United States: Privacy & Cybersecurity Update Issue 3 | October 2014 – US & Canada

Regulatory—Policy and Best Practices

FTC Report Criticizes Mobile Shopping Applications' Data-Use Disclosure Practices
On August 1, the Federal Trade Commission ("FTC") issued a report on mobile shopping applications. In it, the FTC found that such apps often fail to provide clear explanations of the use of consumer data, consumer liability, or processes for handling payment-related disputes. The report includes recommendations to companies that provide mobile shopping applications to consumers.

FTC Submits Comments to CFPB on Mobile Financial Services
On September 10, FTC staff issued comments in response to a request from the Consumer Financial Protection Bureau ("CFPB") for information regarding the use of mobile financial services by consumers. The staff comments highlight the risks posed to consumers by mobile financial services and provide recommendations for industry participants.

Regulatory—International Trade

ITC Identifies Obstacles to Digital Trade
The International Trade Commission's ("ITC") August report, "Digital Trade in the U.S. and Global Economies, Part 2," described data localization requirements as obstacles to digital trade. The Commission found that 82 percent of large firms and 52 percent of small and medium-sized enterprises in the communications sector believed such requirements to be barriers to trade. Data localization and privacy requirements in China, the EU, and Brazil presented the greatest obstacles to large firms, while Canada topped the list for small and medium-sized enterprises.

Regulatory—Financial Services

The American Bankers Association Provides Resources for Communicating with Customers Regarding Data Breaches
On September 9, the American Bankers Association announced its release of a set of tools for bankers to use in communicating with customers and the general public about cybersecurity breaches. The resources include, among other things, sample news releases and social media posts.

The American Bankers Association Releases Results of Study on Costs Associated with Target Data Breach
On September 8, the American Bankers Association released the results of its survey of the impact on banks from the Target consumer data breach. The study found that the average loss per fraudulently used payment card was $331 for debit cards and $530 for credit cards.

The U.S. Department of Treasury Addresses Cybersecurity
On September 12, at the National Association of Federal Credit Union's 2014 Congressional Caucus, the Acting Assistant Secretary for Financial Institutions delivered remarks encouraging financial services providers to adopt the National Institute of Standards and Technology's Cybersecurity Framework for Improving Critical Infrastructure Cybersecurity ("Cybersecurity Framework") to help reduce the risk of data breaches.

New York Department of Financial Services Proposes Regulatory Framework for Virtual Currency Businesses, Including Cybersecurity Requirements
On July 17, the New York Department of Financial Services released a proposed "BitLicense" regulatory framework for firms providing virtual currency services. The regulatory program will require each licensee to maintain a cybersecurity program. The New York Department of Financial Services subsequently extended the period for comments on the draft regulations until October 21.

Government Accountability Office Report Urges Better Information Security at FDIC
The Government Accountability Office ("GAO") issued a July 17 report assessing the effectiveness of the Federal Deposit Insurance Corporation's ("FDIC") controls designed to protect the confidentiality, integrity, and availability of the FDIC's financial systems and information. The report recognized the steps taken by the FDIC to ensure better information security since a 2013 GAO audit but concluded that weaknesses in the FDIC's controls still remain.

Regulatory—Health Care

HIPAA One-Year Transition Period for Business Associate Agreements Expires
On January 17, 2013, the Office for Civil Rights of the U.S. Department of Health and Human Services ("HHS") issued its final HIPAA regulations, which included a one-year transition rule relating to a new requirement that existing business associate agreements must reflect the breach notification rules in the HITECH Act. Under the transition rule, business associate agreements that were in effect on or before January 25, 2013, must be amended on the earlier of (i) the date that such business associate agreement is renewed or modified on or after September 23, 2013, or (ii) September 22, 2014.

HHS Inspector General Finds Security Flaws in Testing and Certification of Electronic Health Records
In August, the Office of Inspector General ("OIG") for HHS issued a report on the Department's Temporary Program to test and certify Electronic Health Records ("EHRs") for use, titled "The Office of the National Coordinator for Health Information Technology's Oversight of the Testing and Certification of Electronic Health Records." The OIG found that the Temporary Program did not ensure adequate security and protection of electronic patient information. Specifically, the Program did not ensure that testing and certification bodies developed procedures to evaluate whether certified EHRs continued to meet federal standards after certification, nor did it ensure that the testing and certification bodies developed training programs to ensure the competency of their own personnel.

NIST and HHS Host Conference on Safeguarding Health Information and Assurance
On September 23–24, the National Institute of Standards and Technology ("NIST") and HHS's Office for Civil Rights hosted a conference on "Safeguarding Health Information: Building Assurance through HIPAA Security." The conference presented a number of papers and best practices for HIPAA compliance and enforcement actions.

