Does your business collect personal information from residents in California? Does it monitor user activity on its website? If so, there is a good chance it will need to comply with the California Consumer Privacy Act (“CCPA”), which takes effect January 1, 2020.
Following the European Union’s implementation of GDPR, California adopted the CCPA, which imposes significant new privacy obligations on businesses that collect information from California residents, including the collection of internet browsing activity on business websites. Under the CCPA, businesses must disclose the types of personal information they collect, sell, or share about California residents. Among other rights recognized by the law, consumers will have the right to request reports on the information collected about them and deletion of their information. The California Attorney General will have general enforcement power, and consumers will have a right to bring lawsuits for certain matters, including potentially class actions.
The CCPA is far-reaching and imposes significant compliance duties on businesses in all industries doing business with California residents. It will transform how companies collect and use personal information. It is also stands to increase the risk of consumer lawsuits, including class actions, against businesses covered by the CCPA.
THE CALIFORNIA CONSUMER PRIVACY ACT, EXPLAINED
The California Consumer Privacy Act (“CCPA”) imposes significant new obligations on businesses that collect personal information from consumers in California. The California Attorney General and private citizens are given authority to enforce those obligations through lawsuits. The Act is expected to transform how businesses across the United States collect and use personal information. It takes effect on January 1, 2020, but businesses should start planning now to ensure timely compliance.
Who is covered by the CCPA?
The CCPA applies to any business that does business in California, deals with consumers’ (California residents’) personal information, and meets any one of the following criteria:
- $25 Million in Revenue – has annual gross revenue in excess of $25 million;
- Data on 50,000 Consumers – annually buys, receives, sells, or shares for commercial purposes the personal information of 50,000 or more consumers, households, or devices; or
- Data Brokerage Operations – derives 50 percent or more of its annual revenue from selling consumers’ personal information.
There are exceptions. The CCPA does not apply to nonprofit organizations or government entities. And it excludes from its scope personal information governed by other statutes such as California’s Confidentiality of Medical Information Act, HIPAA, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, and the Driver’s Privacy Protection Act.
What are the key terms of the CCPA?
Two key terms determine whether the CCPA applies: “consumer” and “personal information.”
A “consumer” is a natural person who is a California resident, i.e., any individual who is in California for other than a temporary or transitory purpose and every individual domiciled in California who is outside the state for a temporary purpose. On its face, the term consumer arguably covers employees of a covered business, but there is a legislative effort underway to consider excluding employees from the definition. In sum, any for-profit business that collects personal information from Californians is potentially covered by the CCPA.
The term “personal information” is broadly defined to mean information that “identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” It includes, among other things, identifiers such as an individual’s real name, alias, postal address, IP address, email address, account name, Social Security number or other government-issued ID number, commercial purchase history or tendencies, biometric information, online activity (including browsing or search history), professional or employment-related information, non-public education information, and inferences drawn from these and other categories of information used to create a consumer profile. This broad definition covers much of the data that businesses collect about consumers through web analytics services and tools. Consequently, the CCPA is poised to have a significant impact on the systems and methods that businesses use for managing customer relationships and marketing.
What new rights does the CCPA create?
The CCPA constitutes a significant departure from the relatively laissez-faire approach to the regulation of personal data processing prevailing in the United States. The broad definition of personal information, combined with newly established consumer rights, provides consumers with much greater control over the handling of their personal information than they had previously. Thus, the CCPA is similar in a lot of ways to the General Data Protection Regulation (“GDPR”) that went into effect in the European Union in 2018. Under the CCPA, consumers possess, among others, the non-waivable right to:
- know, at the point of collection, what personal information is being collected;
- access and receive in a usable format the personal information collected from them;
- know what information is being sold or disclosed about them and to whom;
- restrict or opt-out of the sale of personal information;
- request deletion of personal information collected from them; and
- equal service and price, even if they exercise their privacy rights.
These rights, in turn, create significant corollary duties for covered businesses.
What new obligations does the CCPA create for covered businesses?
When the CCPA takes effect on January 1, 2020, covered businesses will have several new legal duties. Chief among them are (1) the duty to give notice when personal information is collected; (2) the duty to establish and maintain policies and procedures for responding to consumers; (3) the duty to establish or amend agreements with service providers or vendors engaged in the processing of personal information; and (4) the duty to modify the use of children’s personal information. These are explained further below.
