Data Privacy and Security Compliance Programs

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Patrick Kellerman from LeClairRyan returns with a blog posting on data privacy and data security.  His profile is here.

If you ask in-house counsel what keeps them up at night, the response invariably includes “data privacy and security.”  It is a cutting-edge compliance and enforcement risk. 

As with any new or increasing risk, companies need to address the problem by building from the ground up.  Companies need to put together compliance programs to respond to the risk of data privacy violations and enforcement actions. 

Data Collection and Storage

The Federal Trade Commission (“FTC”) is increasing enforcement against companies for data security lapses under section 5 of the FTC Act as a deceptive practice, especially when companies violate their own data privacy compliance policies.  In one specific enforcement action, the FTC cited a company for failing to conduct risk assessments, adopt policies, use “reasonable methods” to prevent and detect unauthorized access to personal information, train employees or employ proper response measures.

Industry specific regulations also cover data security for “financial institutions” (Graham-Leach-Bliley) and personal health information (under HIPAA). 

State laws provide specific data privacy and breach notification requirements.  In general, states have adopted data privacy laws which extend to “personal information” (“PI”). 

States usually define PI as an individual’s first name or first initial and last name in combination with one or more of the following “data elements” (social security number, drivers license number or state identification card number (and sometimes taxpayer identification); and information permitting access to financial accounts.  Typically, the definition of PI excludes encrypted information or publicly-available government records. 

The restrictions on the collection, storage and distribution of PI vary by state.  In most cases, states require companies to maintain reasonable security procedures and practices appropriate to the nature of the PI.  The overarching purpose is to protect PI from unauthorized access, use, modification or disclosure. 

In some states, this obligation extends to interactions with third parties, and companies will need to ensure that third parties maintain reasonable data security procedures and practices.  Some states require businesses to destroy PI in their possession when it becomes business-obsolete, or at the request of individuals. 

Data Breaches and Notifications

Every state regulates security breach investigations and notifications.  Congress has failed to enact uniform requirements in this area and this has led to a patchwork of state-by-state requirements.

In general, data breach laws allow for delay in notification to permit a company to determine the nature and extent of the breach, or if notification will impede a law enforcement investigation.  The laws define proper notification methods and minimal content requirements.

A breach is usually defined as an unauthorized acquisition of unencrypted data that compromises the security, confidentiality or integrity of PI.  When a company learns of a breach, it must conduct a good faith and prompt investigation to determine if it is reasonably likely that PI has been or will be misused which, if true, triggers consumer notification obligations. 

Companies should retain documents relating to handling of any possible breach.  Failure to adhere to breach notification laws may result in state enforcement.

Data Privacy Compliance Policy

A company’s data privacy policy consists of policies and procedures to prevent the unauthorized access, modification, disclosure, or use of PI.  A robust policy should also include clear and concise disclosures and explanations to the public depending on the nature of the information. 

One major focus for compliance should be a company’s website interactions with the public.   

Companies capture public actions on the website by maintaining a “web log” for statistical purposes and potentially, through the use of a “cookie.”  This is a common online business practice to administer a website, improve it based on results, market to website visitors, and diagnose and respond to errors.   

The web log collects statistical information including the internet domain from which a user accesses the website, the IP address, the type of browser and operating system, date/time of access, pages visited, and links clicked, among other data.  This information is gathered in aggregate form, does not individually identify anyone, and is generally used to administer and improve a website based on public interest and need.  Companies have to be careful in how they use such information and whether or not they make such information available to third parties.   

A second level of public interaction is website contact forms and job openings, which depending on the level of interaction and information submitted, can trigger PI privacy and security obligations.   If a user can apply online for a job opening, which includes a form with their name, contact information, citizenship information, education and employment history, and, possibly, optional race/ethnicity information, this would involve the transfer of PI.  A company will need to maintain an applicant tracking system and include robust privacy policies and procedures, along with specific consent requirements since such information may be sent to third-party verification companies as part of the employment process. 

If a business website offers account management or other client services beyond those available to the general public, the company will need to include tracking capabilities and detailed privacy policies and procedures.