FDA Finalizes Guidance on Medical Device Manufacturers' Practices for Managing Cybersecurity Risks
On October 1, the Food and Drug Administration ("FDA") finalized its guidance to medical device manufacturers to encourage manufacturers to consider possible cybersecurity risks when designing medical devices. The guidance, entitled "Content of Premarket Submissions for Management of Cybersecurity in Medical Devices," also recommends manufacturers adopt a plan to manage system or software updates for such medical devices to reduce information security vulnerabilities.

FDA Announces Public Workshop and Requests Comments Regarding Medical Device Cybersecurity
The FDA announced a public workshop entitled "Collaborative Approaches for Medical Device and Healthcare Cybersecurity" to be held on October 21 and 22 in Arlington, Virginia. The purpose of the workshop is to bring together regulators and stakeholders from across the health care and public health sectors to discuss medical device cybersecurity risks and foster industrywide collaboration in the identification and management of such risks. The FDA is also soliciting electronic or written comments on all aspects of the public workshop topics, regardless of attendance at the public workshop. The deadline for submitting such comments is November 24.

Regulatory—Critical Infrastructure

NIST Calls for Cryptographic Transparency
On July 14, NIST's Visiting Committee on Advanced Technology issued a report that called for greater transparency in the development of NIST's cryptographic algorithms. The report follows public concern that NIST allowed its algorithms to be weakened to allow the National Security Agency backdoor access to information.

NIST Issues Updated Guide on Security and Privacy Controls
On July 31, the NIST issued a draft updated guide on Assessing Security and Privacy Controls in Federal Information Systems and Organizations under the Federal Information Security Management Act. The updated guide contains significant changes to the 2010 version and addresses four fundamental needs of federal agencies: (i) the need for new or updated assessment procedures; (ii) the need for a more granular breakdown of assessment objectives; (iii) the need for a more structured format and syntax for assessment procedures; and (iv) the need to support assessments of security and privacy capabilities and root-cause analysis of failure modes.

NIST Seeks Comments on the Cybersecurity Framework
On August 26, NIST requested comments on the private sector's initial experiences with the Cybersecurity Framework, released on February 12. NIST is seeking information about the use and awareness of the Cybersecurity Framework by critical infrastructure entities. NIST will use the comments to assist with adoption of the Cybersecurity Framework by private entities and incorporate the comments into future versions.

NIST Hosts Second Privacy Engineering Workshop
NIST furthered its Privacy Engineering initiative by holding its Second Privacy Engineering Workshop on September 15–16. The initiative was developed to provide guidance to information system users, owners, developers, and designers that handle personal information.

NIST Releases Revised Guidelines for Smart Grid Cybersecurity
In September, NIST announced the release of "NIST Interagency Report 7628 Revision 1, Guidelines for Smart Grid Cybersecurity." The guidelines promote the implementation by smart grid organizations of effective cybersecurity strategies that are tailored to each organization's smart grid-related characteristics, risks, and vulnerabilities.

DHS Office of Inspector General Recommends More Industry Involvement in Cybersecurity Efforts
On August 11, the Department of Homeland Security ("DHS") OIG released a report assessing DHS's progress in implementing the Enhanced Cybersecurity Services ("ECS") program. The voluntary ECS program was designed to encourage the sharing of classified and unclassified information related to cybersecurity threats between the private and public sectors. While the OIG report identified several ECS successes, the report also made several recommendations for program improvement, including encouraging DHS to improve program outreach to all critical infrastructure sectors.

Senator Asks Airline Carriers for Information on Consumer Data Retention
On August 18, Senator Jay Rockefeller (D-WV), Chairman of the Senate Committee on Commerce, Science, and Transportation, wrote a letter to executives of 10 airline carriers requesting information about the airlines' policies for retaining and protecting consumer data. In the letter, Senator Rockefeller noted that "[n]o comprehensive federal privacy law applies to the collection, use, and disclosure of consumer airline information," despite the fact that air travel requires carriers to collect an unusually large amount of personal information. In order to gauge airlines' responsiveness to consumer privacy concerns, the letter asked each airline to provide the Committee with a copy of its privacy policy and to inform the Committee about (i) what consumer data is retained and for how long, (ii) sources from which consumer data is obtained, (iii) measures taken to protect consumer data, (iv) whether consumers have the right to view and correct their information, and (v) whether and how consumer data is sold to or shared with third parties.

Regulatory—Consumer Privacy

Retail Groups Back Tokenization to Curb Card Crime
Several retail industry groups—including the Merchant Advisory Group, the National Retail Federation, the National Restaurant Association, and the Retail Industry Leaders Association—released a statement on July 28 that called on stakeholders in the payments industry to embrace tokenization security standards as a means to protect consumers from cybercrime. Tokenization technology involves the generation of a unique, one-time-use token for every transaction.

