FTC Beat
Archive for the ‘Cybersecurity’ Category
Mar 19
2014

FTC Secures Nine Figure Judgment Against Single Co-Defendant in Scareware Case

After the FTC secured a $163MM judgment against Kristy Ross in the US District Court of Maryland, the 4th Circuit affirmed, and so ends the FTC’s six-year “scareware” enforcement action. From beginning to end, this odyssey has been quite colorful, to say the least. The nine-figure judgment against Ross is no exception.

Originally, there were eight codefendants: Innovative Marketing, Inc., ByteHosting Internet Services, LLC, and five of the companies’ officers and directors, including Ms. Ross. The case was based on FTC allegations that their massive “scareware” scheme was deceptive in violation of Section 5 of the FTC Act. Specifically, the FTC alleged that the defendants falsely warned consumers that (imaginary) scans of their computers detected security or privacy issues (e.g., viruses, spyware, system errors, and pornography). After receiving the fraudulent security alerts, the consumers were prompted to purchase the Defendants’ software to remedy the (imaginary) problems.  More than one million consumers purchased the scareware – of them, roughly three thousand filed complaints with the FTC.

Ross was the only co-defendant remaining at trial, and the judgment was entered against her individually and as a member of Innovative Marketing, Inc. (IMI). Four of the eight original defendants settled with the FTC in February 2010. The same month, the trial court entered default judgments against the remaining three – IMI, Mr. Jain, and Mr. Sundin – for their failure to appear and participate in the litigation. Ross retained counsel but failed to file an answer, respond to the FTC’s discovery requests, or appear at trial. As such, the lone defendant Ross was tried in absentia. Though not explicitly expressed in the trial judge’s opinion, one can only imagine that the optics did not bode well for Ms. Ross at trial.

Before trial, the FTC moved for summary judgment. In her opposition, Ross argued that she was just an employee at IMI (not a “control person”) without requisite knowledge of the misconduct and that she could not therefore be held individually liable under the FTC Act. The court found there to be no issues of material fact with regard to whether the scareware scheme was deceptive in violation of the FTC Act. And a bench trial was ordered to determine the extent of Ross’ control over, participation in, and knowledge of IMI’s deceptive practices.

At trial, Judge Bennett found that Ross had actual knowledge of the marketing scheme, was fully aware of many of the complaints from customers, and was in charge of remedying the problems. The court issued a permanent injunction (as authorized by the FTC Act) and held her individually liable for the total amount of consumer injury (calculated by the FTC $163,167,539.95), finding that to be the proper measure for consumer redress.

On appeal, Ross asked the court to apply the SEC standard for individual liability, which essentially requires a showing of specific intent/subjective knowledge. The Fourth Circuit declined, finding that such a standard would leave the FTC “with a futile gesture of obtaining an order directed to the lifeless entity of a corporation, while exempting from its operation the living individuals who were responsible for the illegal practices in the first place.” The appeals court also rejected Ross’ arguments that district courts do not have authority to award consumer redress, noting that “[a] ruling in favor of Ross would forsake almost thirty years of federal appellate decisions and create a circuit split,” an outcome that it refused to countenance.

The factual and procedural history of this case are pretty outlandish, and it is not clear why Ross opted to take the FTC to the mat (in absentia) on case with so much weighing against her. Had she settled with the others back in 2010, maybe she would have only been on the hook for the gross revenues she received from the alleged scam. Then, almost certainly the FTC would have followed its common practice of suspending all but the amount she was able to pay. But, alas, she did not.

posted in:
Cybersecurity, Fraud
Feb 25
2014

Attorney General Holder Calls on Congress to Establish Strong National Data Breach Notification Standard

By Michelle Cohen, CIPP-US

Yesterday, in his weekly video address, Attorney General Eric Holder urged Congress to create a national data breach notification standard requiring companies to quickly notify consumers of a breach of their personal or financial information.  In the wake of the high profile holiday season data breaches at retailers Target and Neiman Marcus, Holder stated that the Department of Justice and the U.S. Secret Service continue to work to investigate hacking and cybercrimes. However, Holder believes that Congress should act to establish a federal notification requirement to protect consumers.  Holder’s video address is available here .

