Cyber Alert: Security Vulnerabilities: You Don’t Need a Breach to Face Regulatory Scrutiny

by Alston & Bird

Those who track newsworthy data breaches and other cybersecurity incidents know what type of fallout to expect from these events. Class action lawsuits from consumers, shareholders and financial institutions are now not an exception, but are increasingly becoming expected. Similarly, since the Federal Trade Commission (FTC) began focusing on data security nearly 15 years ago, it has engaged in enforcement actions against numerous companies that were subject to a data breach or other security compromise. State attorneys general have also joined the fray. Notably, these consequences are post hoc, in that they stem from the actual occurrence of a security incident that results in data compromise, loss or exposure. Recently, however, there has been an increase in regulatory and litigation actions based not on breaches or security incidents but on identified security vulnerabilities alone that, if exploited, could result in data compromise, leakage or exposure and so pose a potential risk of harm, whether economic or otherwise, to customers and consumers.

One possible explanation for this gradual change is that vulnerabilities are increasingly being brought to light through various means such as bug bounty programs, which are not only being adopted by more and more companies, but by a wider range of industries. Bug bounty programs (also referred to as vulnerability disclosure programs) provide incentives such as cash, airline miles or just recognition to security researchers who report vulnerabilities to companies. These programs are gaining increased legitimacy and publicity, underscored by Apple recently announcing that it would pay up to $200,000 for information on serious security vulnerabilities. According to a recent report, the number of companies with such programs has more than tripled year over year since 2013, with significant gains seen in the financial services, automotive, health care and retail sectors. U.S. government agencies are also increasingly encouraging their regulated entities to adopt vulnerability disclosure programs, with announcements in the first half of 2016 by the FDADepartment of Transportation and Commerce Department on this front.

In addition to identifying vulnerabilities through corporate-sponsored bug bounty programs, security researchers and hackers (with a wide range of motivations) frequently identify vulnerabilities and bring them to the attention of companies without such programs, sometimes with an expectation (or in some cases even a demand) that they receive a fee. After alerting known-impacted companies, they often publicly post information regarding vulnerabilities to spread awareness.

Regulator Scrutiny

One side effect of the rise in bug bounty programs, and disclosures by security researchers and others, is a commensurate increase in publicly known security vulnerabilities that can, in turn, lead to increased scrutiny from regulators (and the plaintiffs’ bar) who become aware of the previously undisclosed vulnerabilities through these methods. For example, the FTC and FCC recently initiated parallel investigations into mobile device makers and carriers, prompted in part by an Android vulnerability known as “Stagefright” that became public after being reported to Google’s bug bounty program last year. The vulnerability affected almost 1 billion Android devices and would have allowed attackers to remotely execute code merely by sending a text message to a device. Google paid the reporting security research firm $50,000 for their efforts, which allowed Google to develop and push out a patch.

In May, the FTC and FCC announced they had sent letters to several mobile device manufacturers (including Google) and mobile carriers seeking detailed information regarding, among other things, their “processes for reviewing and releasing security updates for mobile devices” and the “vulnerabilities that have affected those devices.” The FCC specifically highlighted Stagefright in its press release announcing the inquiry. The FTC appears poised to continue considering enforcement actions related to security vulnerabilities—in response to the spate of ransomware attacks, FTC Chairwoman Edith Ramirez recently stated that a “company’s unreasonable failure to patch vulnerabilities known to be exploited by ransomware might violate the FTC Act.”

Several regulators have also been granted authority that would allow them to sanction companies before a vulnerability is ever exploited in the wild. The SEC’s Office of Compliance Inspections and Examinations (OCIE), for instance, has initiated enforcement actions against a number of investment advisers, companies and broker-dealers for failing to have adequate written policies and procedures reasonably designed to protect customer records and information, as required under the Safeguards Rule of the Gramm–Leach–Bliley Act. For example, it recently penalized Craig Scott Capital for its employees’ use of personal email addresses to conduct business involving sensitive customer data in contravention of the Safeguards Rule. While OCIE’s enforcements have in some cases arisen from actual security incidents—as was the case in their most recent action against a major financial institution—in cases such as the one against Craig Scott Capital, OCIE has sanctioned companies merely based on the risk posed by certain conduct.

The Financial Industry Regulatory Authority (FINRA) operates under the same data security regulation as OCIE and has also engaged in enforcement actions against broker-dealers based solely on the risk posed by a particular practice. For instance, in one case in late 2015, FINRA sanctioned a member for, among other things, failing to have written supervisory procedures in place to ensure that customer information is “kept confidential, safeguarded, and encrypted prior to sending.” The SEC’s and FINRA’s willingness to initiate actions where there is only a risk of harm due to inadequate policies is just a short logical step from bringing enforcement actions related to security vulnerabilities alone.

Other regulators have explicit legal authority to engage in enforcement actions based solely on a risk of harm. For example, the FTC is empowered to declare acts or practices in or affecting commerce to be unfair or deceptive. For the FTC to use its unfairness authority, the act or practice must cause or be likely to cause substantial injury to consumers (the Consumer Financial Protection Bureau (CFPB) operates with similar authority). In a recent enforcement action, the FTC used this authority to allege that HTC America “engaged in a number of practices that, taken together, failed to employ reasonable and appropriate security in the design and customization of the software on its mobile devices.” These practices, in turn, allegedly “introduced numerous security vulnerabilities … which, if exploited, provide third-party applications with unauthorized access to sensitive information and sensitive device functionality.” Notably, the FTC alleged that the vulnerabilities put consumers at risk of financial and physical injury and other harm.