FTC Solicits Comments on New Parental Verification Method
The FTC invited public comment on a new method for verifying parental consent under the Children's Online Privacy Protection Rule, 16 C.F.R. § 312, using a third-party common consent administrator.

DHS Issues Point-of-Sale Malware Warning
A July 31 DHS Advisory warned retailers and other companies of a new family of point-of-sale ("PoS") malware that recently was discovered and has been associated with several PoS data breach investigations. Using malware called Backoff, attackers have sought to gain access to company systems using brute force attacks through remote desktop applications. The attackers then deploy PoS malware to extract consumer payment data. The DHS Advisory includes mitigation and prevention strategies to address the threat from the Backoff malware.

Credit Union Industry Group Asks Congress to Enact National Data Security and Breach Notification Legislation for Retailers
On September 3, the National Association of Federal Credit Unions ("NAFCU") renewed its request to Congress to pass national data security and breach notification legislation in the wake of a recent data breach at a major retailer. The NAFCU's statement described the chilling effect data breaches can have on consumer activity and urged Congress to adopt a national data security standard for retailers, noting that credit unions and banks are already subject to such standards under the Gramm-Leach-Bliley Act.

Regulatory—Drones

Executive Order Expected on Drone Privacy Guidelines
Media outlets are reporting that President Obama plans to issue an executive order assigning responsibility to the National Telecommunications and Information Administration ("NTIA") for developing privacy guidelines related to the commercial use of unmanned aircraft, or commercial drones. The order is expected to direct the NTIA to facilitate a multistakeholder process for drafting a voluntary code of conduct that would establish best practices for the commercial use of drones, including addressing privacy concerns.

Judicial Rulings and Enforcement

Court Refuses to Sanction FTC in LabMD Case
On September 5, an administrative law judge denied LabMD's motion for sanctions against the FTC. LabMD's motion argued that the FTC deserved sanctions, including dismissal of the Commission's complaint, because it failed to verify the origin of a key file containing patients' sensitive health information that was allegedly discovered on a peer-to-peer sharing network.

District Court Refuses to Dismiss Breach Case on Standing Grounds
In a decision diverging from the national trend, the Northern District of California held that users of software whose personal information was compromised in a data breach alleged an imminent threat of future harm sufficient to demonstrate standing. Many courts have interpreted the United States Supreme Court's recent decision in Clapper v. Amnesty Int'l USA, 133 S. Ct. 1138 (2013) as holding that an allegation of a possible future injury is insufficient for purposes of Article III standing, but the California court rejected that interpretation of the case. The court held instead that the consumers' allegations that hackers used the defendant's systems to decrypt credit card numbers and that some of the stolen data had been posted online constituted a sufficiently concrete and imminent threat of harm to satisfy Clapper. [A copy of the opinion can be provided upon request.]

Court Dismisses Neiman Marcus Class-Action Lack of Standing
A district court in Illinois granted Neiman Marcus's motion to dismiss a class-action lawsuit alleging the company was negligent in failing to protect consumer credit card information. The court held that the consumers did not have standing to bring the suit because they could not demonstrate concrete injury. The court explained that consumers would be reimbursed for any unauthorized credit card charges and could not show precise costs spent mitigating the risk of future fraudulent charges and identity theft, and that the loss of control over consumers' personal information was insufficiently concrete to confer standing.

Eleventh Circuit Will Hear Arguments in LabMD's FTC Challenge
On August 20, the Eleventh Circuit announced that it will hear oral arguments in LabMD's appeal of a district court's decision that the court could not interfere with the FTC's ongoing administrative enforcement actions against the company. A date for oral argument has not yet been set.

Senator Schumer Asks FTC To Investigate Mobile Fitness Devices
Senator Charles Schumer (D-NY) urged the FTC to investigate whether the makers of mobile fitness trackers are engaging in unfair and deceptive trade practices if they sell personal data to third parties without disclosing such transactions to consumers. His August 11 letter also asked the FTC to consider whether consumers should be given the chance to opt out of the sale of their personal data before they begin using the devices and applications.

FTC Approves Settlement with Companies Over Mobile Phone Applications
On August 13, the FTC approved final orders settling charges against two leading companies concerning mobile application security. The FTC alleged that by disabling SSL certificate verification and other things, the companies failed to adequately protect consumers' sensitive personal information, including credit card information and Social Security numbers, leaving them vulnerable to interception.

FTC Obtains Settlements in Two Suits Alleging Unlawful Collection of Children's Information
The FTC announced settlements in two cases in which it alleged that the companies' collection of children's personal information violated the Children's Online Privacy Protection Act. One company has agreed to pay $450,000 to settle charges that its mobile application failed to implement an effective age-screen, allowed customer registration by children under 13, and collected personal information including customer names and email addresses. The second company agreed to pay a $300,000 civil penalty to settle charges that its application targeted children, collected email addresses, and failed to follow the steps required under the Rule related to the collection of children's personal information.