Currently, at least forty-six states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands have laws requiring private or government entities to notify individuals of security breaches of information involving personally identifiable information.  As might be expected, the laws vary widely from state to state, particularly in the timing requirement for the breach notifications.  Most laws allow delay to accommodate a law enforcement investigation.

Some states require notification as soon as reasonably practicable.  Others require notification within 45 days.  Yet organizations have faced lawsuits for failing to notify on a timely basis, even where there is no set standard.  This presents a difficult situation for companies.  Organizations need to investigate a data breach and determine the type of information affected, who was affected (and thus needs to be notified), and importantly, whether the breach is ongoing such that the company must immediately implement remedial measures.

Attorney General Holder believes Congress should set a national standard that will better protect consumers. Holder asserts that a federal requirement should enable law enforcement to investigate the data breaches quickly and to hold organizations accountable when they fail to protect personal and financial information. Holder’s video message did include a reference that this requirement should create “reasonable exemptions” for companies to avoid creating unnecessary burdens.

The Target and Neiman Marcus data breaches have certainly raised the profile of cybersecurity issues on Capitol Hill, with several bills having been introduced in recent weeks addressing data breaches.  While the states certainly took the lead in protecting consumers by enacting data breach laws over the past several years, a properly-crafted national standard could provide more consistent guidance for industry and a uniform rule for consumers irrespective of their home states.  Should Congress move forward on a data breach law, reasonable accommodations need to be made for companies to have time to investigate data breaches, to determine scope, persons affected, and the type of information affected.  A national standard setting forth a notification deadline would also presumably alleviate the “rush to the courthouse” from the plaintiff’s bar with data breach notification timing allegations.  

tags:
Jan 28
2014

Data Privacy Day

By Michelle Cohen, CIPP-US

On January 28th, in an effort raise awareness of privacy and data privacy, the United States, Canada and 27 countries of the European Union celebrate International Data Privacy Day.  Many organizations use Data Privacy Day as an opportunity to educate their employees and stakeholders about privacy-related topics.  With the recent, high-profile data breaches as Target, Neiman Marcus, and potentially, Michaels, the need for training and instruction on data security is more critical than ever before.  In this vein, we’ve set forth our views on what we see as the year ahead in legal developments relating to data security and what companies can do to prepare.

Legislation Introduced but on the Move?

Data security and data breaches will continue to be the focus of regulators and Congress through 2014.  In fact, Congress summoned Target’s Chief Financial Officer to appear before the Senate Judiciary Committee on February 4th and a House committee is seeking extensive documents from Target about its security program.  Meanwhile, Senator Leahy re-introduced data breach legislation which would set a federal standard for data breach notifications (most states now require notifications, though the requirements differ state-to-state).

Senators Carper and Blunt introduced a separate bipartisan bill intended to establish national data security standards, set a federal breach notification requirement, and also require notification to federal agencies, police, and consumer reporting agencies when breaches affect more than 5,000 persons.  Many companies have suffered data breaches and then faced civil lawsuits under various causes of actions, including allegations that they did not notify customers promptly.  As a result, there may be strong support for federal standards rather than facing a patchwork of state laws. While the Target breach has certainly renewed interest in data security, and we expect Congress will conduct numerous hearings, ultimate passage of data breach legislation this Congress is still probably a longshot.

Watching Wyndham Take on FTC

As covered in this blog, various Wyndham entities have struck back at the FTC, challenging the FTC’s authority to bring an action against Wyndham for alleged data security failures. The Wyndham entities claim that the FTC may not set data security standards absent specific authority from Congress.  Yet, with Congress having not set data security standards thus far, the court in oral arguments seemed concerned about leaving a void in the data security area.  Wyndham’s motion to dismiss remains pending in federal court in New Jersey.  Most observers think the court will be hard pressed to limit the FTC’s authority under Section 5 of the FTC Act, which broadly prohibits ”unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce”  and provides the FTC with administrative and civil litigation enforcement authority.  The agency has used this administrative authority with great success, bringing numerous data privacy actions that usually result in settlements by companies rather than risk further litigation expenses, penalties, and reputational damage.  We think the FTC will remain vigilant in this space, including attention on the security of mobile apps.

