Critics question FTC's authority to bring data security complaints

[Audrey McNeil <audrey () riskbasedsecurity com>]

http://www.pcworld.com/article/2048653/critics-question-ftcs-authority-to-bring-data-security-complaints.html

The Federal Trade Commission should back away from its claim of broad
authority to seek sanctions against companies for data breaches when
it has no clearly defined data security standards, critics of the
agency said Thursday.

The FTC should back away from authority it says it has under a vague
section of law that doesn’t mention data security, said the critics,
including Mike Daugherty, CEO of Atlanta diagnostic lab LabMD, which
is fighting an FTC complaint.

The agency should instead seek specific authority to enforce data
security rules from the U.S. Congress and should define what data
security standards it expects from companies, instead of seeking
sanctions on a case-by-case basis, said speakers during a discussion
on FTC authority sponsored by TechFreedom, an antiregulation think
tank, and Cause of Action, a government watchdog group defending
LabMD.

The FTC’s complaint against the small lab wasn’t based on established
rules that agency officials could point to, Daugherty said.

The FTC, instead of looking for real consumer harm, seems to be
saying, “We’re going to take one victim and going to hold them
accountable,” said Gerry Stegmeier, a privacy and data security
lawyer.

Daugherty said he’s “incredulous” that the agency can use Section 5 of
the FTC Act, which allows it to prevent unfair or deceptive business
practices, to file complaints about data security practices.

“If you want to upset [FTC officials], ask them what the standards
are,” he said. “I need to know what the laws and boundaries are. You
mean you can make them up as you go along?”

In the past 11 years, the FTC has brought nearly 50 data security
complaints against companies, and has settled all but two, with LabMD
and Wyndham Worldwide fighting recent complaints.

LabMD fought the complaint, Daugherty said, because it was “a life or
death situation” for the company. If the company settles a data
security complaint, competitors will use that information to spread
“innuendo” against it, he said.

LabMD’s trouble started in 2008, when peer-to-peer security vendor
Tiversa contacted the company, saying it had found a LabMD customer
spreadsheet on a P-to-P network. The file contained personal
information for more than 9,000 consumers, including names, Social
Security numbers and medical treatment codes.

LabMD discovered that a business manager had Limewire P-to-P software
installed on her computer, against company policy, and had
inadvertently shared the file, Daugherty said.

The security vendor later reported the incident to the FTC, Daugherty
said. After the FTC investigated LabMD for more than three years, the
agency filed a data security complaint against the company in August.
The company failed to take reasonable steps to protect consumer
information, the agency alleged.

The incident happened in 2008, “when no one understood the
vulnerability of P-to-P,” Daugherty said.

However, researchers first raised concerns about inadvertent file
sharing on P-to-P networks back in 2002, and a congressional committee
explored the issue in a 2003 hearing.

Still, the FTC issued no guidance on the dangers of P-to-P software
until 2010, after the LabMD incident, and the agency worked with
Limewire for years on inadvertent file sharing before filing a
complaint against P-to-P vendor Frostwire in 2011, noted Tom Sydnor, a
senior fellow for intellectual property at the Association for
Competitive Technology.

Instead of filing a complaint against LabMD, the agency should have
long ago targeted P-to-P vendors for “tricking” users into sharing
files they wanted to keep private, Sydnor said.

Most of the speakers at Thursday’s event questioned the FTC’s
authority in data security, but Justin Brookman, director of the
consumer privacy project at the Center for Democracy and Technology,
defended the agency.

Congress wrote the FTC Act broadly to give the agency authority to act
when new types of unfair or deceptive business practices pop up, he
said. The agency shouldn’t have to seek new congressional authority
for every type of unfair business practice, he said.

Responding to criticisms that the FTC doesn’t have specific data
security standards, Brookman said he doesn’t want to see a federal
agency make security rules that every company has to follow. It would
be “insane” for the FTC to require companies to spend a certain
percentage of their revenue on security, he said.

Instead, the agency is picking cases to highlight bad security
practices and give guidance to other companies on what practices to
avoid going forward, he added. “They’re bringing the cases they think
are important to change behavior going forward,” Brookman said.
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