The FTC has also used the deception prong of its authority to settle with companies that break promises (whether explicit or implicit) to engage in reasonable security practices based on unmitigated vulnerabilities. In one case, the FTC alleged that a company’s iOS application failed to validate SSL certificates, giving rise to a vulnerability in the manner the application transmitted sensitive data. When a security researcher contacted the company about the issue, the report on the vulnerability was miscategorized and was not addressed until the FTC staff contacted the company. Accordingly, among other things, the FTC alleged that the company failed to provide reasonable and appropriate security by failing to appropriately test the application and maintain an adequate process for receiving and addressing vulnerability reports from third parties. The FTC further alleged that because an attacker could have intercepted sensitive data such as payment card information or login credentials transmitted from the application, that information could have, in turn, been misused and led to identity theft or other harms. Because the company had represented that they had reasonable and appropriate security in place, the FTC alleged it had made false and misleading representations in violation of Section 5 of the FTC Act.

Litigation from Identified Vulnerabilities

Regulators aren’t the only entities leveraging security vulnerabilities to take legal action—the plaintiffs’ bar has also sought to bring lawsuits based on vulnerabilities alone. Because of the Stagefright Android vulnerability, Samsung is now facing litigation in the Netherlands, where the half-million member Dutch Consumers’ Association is alleging that the device maker engaged in unfair trade practices by failing to push out critical updates to its devices and providing inadequate information about vulnerabilities.

In the U.S., a plaintiffs’ firm identified vulnerabilities at several law firms during a year-long investigation into law firm data security. Using the findings from its investigation, the firm filed a class action against an unnamed Chicago law firm seeking injunctive relief (that the firm fix the identified vulnerabilities) as well as damages under the theory that the firm’s clients had been overpaying for services because part of their payments were allocated to keep the clients’ data secure. The action was filed under seal, ensuring not only that the vulnerabilities were not made public (and so could not be exploited by hackers) but also that the identity of the defendant law firm remained confidential. Once the law firm patched the security vulnerabilities, though, the plaintiffs moved to unseal the complaint and publicly unveil the firm’s identity, creating a potentially strong incentive for settlement.

This type of security vulnerability action is translatable beyond law firms to a broad range of entities, including SaaS/PaaS providers and any manufacturer whose products could be at risk due to a cyber attack, including Internet of Things and medical device manufacturers and automakers. This type of litigation, if successful, could create a monetary incentive for security researchers to partner with a plaintiffs’ firm to bring similar actions and could create a tension between whether researchers identify vulnerabilities through bug bounty programs or the courts.

Another new avenue for security researchers to profit from identified vulnerabilities recently opened up: partnering with an investment firm to “short” the stock of the company with the vulnerability before publicly disclosing the issues. In late August, the security firm MedSec partnered with Muddy Waters Capital to release a report regarding vulnerabilities in cardiac care devices manufactured by St. Jude Medical. According to reports, Muddy Waters agreed to pay MedSec based on the degree to which the report caused the price of St. Jude’s shares to fall—the deeper the decline, the more MedSec was paid. St. Jude’s stock fell almost 5 percent shortly after the report was released. And soon after that, a patient filed a class action complaint against St. Jude using the information from the MedSec report. For security researchers, this approach carries potential added risks—in response to the report, St. Jude filed a lawsuit against Muddy Waters and MedSec alleging, among other things, defamation, market manipulation and violations of a state deceptive trade practices act.

Practical Steps

In light of the growing trend of regulatory action and litigation resulting from the mere existence of cybersecurity vulnerabilities in products and services, and even from inadequate policies in corporate cybersecurity programs, companies may want to focus their efforts beyond just preventing actual data breaches and become more proactive in identifying and remediating vulnerabilities. Numerous regulators have emphasized the importance of conducting vulnerability assessments, including for software and other products being released to consumers. It is similarly important to have a formal system for addressing identified vulnerabilities.

Internal testing may also be supplemented by a bug bounty program or, at a minimum, a process for receiving, reviewing and, as necessary, remediating vulnerabilities reported by third parties. This can enable the company to remediate security vulnerabilities in a discreet manner and resolve issues before any potential litigation. Entities can also monitor and track vulnerabilities identified by security researchers in white papers or reported in the news, since not addressing those publicly known issues could lead to scrutiny from regulators. Lastly, companies should actively follow enforcement actions by the FTC and other pertinent regulators. By identifying any security vulnerabilities at similar companies leading to regulatory penalties, entities can assess their own organization for similar issues.

It is important to recognize that not looking for or ignoring vulnerabilities may make your company more vulnerable from a liability perspective. While in the past, personnel who caught wind of a potential vulnerability and were slow to address it (or chose to actively ignore it) may have escaped scrutiny, the current legal liability landscape increasingly demands active, and even proactive, engagement with vulnerability management.

View Alert as PDF

[View soure.]


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Alston & Bird | Attorney Advertising

Written by:

Alston & Bird

Alston & Bird on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.