Class Actions Jump on Breaches

Whether breaches affect Sony Playstation, Adobe,  Target, or some other company, the class action firms have been busy filing lawsuits based upon data breaches.  For example, by year end, at least 40 suits had already been filed against Target, with seven filed the day Target disclosed the breach.  The plaintiffs use various theories – including violations of consumer protection statutes, negligence, fraud, breach of contract, breach of fiduciary duty, invasion of privacy and conversion.  But, if a consumer’s information was potentially breached, yet nothing happened to the consumer as a result, does that consumer have cognizable damages?  That has been a huge sticking point for these lawsuits.  Yet, the class action lawyers will continue to file these suits and some companies will settle to avoid further reputational damages and litigation expenses.

Don’t Count out the States

States have taken the lead in setting data breach notification standards, and in some cases data security requirements.  For instance, in March 2010, Massachusetts enacted strict data security regulations.  Organizations that own or license personal information of Massachusetts residents are required to develop and implement a written comprehensive information security program (“CISP”) to protect that information.  Almost all of the states have standards setting forth what types of information are covered by data breaches, who gets notified, what content goes in the notifications and, the timing of the notifications.  Multiple states are investigating the Target breach; certainly less well known breaches get state regulators’ attention as well.  We predict the states will continue to be active regulators and enforcers of data security and data breaches, and will likely continue to “rule the roost” while federal legislation lags behind.

Preparation and Training Still Key

We’ve said before that, unfortunately, no company is immune from data breaches.  Companies cannot assume that they have the best anti-malware or security features and that these other newsworthy breaches resulted from lapses that would not apply to them.  Whether it is a sophisticated hacker or, more commonly, a well-meaning but negligent employee, data loss and data breaches will occur.  All organizations should have procedures in place NOW to prevent data loss and to prepare for a breach.  This includes IT, human resources, legal, and communications resources.  Companies should designate a “data security/data breach” team with representatives from these key departments (working with outside counsel and other privacy breach specialists when needed).  The team should meet periodically to review procedures, recommend improvements, and engage in periodic training on data security.

We can’t stress here enough about employee training.  An employee who, for instance, wants to finish a project at home after stopping by the gym might download information that contains sensitive personal information onto a flash drive.  Let’s say the gym bag gets stolen, along with the flash drive.  Well, the employee’s unlucky company may now have a huge data breach situation on its hands requiring notices to customers, state attorneys general, and potential litigation and other expenses (such as paying for creditor monitoring, now industry standard).  Employees need training about securing sensitive information – from shredding documents instead of putting them in the dumpster, to encrypting information that is being taken offsite, to avoiding “phishing” scams, to having unique passwords they change periodically.  According to recent reports, “password” and “123456” are still among the most popular passwords.  While data breaches cannot be avoided completely, we can ameliorate some risks with better practices in our organizations.

Dec 19
2013

Botnet ZeroAccess Hit With Complaint by Microsoft, but Will This Slow the Malware Industry Down?

ZeroAccess is one of the world’s largest botnets – a network of computers infected with malware to trigger online fraud.  Recently, after having eluded investigators for months, ZeroAccess was disrupted by Microsoft and law enforcement agencies.

Earlier this month, armed with a court order and law enforcement help overseas, Microsoft took steps to cut off communication links to the European-based servers considered the mega-brain for an army of zombie computers known as ZeroAccess. Microsoft also took control of 49 domains associated with ZeroAccess.  Although Microsoft does not know precisely who is behind ZeroAccess, Microsoft’s civil suit against the operators of ZeroAccess may foreshadow future enforcement efforts against operators alleged to have illegally accessed and overtaken people’s computers.

ZeroAccess, also known as max++ and Sirefef, is a Trojan horse computer malware that affects Microsoft Windows operating systems.  It is used to download other malware on an infected machine and to form a botnet mostly involved in Bitcoin mining and click fraud, while remaining hidden on a system.  Victims’ computers usually fall prey to ZeroAccess as the result of a drive-by download or from the installation of pirated software.   Essentially, ZeroAccess hijacks web search results and redirects users to potentially dangerous sites to steal their details.  It also generates fraudulent ad clicks on infected computers then claims payouts from duped advertisers.

