Cybersecurity 2018 – The Year in Preview: Federal Enforcement Trends

by Foley Hoag LLP - Privacy & Data Security

Editors’ Note:  This is the third of a multi-part end-of-year series examining important trends in data privacy and cybersecurity during the coming year. Click here for our previous entry on HIPAA Compliance, and here for our entry on emerging security threats.  Up next:  trends in state enforcement.

This time last year, Donald Trump had just been elected, and we at Foley were predicting an uncertain future for federal cybersecurity enforcement. At the time, the Federal Trade Commission (FTC) had been steadily increasing its enforcement authority in the cybersecurity space, while other federal agencies like the Securities and Exchange Commission (SEC) and the Consumer Financial Protection Bureau (CFPB) had also begun to step into the arena.  Given the deregulatory spirit of Trump’s campaign, we questioned whether this trend would continue under his administration.

In truth, federal cybersecurity enforcement under Trump has been a mixed bag.  On the one hand, there are signs that the FTC and other federal agencies have started to loosen their grip.  On the other, clashes between Washington and technology companies over access to consumer data in the criminal context have increased.  Will this trend—tough on crime, light on regulation—continue throughout the Trump presidency?

Loosening Regulatory Oversight?

In our 2017 Year in Preview, we remarked that Trump would have the opportunity to fill three commissioner sports on the FTC, and speculated that the new picks might signal a change in agency enforcement priorities.  While Trump’s picks indicate a predictable pro-business shift, the FTC’s cybersecurity enforcement has continued largely unabated.  However, other actions by the Trump administration, like the repeal of the FCC’s internet privacy rules, signaled a sharper shift away from regulation.  Here are the trends we see.

  • FTC enforcement marches on.

The FTC is one of the key regulators in the cybersecurity area.  Since the Third Circuit confirmed that its broad power to regulate unfair and deceptive trade practices extends to cybersecurity, the FTC has been uniquely positioned to police the data security practices of private actors.

In January 2017, Trump appointed Republican Maureen Ohlhausen as the FTC’s acting chairwoman.  At first it seemed like Ohlhausen was inclined to shrink the FTC’s data privacy role—for example, she had expressed concern in the past about FTC overreach in privacy and security.  At the IAPP Global Privacy Summit in April, she said that the FTC should focus its enforcement actions on cyber breaches that have caused or are likely to cause injury. She made similar comments in a speech to the American Bar Association’s Consumer Protection Conference in February, arguing that the FTC should concentrate on cases with “objective, concrete harms such as monetary injury and unwarranted health and safety risks,” not on those involving “speculative injury.” She also hinted that she has broader concerns about the burden civil investigative demands, or CIDs, impose on companies. And when Trump directed all executive branch agencies to eliminate two regulations for every new one created, Ohlhausen said she welcomed the president’s order, despite the fact that the FTC is independent agency not covered by the directive.

But despite Ohlhausen’s comments, the FTC’s data privacy enforcement practices did not change much in 2017.  In August, the agency issued sweeping penalties against Uber for misusing its customers’ data, reaching a settlement that requires Uber to submit to 20 years of privacy checkups (not unusual for and FTC settlement in this space).  Recent FTC publications continue to refer to the agency as “America’s top cop on the privacy beat.” Finally, Ohlhausen herself testified before Congress that “the FTC is committed to protecting consumer privacy and promoting data security.”

However, the FTC’s personnel shakeups did not end with Ohlhausen.  This past October, Trump announced his permanent pick for FTC chairman, Republican Joseph Simons.  He also tapped Noah Phillips, chief counsel for Texas Sen. John Corny (R), and consumer advocate Rohit Chopra to round out the Commission’s remaining seats.  It remains unclear where the three fall on data privacy issues, making it frustratingly difficult to predict the FTC’s future in cybersecurity enforcement.

Finally, we note that LabMD, Inc. v. Federal Trade Commission, a case that could potentially further define the scope of the FTC’s cybersecurity power, is still pending in the Eleventh Circuit.  We have blogged about LabMD in the past, but as a refresher, the case turns on what kind of harm is necessary for the FTC to maintain a cybersecurity enforcement action. When the Eleventh Circuit granted LabMD’s stay against the FTC in November, it suggested that emotional harm and other low-level speculative harms may not be enough.  You can listen to the oral arguments in the case here.

  • The FTC aside, other actions by the Trump administration suggest a more dramatic shift away from regulation.

In April, Trump signed legislation that repeals the Federal Communication Commission’s (FCC) privacy protections for internet users, a landmark policy of the Obama era.  The rules, which would have gone into effect in late 2017, prevented internet providers from collecting, storing, or selling certain types of customer information without their consent.  Their repeal leaves data privacy enforcement entirely in the hands of the FTC.

In another, bigger step away from regulation, the FCC announced its plans to repeal so-called “net neutrality.”  The net neutrality rules, which were passed in 2015 under Obama, are designed to ensure that all internet content is treated equally by providers.  If repealed, providers like Comcast and AT&T will be able to charge customers for access to different websites.  Trump’s nominee for FCC chairman, Ajit Pai, led the push against net neutrality.  If the repeal succeeds, it will be one of Republicans’ biggest de-regulatory successes since Trump took office.

Doubling Down on Crime

On the law enforcement side of data privacy, 2017 was a year of ramping up. Given Trump’s policy positions, this is not a surprise.  During the campaign, he railed against Apple’s refusal to give the government access to the San Bernardino shooters’ iPhone, and he has always been vocal about the importance of the fight on terrorism. Increasing federal law enforcement’s surveillance powers over computers and mobile devices is in line with those policy goals.

However, U.S. technology companies have begun to push back.  Under pressure from foreign customers who are threatening to switch to local service providers beyond the DOJ’s reach, companies like Apple and Google are increasingly refusing to cooperate with federal law enforcement.  For example, in the case of the San Bernardino shooters, Apple refused to create a custom back-door into the shooter’s iPhone so that federal investigations could bypass its encryption, citing privacy concerns.

As of October, one of those fights is headed to the Supreme Court.  That case, United States v. Microsoft Corporation, arose when the Department of Justice obtained a search warrant to seize the email of a drug trafficking suspect from Microsoft’s servers in Ireland.  Microsoft argued that DOJ needed more than a search warrant to force Microsoft to give up the email.  Both the district court judge and the Second Circuit Court of Appeals agreed.

The DOJ obtained the warrant based on a 1986 statute called the Electronic Communications Privacy Act (EPCA).  The EPCA regulates law enforcement’s ability to access electronic data stored by third-party service providers like Google and Microsoft during criminal investigations. However, the EPCA has remained largely unchanged since it was enacted.  Currently, it offers varying levels of privacy protection depending on how long an electronic communication has been “stored” on a server.  Under 180 days, and only a subpoena is necessary; more, and the government must obtain a warrant.  In an age when consumers expect the same level of privacy in texting and email as they do from phone calls, the EPCA is woefully out of date.

The EPCA is also not designed to deal with our current era, when a significant amount of U.S.-based data is stored on foreign services.  The Second Circuit held as much, citing a “longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.”

If the Supreme Court agrees, Congress may finally have to update the EPCA to deal with today’s technology.  The privacy protections those changes do—or do not—create could take time to sort through.  As always, watch this space.


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.

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