FTC Announces Proposed Settlement in Children's In-App Purchase Case
The FTC announced a proposed settlement in a case in which it accused a company of violating Section 5 of the FTC Act, 15 U.S.C. § 45, by billing customers for in-app purchases without ensuring account-holder authorization for the charges. The proposed settlement requires the company to provide at least $19 million in refunds to consumers, change its billing practices to obtain express consent before billing, provide consumers an opportunity to withdraw consent for future charges, and contact all consumers who made an in-app charge to inform them of the refund process.

Complaint Alleges Noncompliance with Safe Harbor Framework
The Center for Digital Democracy ("CDD") has filed complaints with the FTC for alleged noncompliance with the U.S.–EU Safe Harbor Framework by various U.S. companies. The CDD's actions may lead to increased enforcement by the FTC. In June, the FTC announced that it has approved final orders settling charges against 14 companies for falsely claiming to participate in the U.S.–EU Safe Harbor Framework. Generally, the Safe Harbor Framework is under review, and the European Union has made recommendations to improve it.

SEC Charges a Bank's Business Unit for Failing to Protect Confidential Trading Data of Subscribers
On July 25, the business unit of a large bank operating an alternative trading system ("ATS"), agreed to pay $5 million to settle the SEC's charges for violating sections of Rule 301 of Regulation ATS. The regulation establishes safeguards for protecting the confidential trading information of subscribers. The unit was alleged to have violated the regulation by allowing a technology affiliate to access and use the confidential trading information of subscribers without their consent and without disclosing the practice in its regulatory filings.

Verizon Settles with FCC Over Notice and Consent
On September 3, the FCC announced its settlement with Verizon following an investigation into potential violations of the FCC's privacy rules. The settlement represents the largest payment for an FCC case based solely on privacy.

State Attorneys General Respond to Home Depot Data Breach
In the wake of the data breach at Home Depot, attorneys general for Pennsylvania, Illinois, and others are investigating and advising victims on how to secure their personal information.

Legislative—Federal

U.S. House of Representatives Passes Cybersecurity Bills
On July 28, the United States House of Representative passed four bills regarding cybersecurity. The National Cybersecurity and Critical Infrastructure Protection Act (H.R. 3696) would codify the responsibilities of DHS and foster collaboration between DHS and the private sector to improve critical infrastructure protection and incident response. The Critical Infrastructure Research and Development Advancement Act of 2014 (H.R. 2952) assigns responsibility to DHS for creating a new cybersecurity technology research and development plan. The House also passed bills that would improve DHS's ability to hire talented cybersecurity personnel (H.R. 3107) and require federal government websites to obtain certification before initiating a process that collects personal information (H.R. 3635). The bills must be approved by the Senate and President Obama before becoming law.

DHS Secretary Calls for Cybersecurity Legislation
On September 9, The Hill published an editorial by the Secretary of DHS that urged Congress to pass cybersecurity legislation, stating that "DHS has reached a point that requires the help of Congress" and noting that "some private companies can and do resist sharing information with DHS about cyber attacks on their systems, for fear of potential liability."

Legislative—States

California Enacts Amendments to Breach Notification Law
California bill A.B. 1710 was approved by lawmakers in August and signed into law by Governor Brown on September 30. Set to take effect on January 1, 2015, the bill extends data security requirements to businesses that "maintain" personal information and prohibits entities from selling, offering for sale, or advertising an individual's Social Security number. Please refer to the Jones Day Commentary, "California Adds More Teeth to Its Data Breach Notification Law," for more information.

Canada

Canada Claims China Responsible for National Research Council Cyberattack
On July 29, Canada announced that it believed the National Research Council ("NRC"), Canada's research and technology organization, was the victim of a Chinese state-sponsored cyber intrusion. The Canadian government confirmed that the NRC's networks do not operate within the broader network of the federal government and there was no evidence of a broader data compromise.

GPEN Publishes Results of Online Sweep on Compliance of Mobile Applications with Data Protection Framework
The Global Privacy Enforcement Network ("GPEN"), a gathering of 27 data protection authorities worldwide, recently examined more than 1,200 mobile apps, both paid and free of charge, and public and commercial, in categories such as leisure, health, physical exercise, and bank transactions. The analysis determined that (i) only 15 percent of the apps examined provided clear information to users as to how their personal data was to be collected, used, and disclosed, (ii) nearly a third of the apps analyzed requested excessive permission regarding their functions, and (iii) in 59 percent of the apps, it was not easy for the participants to find information relating to privacy before installation.

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.