The Microsoft lawsuit, originally filed under seal in Texas federal court, alleges, among other things,  violations of the Computer Fraud and Abuse Act  (“CFAA”) (18 U.S.C. §1030), the Electronic Communications Privacy Act (18 U.S.C. §2701), and various trademark violations under the Lanham Act (15 U.S.C. §1114 et seq.).  Microsoft secured an injunction blocking all communications between computers in the U.S. and 18 specific IP addresses that had been identified as being associated with the botnet.  The company also took control of 49 domains associated with ZeroAccess.  Microsoft took action against ZeroAccess in collaboration with Europol’s European Cybercrime Centre, the FBI, and other industry partners.  As Microsoft enacted the civil order obtained in its case, Europol coordinated law enforcement agency action in Germany, Latvia, Luxembourg, the Netherlands and Sweden to execute search warrants and seize servers associated with the fraudulent IP addresses operating within Europe.

The federal statutes on which Microsoft relied in its lawsuit may be broad enough to capture the gravamen of the complaint here.  For example, the CFAA was enacted in 1986 to protect computers that there was a compelling federal interest to protect, such as those owned by the federal government and certain financial institutions. The CFAA has been amended numerous times since it was enacted to cover a broader range of computer related activities and there has been recent discussion on Capitol Hill of amending it further. The CFAA now prohibits accessing any computer without proper authorization or if it is used in a manner that exceeds the scope of authorized access. The law has faced steep criticism for being overly broad and allowing plaintiffs and prosecutors unfettered discretion by allowing claims based merely on violations of a website’s terms of service.  In those cases in which ZeroAccess has accessed a user’s computer entirely without permission, there will likely be no dispute about whether the CFAA applies; however, in any follow-on cases in which the authority to access the computer was less clear, Microsoft may have more difficulty in relying upon this statute.

According to Microsoft, more than 800,000 ZeroAccess-infected computers were active on the internet on any given day as of October of this year.  Although the latest action is expected to significantly disrupt ZeroAccess’ operation, Microsoft has not yet been able to identify the individuals behind the botnet, which is still very much intact. Microsoft’s attack is noteworthy in that it represents a rare instance of significant damage being done to a botnet that is controlled via a peer-to-peer system.  But ZeroAccess has come back to life once before after an attack on it, and it would not be surprising if it recovered from this attack as well.  Unless Microsoft or Europol can identify the “John Does 1-8”referenced in the complaint, this and other botnets will keep on operating without fear of reprisal.

The big question at this point is whether Microsoft’s actions will have an enduring impact beyond ZeroAccess.  Will Microsoft’s actions spur other private companies to take steps of their own to stop malicious software?  That answer remains to be seen.

Sep 09
2013

With Complaint Against LabMD, FTC Continues to Flex Enforcement Muscle on Data Security

The Federal Trade Commission recently filed another complaint against a company for alleged data security lapses. As readers of this blog know, the FTC has initiated numerous lawsuits against companies in various industries for data security and privacy violations, although it is facing a backlash from Wyndham and large industry organizations for allegedly lacking the appropriate authority to set data security standards in this way.

The FTC’s latest target is LabMD, an Atlanta-based cancer detection laboratory that performs tests on samples obtained from physicians around the country. According to an FTC press release, the FTC’s complaint (which is being withheld while the FTC and LabMD resolve confidentiality issues) alleges that LabMD failed to reasonably protect the security of the personal data (including medical information) of approximately 10,000 consumers, in two separate incidents.

Specifically, according to the FTC, LabMD billing information for over 9,000 consumers was found on a peer-to-peer (P2P) file-sharing network. The information included a spreadsheet containing insurance billing information with Social Security numbers, dates of birth, health insurance provider information, and standardized medical treatment codes.

In the second incident, the Sacramento, California Police Department found LabMD documents in the possession of identity thieves. The documents included names, Social Security numbers, and some bank account information. The FTC states that some of these Social Security numbers were being used by multiple individuals, indicating likely identity theft.

The FTC’s complaint alleges that LabMD did not implement or maintain a comprehensive data security program to protect individuals’ information, that it did not adequately train employees on basic security practices, and that it did not use readily available measures to prevent and detect unauthorized access to personal information, among other alleged failures.

The complaint includes a proposed order against LabMD that would require the company to implement a comprehensive information security program. The program would also require an evaluation every two years for 20 years by an independent certified security professional. LabMD would further be required to provide notice to any consumers whose information it has reason to believe was or could have been accessible to unauthorized persons and to consumers’ health insurance companies.

