach to the Attorney General, as well as to
individual consumers.
• Questions posed by these Attorneys General
provide guidance on issues companies should
consider in responding to a data security breach.
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53. Litigation
Typical Claims By Plaintiffs
• Plaintiffs (consumers or employees) typically
allege the following causes of action:
– Common law claims of negligence, breach of
contract, breach of implied covenant or breach of
fiduciary duty.
– Claims for violations of state consumer protection
statutes – deceptive/unfair trade practices acts.
• Historically, courts have dismissed these cases
based upon lack of standing.
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54. Litigation
Plaintiffs Lack Standing
• In re LinkedIn User Privacy Litig. (N.D. Cal. 2012):
– Plaintiffs filed complaint against LinkedIn in
connection with a data breach incident in which
approximately 6.5 million users’ passwords and email
addresses were stolen and posted on the Internet.
– Plaintiff argued that they had standing to sue because
they suffered economic harm by not receiving the full
benefit of the bargain they paid for premium
memberships.
– The Court granted LinkedIn’s motion to dismiss the
complaint.
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55. Litigation
Plaintiffs Lack Standing
• In re LinkedIn User Privacy Litig. (N.D. Cal. 2012):
– The Court held that, “[t]o satisfy Article III standing,
plaintiff must allege:
• (1) an injury-in-fact that is concrete and particularized,
as well as actual and imminent;
• (2) that injury is fairly traceable to the challenged action
of the defendant; and
• (3) that it is likely (not merely speculative) that injury will
be redressed by a favorable decision.”
55

56. Litigation
Plaintiffs Lack Standing
• In re LinkedIn User Privacy Litig. (N.D. Cal. 2012):
– Plaintiffs failed to allege that “included in Plaintiffs’ bargain
for premium membership was the promise of a particular
(or greater) level of scrutiny that was not part of the free
membership.”
– Plaintiffs did not allege that they relied upon (or even read)
LinkedIn’s representations regarding safeguarding
personal information.
– Plaintiffs’ allegation that their LinkedIn passwords were
“publicly posted on the Internet” does not amount to a
“legally cognizable injury, such as, for example, identity
theft or theft of her personally identifiable information.”
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57. Litigation
Plaintiffs Have Standing
• Ruiz v. Gap, Inc., 622 F. Supp. 2d 908 (N.D. Cal.
2009) (increased risk of identity theft constituted
sufficient “injury in fact” for purposes of standing).
• Krottner v. Starbucks Corp., 628 F. 3d 1139 (9th
Cir.
2010) (“a credible threat of real and immediate harm
stemming from theft of a laptop containing
unencrypted personal information” sufficient to
demonstrate standing).
57

58. Litigation
Plaintiffs Cannot Allege Damages
• Krottner v. Starbucks Corp., 628 F. 3d 1139 (9th Cir.
2010).
– “[O]ur holding that Plaintiffs-Appellants pled an injury-in-
fact for purposes of Article III standing does not establish
that they adequately pled damages for purposes of their
state-law claims.”
– “[A]ctual loss or damage is an essential element in the
formulation of the traditional elements necessary for a
cause of action in negligence.”
– Court dismissed case because Plaintiffs alleged “no loss.”
58

59. Litigation
Plaintiffs Cannot Allege Damages
• In re: Sony Gaming Networks and Customer Data
Security Breach Litig., MDL No. 2258 (S.D. Cal. 2011):
– Hackers accessed the personal information of millions of
Sony’s customers.
– Plaintiffs did not allege any identity theft or unauthorized
use of personal information “causing a pecuniary loss.”
– The Court granted Sony’s motion to dismiss and found
that, “without specific factual statements that Plaintiffs’
Personal Information has been misused, in the form of an
open bank account, or un-reimbursed charges, the mere
danger of future harm unaccompanied by present damage,
will not support a negligence action.”
59

60. Litigation
Plaintiffs Cannot Allege Damages
• Holmes v. Countrywide Fin. Corp., No. 08-0205, 2012
U.S. Dist. LEXIS 96587 (W.D. Ky. 2012) (court dismissed
case where “scant evidence exists demonstrating that
[the theives] misused the customers’ information or
engaged in any kind of financial fraud”).
• Worix v. MedAssets, Inc., 857 F. Supp. 2d 699 (N.D. Ill.
2012) (court dismissed negligence claim because
plaintiff did not allege that his personal information was
“misused”).
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61. Litigation
Plaintiffs Allege Damages
• Anderson v. Hannaford Bros. Co., 659 F.3d 151 (1st
Cir.
2011):
– Hackers stole 4.2 million credit and debit card numbers,
and security codes.
– Defendant acknowledged that more than 1,800 incidents
of identity theft resulted from the breach.
– Many victims had to pay to cancel their cards or purchase
credit monitoring services. Others incurred unauthorized
charges.
– Court denied motion to dismiss.
61

62. Litigation
Plaintiffs Allege Damages
• Resnick v. AvMed, Inc., 693 F.3d 1317 (11th
Cir. 2012):
– Thieves stole 2 laptops containing names, addresses,
phone numbers and social security numbers of 1.2 million
AvMed customers.
– Ten months after the incident, a bank account was opened
and credit card issued in the name of one of the AvMed
customers.
– Four months later, an E*Trade account was opened in the
name of another AvMed customer.
– Unauthorized purchases were made from both accounts.
– Court denied motion to dismiss because plaintiffs alleged
“financial injury.”
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63. Avoid Future Data
Security Breaches
• Understand what types of personal information is
collected, how, where and how long it is stored, and who
has access to it.
• Collect only personal information necessary to conduct
business.
• Retain personal information for shortest time necessary
to conduct business.
• Limit access to personal information.
• Encrypt data.
63

64. Avoid Future Data
Security Breaches
• Establish internal policies to protect personal
information.
– e.g., robust passwords, usage policies for laptops and
mobile phones, secure disposal policies.
• Comply with promises made to consumers or employees
regarding privacy and security of personal information.
– Disclosures about collection, maintenance, use and
dissemination of personal information must be accurate
and complete.
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65. Avoid Future Data
Security Breaches
• Train employees.
• Conduct periodic audits.
• Update and revise policies and procedures regularly.
• Enhance technology to strengthen security and reduce
risk.
– e.g., strong firewalls, scans for vulnerabilities, up-to-date
anti-virus software.
• Use care when engaging third-party vendors and hold
them to high standards.
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66. Amy Purcell, Esq.
215.299.2798
apurcell@foxrothschild.com
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