1. Notice. Generally speaking, the CCPA requires businesses to notify consumers, at the point of collection, what personal information businesses collect, sell, and otherwise share and the purposes for which they collect the personal information, including over the previous 12 months. Businesses must also ensure their actual use of personal information is consistent with their disclosures. Companies must provide notice of the rights that consumers enjoy under the CCPA and make available at least two methods – a toll-free number and a web address (if the business maintains a website) – for consumers to submit requests regarding their personal information. This requirement means that businesses will need to review and annually update their online privacy policies and/or terms of service.
2. Consumer Requests. Businesses will be responsible for administering programs that allow consumers to exercise their rights under the CCPA. The statute requires businesses to respond free of charge within 45 days of receiving a verifiable consumer request, and allows for a one-time extension of an additional 45 days when reasonably necessary. Businesses will be required to provide disclosures, categorized in a specific fashion:
- a list of the categories of personal information that the business has collected and/or sold about consumers in the preceding 12 months; and
- a list of the categories of personal information it has disclosed about consumers for a previously disclosed “business purpose.”
For many businesses, this responsibility will be the most demanding. It poses potentially significant challenges to existing customer relationship management processes. Critically, it requires businesses to provide information on the last 12 months of activity as of January 1, 2020, meaning businesses will need to be able to provide information to consumers dating back to January 1, 2019. Because of response deadlines and liability risks for failing to adequately respond to requests, businesses will need to adjust operations to comply with this obligation.
3. Service Providers. The CCPA recognizes that businesses often use service providers to process personal information, and treats the sharing of personal information with service providers differently from other disclosures. But the statute imposes new requirements on these relationships in an effort to realize the new set of rights conferred on consumers under the law. To receive protections under the CCPA regarding personal information transferred to service providers for processing, businesses will be required to:
- ensure that there is a written contract prohibiting service providers from using personal information for purposes other than those specified in the contract;
- ensure service providers are able to comply with consumer requests regarding their personal information or have a valid reason not to;
- direct service providers to delete data when necessary to comply with consumers’ requests for deletion; and
- make sure service providers do not collect further personal information “except as necessary” to carry out their duties.
The CCPA clarifies that businesses are not liable for service providers’ violations of the CCPA (and vice versa) without actual knowledge or “reason to believe” there has been a violation.
4. Children. The CCPA imposes stringent protections for children. The CCPA prohibits a business from selling the personal information of a consumer younger than 16 years of age, except in narrow circumstances. Personal information collected from children between ages 13 and 16 cannot be sold without the opt-in consent of the child or the child’s parent. Personal information collected from children under age 13 cannot be sold without the opt-in consent of the child’s parent. Businesses will need to take affirmative steps to verify consumers’ ages to minimize risk of liability for handling data of minors without the proper form of consent.
What new liability risks does the CCPA create?
The California Attorney General has primary responsibility for enforcing the CCPA. Under the current terms of the CCPA, if, after a 30-day cure period, a business has failed to comply with the CCPA, the California Attorney General can seek a civil penalty of $2,500 for each non-intentional violation and $7,500 for each intentional violation. Thus, for example, if a business has failed to update its notices to consumers or is unable to respond timely to consumer requests, it will be subject to an attorney general civil enforcement action and related penalties.
The CCPA also confers on consumers a limited right to sue if a business’s non-compliance (failure to maintain reasonable security procedures and practices) results in the “unauthorized access and exfiltration, theft, or disclosure” of their personal information. Consumers may pursue statutory damages of $100 to $750 per incident or their actual damages, whichever is greater. Private parties that seek statutory damages must provide the business notice of the violation and a 30-day period to cure the violation before suing. By codifying the presence of damages, this provision greatly expands business litigation risk, including the risk of class actions. Data breach suits have frequently been dismissed at early stages for an inability by plaintiffs to show that they have suffered any injury. But as the CCPA now recognizes a right to recover statutory damages, it encourages plaintiffs with no actual injury to pursue claims. This arguably undermines an argument commonly made in defense of businesses in data breach cases: that class certification is inappropriate because damages cannot be determined on a class-wide basis. The upshot: there is even greater urgency and justification for businesses to invest in enhancing their privacy and security posture.
Many businesses, even those not located in California, will need to comply with the CCPA and will face significant changes to their privacy notices, customer relationship management processes, contracting/procurement practices, and privacy programs. The CCPA is still subject to amendment, and potential amendments will become clear after key legislative deadlines of May 17 and 31 and September 13. Although the law might change, the key components summarized above are likely to remain. Compliance efforts should start now to ensure they are ready for January 1, 2020, when the law takes effect.