LabMD has issued a statement challenging the FTC’s authority to regulate data security, and stated that it was the victim of Internet “trolls” who presumably stole the information. This latest complaint is yet another sign that the FTC continues to monitor companies’ data security practices, particularly respecting health, financial, and children’s information. Interestingly, the LabMD data breaches were not huge – with only 10,000 consumers affected. But, the breach of, and potential unauthorized access to, sensitive health information and Social Security numbers tend to raise the FTC’s attention.

While industry awaits the district court’s decision on Wyndham’s motion to dismiss based on the FTC’s alleged lack of authority to set data security standards, companies should review and document their data security practices, particularly when it comes to sensitive personal information. Of course, in addition to the FTC, some states, such as Massachusetts, have their own data security standards, and most states require reporting of data breaches affecting personal information.

Jul 30
2013

FTC Orders Mobile Device Maker to Patch Up Its Software Security

Following a public comment period, the Federal Trade Commission recently approved a final order settling charges against mobile device manufacturer HTC America, Inc. HTC develops and manufactures mobile devices based on the Android, Windows Mobile, and Windows Phone operating systems. This case, which focuses on device security, is the FTC’s first case against a device manufacturer.

The FTC alleged that HTC failed to take reasonable steps to secure the software it developed for its smartphones and tablet computers. According to the FTC, HTC’s failures introduced various security flaws that placed consumers’ sensitive information at risk. The FTC’s action against HTC signals the agency’s continued focus on data security and data privacy issues and use of its broad “Section 5” authority, which the FTC has repeatedly asserted against various organizations, including its ongoing litigation with Wyndham Hotels. The HTC case also reiterates the agency’s strong interest in securing mobile networks,[link to blog regarding mobile apps], now that mobile phones, which are full of sensitive contact, financial, and other personal information, have become so prevalent.

Companies may be asking what HTC actually did to warrant this FTC action. The FTC claims that HTC, when customizing the software on mobile devices, failed to provide its staff with sufficient security training, failed to review or test the software on its mobile devices for potential security vulnerabilities, failed to follow commonly accepted secure coding practices, and did not have a process for receiving and addressing vulnerability reports from third parties.

In particular, the FTC asserted that HTC devices potentially permitted malicious applications to send text messages, record audio, and install additional malware onto a consumer’s device, without the user’s consent or even knowledge. These malicious applications allegedly could access financial and medical information and other sensitive information such as a user’s geolocation and text message content.

In particular, in the case of Android devices, the FTC claimed that HTC pre-installed a custom application that could download and install applications outside the normal Android installation process. However, HTC did not include an appropriate permission check code to protect the pre-installed application from installation. Consequently, a third party application could command this pre-installed application to download and install any additional applications onto the device without a user’s knowledge or consent.

The FTC further charged that HTC’s actions actually undermined Android consent mechanisms that, but for HTC’s actions, would have prevented unauthorized access and transmission of sensitive information. The FTC’s complaint alleged that the vulnerabilities have been present on approximately 18.3 million HTC devices running Android. The complaint further alleged that HTC could have prevented these vulnerabilities through readily available, low-cost measures, such as adding a few lines of permission check code when programming its pre-installed applications.

In a precedent-setting remedy, the FTC’s final order requires HTC to develop and release software patches within 30 days of service of the FTC’s final order on HTC. The patches must fix vulnerabilities in millions of HTC’s devices, including every covered device having an operating system version released on or after December 2010. HTC must also establish a comprehensive security program designed to address security risks during the development of HTC devices. The FTC requires the program to include consideration of employee training and management; product design, development and research; secure software design and testing; and review, assessment, and response to third party security vulnerability reports.

Further, HTC must undergo independent security assessments every other year for the next 20 years. Among other requirements, the independent, professional assessment must certify that HTC’s security program operates with sufficient effectiveness to provide reasonable assurance that the security of covered device functionality and the security, confidentiality, and integrity of covered information is protected and has operated during the reporting period. HTC is barred from making false or misleading statements about the security and privacy of consumers’ data on HTC devices.

The FTC’s action against HTC has broad application beyond the mobile device and software marketplace. The agency’s action further solidifies the FTC’s role as the leading enforcer of data security standards. Once again the FTC has demonstrated that it is setting data security standards and will continue to monitor and police the marketplace when it believes companies have not incorporated what it believes are commonly accepted security features or when organizations have failed to take steps to prevent vulnerabilities.

Jun 12
2013

Wyndham Case Challenges FTC’s Authority Over Cybersecurity

Over the past decade the Federal Trade Commission has brought cybersecurity enforcement actions against various private companies, imposing tens of millions of dollars in monetary penalties and requiring companies to maintain more stringent data-security practices. No company has ever challenged the FTC’s authority to regulate cybersecurity in this way in court – until now. On June 17, 2013, a federal court will finally get a chance to weigh in on whether the scope of the FTC’s regulatory jurisdiction is so broad as to include setting standards for cybersecurity.

In FTC v. Wyndham Worldwide Corporation, et al., the FTC launched a civil action against the parent company of the Wyndham hotels and three of its subsidiaries for data security failures that led to three major data breaches in less than two years. The Commission’s complaint charges that Wyndham’s security practices were unfair and deceptive in violation of the FTC Act.

Unlike many other data-security FTC enforcement actions, in which the defendant has chosen to cut its losses and settle out of court, Wyndham has decided to stand and fight with a motion to dismiss. Judge Esther Salas of the U.S. District Court for the District of New Jersey is expected to rule on Wyndham’s motion on June 17.

The FTC complaint alleges that Wyndham Hotels and Resorts (a Wyndham subsidiary and named defendant) had a privacy policy that stated that they “safeguard customers’ personally identifiable information by using industry standard practices” and they “make commercially reasonable efforts to make to make [their] collection of such information consistent with all applicable laws and regulations.”

The FTC argues that this policy covers the individual hotels and that it was deceptive because the defendants failed to implement “reasonable and appropriate” data-security measures. Wyndham’s motion to dismiss attacks the facts of the deception claim by quoting language from the Wyndham Hotels and Resorts privacy policy that expressly explains that the privacy policy does not apply to the individual hotels. Wyndham argues that, taken as a whole, Wyndham Hotels and Resorts’ privacy policy is not deceptive.

With respect to the FTC’s unfairness claim, Wyndham’s motion asserts that the FTC is attempting to circumvent the legislative process by acting as if “it has the statutory authority to do that which Congress has refused: establish data-security standards for the private sector and enforce those standards in federal court.”

According to Wyndham, “on multiple occasions in the 1990s and early 2000s the FTC publicly acknowledged that it lacked authority to prescribe substantive data-security standards under the [FTC Act]. For that very reason, the FTC has repeatedly asked Congress to enact legislation giving it such authority.” Further, Wyndham highlights the Senate’s failure to pass the Cybersecurity Act of 2012, which sought to address the need for specific data-security standards for the private sector, and President Obama’s February 2013 Executive Order on cybersecurity that was issued in response to the Congressional stalemate.

On its face, Wyndham’s motion to dismiss seems quite strong. However, the facts that the FTC is alleging do not cut in Wyndham’s favor. The Commission’s complaint alleges that Wyndham’s failure to “adequately limit access between and among the Wyndham-branded hotels’ property management systems, [Wyndham] Hotels and Resorts’ corporate network, and the Internet” allowed intruders to use weak access points (e.g., a single hotel’s local computer network) to hack into the entire Wyndham Hotels and Resorts’ corporate network. From there, the intruders were able to gain access to the payment management systems of scores of Wyndham-branded hotels.

According to the FTC, Wyndham failed to remedy known security vulnerabilities, employ reasonable measures to detect unauthorized access, and follow proper incident response procedures following the first breach in April 2008. Thus, the corporation remained vulnerable to attacks that took place the following year. All told, the intruders compromised over 600,000 consumer payment card accounts, exported hundreds of thousands of payment card account numbers to a domain registered in Russia, and used them to make over $10.6 million in fraudulent purchases.

Unfortunately – as Wyndham notes in its motion to dismiss – hacking has become an endemic problem. There has been no shortage of stories about major cyber-attacks on private companies and governmental entities alike: from Google and Microsoft to the NASA and the FBI. And the FTC has not been shy about bringing enforcement actions against private companies with inadequate security measures.

If Wyndham prevails, the case could usher in a major reduction in FTC enforcement efforts. However, if the court sides with the FTC, the commission will be further empowered to regulate data security practices. With such high stakes on both sides, any decision is likely to result in an appeal. In the meantime, companies in various industry sectors that maintain personal consumer information are awaiting next week’s decision.

posted in:
Cybersecurity
Jan 28
2013

A Cautionary Tale for Data Privacy Day

Angered by the recent tragic suicide of Internet activist Aaron Swartz, a group of hackers claiming to be from the group Anonymous, made threats over the weekend to release sensitive information about the United States Department of Justice. The group claimed to have a file on multiple servers that is ready to be released immediately.

Swartz’s suicide has served to mobilize the group Anonymous, a loosely defined collective of Internet “hacktivists” that oppose attempts to limit Internet freedoms. Anonymous is a staunch advocate of open access to information, as was Swartz. Anonymous said that Swartz “was killed” because he “faced an impossible choice.”

Swartz was facing federal computer fraud charges that carried a maximum sentence of 35 years in prison, although in reality he probably would not have been given a sentence anywhere near approaching the statutory maximum. Prosecutors told Swartz’s legal team they would recommend to the judge a sentence of six months in a low-security setting.

The charges arose from allegations that he made freely available an enormous archive of research articles and similar documents offered by JSTOR, an online academic database, through the computers at the Massachusetts Institute of Technology.

Swartz was a leading activist involved in the movement to make information more freely available on the Internet and is credited with helping to lead the protests that ultimately defeated the Stop Online Piracy Act (SOPA), a statute that would have significantly broadened law enforcement powers in policing Internet content that may violate U.S. copyright laws.

Earlier this month, Rep. Zoe Lofgren (D-Calif.) indicated that she is drafting a bill that she terms “Aaron’s Law,” which would limit the scope of the Computer Fraud and Abuse Act, a 1986 law that prosecutors used to help bring these charges against Swartz.

The hackers reportedly hijacked the website of the United States Sentencing Commission, the federal agency responsible for the federal sentencing guidelines for criminal offenses. They said that the Sentencing Commission’s website was chosen because of its influence in creating sentences that they deemed unfair. The hackers posted a message that demanded reform of the criminal justice system or threatening that sensitive information would be leaked. Anonymous also posted an editable version of the website, which invited users to edit it as they pleased.

Today is Data Privacy Day. These recent incidents serve to show that no organization – not even the U.S. Department of Justice – is immune from security breaches. Data breaches and data losses will occur and it is crucial for an organization to be prepared and have policies in place to allow a quick response when something does happen.

The legal ramifications and bad publicity that follow such an incident can be very damaging to an organization. However, by making sure that you are prepared, you can minimize your damages. Preparedness involves consultation across a range of specialties, including information technology, legal advice, and public relations. The impact that a data breach or loss can have on the bottom line of any organization is enormous and preparation is the best method to combat it.

A data breach or data loss can also have far-reaching legal consequences under international, federal and various state laws. For example, companies may not realize that if they have even a few employees or customers in a state, it may trigger a number of different requirements under state privacy laws. In order to avoid problems with federal agencies or state attorney general offices, it is best for companies to have a plan in place in advance and make sure they are already compliant with all relevant laws.

Aug 28
2012

Cybersecurity a Desirable Goal, but Does Obama Proposal Go Too Far?

In the past couple of years, a wide variety of computer viruses and other malware have allegedly been used by one nation against another. This secretive form of warfare even briefly plastered names like Stuxnet, Duqu, Flame, and Gauss across the front pages. In partial response to the threat posed to U.S. interests by hostile foreign countries and/or individuals, different cybersecurity bills are percolating through the halls of Congress, including the SECURE IT Act of 2012, the Cybersecurity Act of 2012, and others.

No one can dispute the very real danger posed by cybersecurity threats and the potentially disastrous results if they are unleashed upon a country or upon an industrial or financial system. In a recent Wall Street Journal op-ed, President Obama wrote that “the cyber threat to our nation is one of the most serious economic and national security challenges we face.” The president also stated that “foreign governments, criminal syndicates and lone individuals are probing our financial, energy and public safety systems every day.”

President Obama then pushed for the passage of the Cybersecurity Act of 2012, which would require the sharing of information between the private and public sector, develop cybersecurity standards, and other protections. In support of that bill, President Obama wrote that “Congress must pass comprehensive cybersecurity legislation” and that “We all know what needs to happen.”

However, in early August the U.S. Senate rejected cybersecurity legislation, with Republican members concerned that the bill would impose burdensome obligations on businesses.

The president has indicated that he is considering imposing the same cybersecurity measures by executive order.
“In the wake of Congressional inaction and Republican stall tactics, unfortunately, we will continue to be hamstrung by outdated and inadequate statutory authorities that the legislation would have fixed,” Presidential press secretary Jay Carney said.

This possibility does concern us.

Although computer malware poses a real and credible danger to U.S. interests, we also need to discuss how cybersecurity is going to be achieved. The use of an executive order to bypass the legislative process is of questionable constitutionality because it may violate the separation of powers mandated by the Constitution.

A step that creates such an extensive public-private partnership and involves the government so much in private decisions to provide security at least deserves approval after full discussion by a majority of both houses of Congress. We hardly think that the threat has risen to the level of “war” that would permit the president to engage in unilateral emergency actions to protect national security.

As the tech editor of the Daily Caller wrote recently: “The failed cyber security bill, which could be revived by Sen. Majority Leader Harry Reid when the Senate comes back from recess in September, would have given federal agencies in charge of regulating critical infrastructure industries like power companies and utilities the ability to mandate cybersecurity recommendations … An executive order would be another action from the Obama administration to extend executive branch authority over a largely free and open Internet.”

posted in:
Cybersecurity
Apr 30
2012

CISPA, Approved by House, Poses Threat to Internet Freedom

SOPA and PIPA, as legislative efforts to deal with online piracy and other infringing activity, have gone the way of the Edsel. But their next of kin, a new bill known as CISPA, has made it through the House, passing 248 to 168. It too seems unlikely to become law, as the White House has threatened to veto it.

SOPA and PIPA hit the skids after major online companies and consumer activist groups mounted a host of protests across the Internet, including Wikipedia’s and Google’s blackout in January. The concerns with SOPA and PIPA were that the legislation could cripple Internet innovation. The public concern over CISPA, and the declared basis for the White House veto threat, is that it the bill would significantly threaten civil liberties.

CISPA’s stated goal is to create new channels for communication between government intelligence entities and private firms regarding potential and emerging cybersecurity threats. It allows a company to intercept emails or text messages and to modify those messages or prevent them from reaching their destination if they qualify as a cybersecurity threat. It would allow the companies and the federal government to share information with each other in an attempt to foil hackers.

Like SOPA and PIPA, CISPA includes portions that protect intellectual property. If a person is potentially infringing on intellectual property and that infringing activity is considered a threat to cybersecurity, under CISPA his website or the place where his content was posted could be blocked. Critics argue that the proposed definition of “cybersecurity” is so broad that it allows for the possibility of the restriction of communications that are not in any way threatening.

CISPA would create a system of information sharing that would involve the oversight of the Director of National Intelligence, who would appoint members of the intelligence community who would work with employees of tech companies and grant security clearances. Any information that was categorized under the cyberthreat intelligence category could not be divulged beyond the two parties without approval.

Many tech companies that actively opposed SOPA are supporting CISPA. CISPA is drawing support from such firms as Facebook, Microsoft, AT&T, IBM, Intel, Oracle, and Verizon as well as business groups such as the Financial Services Roundtable and the U.S. Chamber of Commerce.

A key difference may be that under CISPA, companies like Facebook would not be required to share any information about their users with the authorities, and if they did, CISPA would protect them from liability. The bill currently states that any sharing that occurs under the legislation “supersedes any statute of a State or political subdivision of a State that restricts or otherwise expressly regulates” the exchanges between the government and other parties.

Online advocacy groups are gearing up to protest against CISPA. The Center for Democracy and Technology, as well as the American Civil Liberties Union and the Electronic Frontier Foundation are rallying against the bill, and the number of blogs and websites calling for CISPA to be defeated is increasing rapidly.

Although CISPA’s approach is different from that of SOPA and PIPA, this bill has many of the same potential problems that those bills had. The very broad language defining a cybersecurity threat could be prone to abuse. Several amendments were added to the bill in order to appease civil liberties concerns, such as limiting the government’s use of private data and which cyberthreat data can be shared. Even with these amendments, advocacy groups remain concerned about the legislation, and the veto threat persists. It remains to be seen what will happen with CISPA, but we hope it goes the way of SOPA and PIPA. We will keep you updated as things progress.

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About Ifrah Law

FTC Beat is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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