Some Thoughts on the Year in Privacy and Data Security Law

by Ballard Spahr LLP
Contact

As we turn the page on 2018, let’s reflect on some of the key privacy and cybersecurity issues that will continue to occupy our hearts and minds in 2019.

Owning the Mega-Breach

2018 was the year in which data breaches in mergers and acquisitions became the iceberg in full view. This fuller realization of cyber risk in transactions, though, actually has its origin in September 2016 – when Yahoo and Marriott were in the midst of deals that would involve some of the largest data breaches on record.

While negotiating its sale to Verizon back in September 2016, Yahoo first disclosed a massive breach of its user database – which would grow to include its entire population of approximately 3 billion users. Also in September 2016, Marriott purchased Starwood Hotels & Resorts Worldwide, Inc., including the largest hotel reservation system in the world. Unbeknownst to Marriott, that system was then under an active hacking campaign that began in 2014 and would continue until September 2018

How liability for such massive breaches can change hands during major transactions became clear in 2018. Verizon purchased Yahoo’s breached networks and Marriott purchased Starwood’s breached reservation system. A key difference between the two situations is in the timing of the disclosures and the hacking incidents themselves relative to the deals. Verizon (and the world) learned of the Yahoo breaches before the transaction closed, and was able to ensure that the hacking incidents had been contained and remediated. Marriott did not learn of the Starwood breaches until two years after the deal closed – during which time the hacking incident continued until Marriott discovered it on its own. Going forward, heightened due diligence related to cybersecurity needs to become a much greater priority in deals.

The SEC Steps into Cybersecurity

2018 was the year in which the U.S. Securities and Exchange Commission squarely inserted itself into cybersecurity regulatory compliance.

In February 2018, the SEC released its first Commission-level Interpretive Guidance relating to public company disclosures of cybersecurity risks and incidents. Two key compliance takeaways are: (1) investor risk related to known cyber incidents must be fully and timely disclosed; and (2) public companies must police insider trading based on information related to undisclosed cyber incidents. Whether a cyber incident is material and requires disclosure will depend on a host of factors, including the nature, extent, and potential magnitude of the incident. This includes consideration of the type of compromised information (personally identifiable information, intellectual property or other confidential business information); the incident’s impact on operations; the harm to a company’s reputation, financial performance, customer/vendor relationships; and potential liabilities in civil litigation or regulatory enforcement actions. To avoid even the appearance of improper trading, companies “should consider whether and when it may be appropriate to implement restrictions on insider trading” during the investigation and assessment of significant cybersecurity incidents.

Just a month after issuing its Interpretive Guidance, the SEC penalized Yahoo $35 million for failing to timely disclose its data breaches. The cease and desist order was the SEC’s first against a public company for failing to disclose known cyber incidents in its public filings. From 2014-2016, the SEC alleged, Yahoo filed a number of reports and statements with the SEC that misled investors about Yahoo’s cybersecurity history. For instance, in its 2014-2016 annual and quarterly reports, the SEC found that Yahoo included risk factor disclosures stating that the company “faced the risk” of potential future data breaches, “without disclosing that a massive data breach had in fact already occurred.” Yahoo filed a July 2016 proxy statement relating to its proposed sale to Verizon that falsely denied knowledge of any such massive breach. It also filed a stock purchase agreement that it knew contained a material misrepresentation as to the non-existence of the data breaches.

Finally, in October 2018, the SEC released a “Report of Investigation” into whether nine public companies violated U.S. securities laws “by failing to have sufficient accounting controls” to prevent approximately $100 million in losses as a result of “business email compromises” (BECs) targeting their personnel. The Report was prompted by the SEC’s investigation The nine companies were victimized by one of two variants of the BEC scheme—involving spoofed or compromised emails from a person purporting to be a either a company executive or a vendor.

The SEC advised companies to “pay particular attention to the obligations imposed by Section 13(b)(2)(B) to devise and maintain internal accounting controls that reasonably safeguard company and, ultimately, investor assets from cyber-related frauds.” The SEC emphasized that these fraud schemes were widely successful because they used “technology to search for both weaknesses in policies and procedures and human vulnerabilities that rendered the control environment ineffective.” The victimized issuers had policies and procedures requiring different authorization levels for payments; management approval of outgoing wires; and verification of changes to vendor data. The critical flaw was in employee interpretation of these controls as capable of being satisfied solely through electronic communications—along with their failure to recognize obvious indications of fraud in the emails.

This report follows on the heels of a July 2018 FBI Public Service Announcement that it had tracked more than 78,000 BECs—totaling more than $12.5 billion in fraud losses—since October 2013. The FBI has identified more than 41,000 BEC victims in the United States—with more than $3 billion in fraud losses since 2013, and $1.6 billion in fraud losses since May 2016.

States Continue to Expand Data Security Laws

Last year saw the creation and significant expansion of data security laws in state houses across the country. The new laws fall into two primary categories: (1) statutory requirements that all organizations must create and implement reasonable cybersecurity programs to protect personal information; and (2) more expansive data breach notification laws.

Data Security Laws

At least twenty states have adopted broadly applicable “data security” statutes that require virtually all organizations that collect or possess personal information to maintain reasonable cybersecurity programs. Delaware’s new law is a good example. It requires “[a]ny person” conducting business and owning, licensing, or maintaining personal information to implement reasonable security measures “to prevent the unauthorized acquisition, use, modification, disclosure, or destruction of personal information collected or maintained in the regular course of business.” Other states – such as Alabama – enacted “data security” laws that are much more prescriptive, listing factors to be considered in assessing ‘reasonableness.’

Data Breach Notification Laws

At least thirty-one states considered data breach legislation in 2018. With new legislation in South Dakota and Alabama, all fifty states now have data breach notification laws. The biggest changes in 2018 included broad expansions of the definition of protected “personal information;” specified timeframes for notification to consumers and state attorneys general; mandatory credit monitoring for certain types of breaches; and disclosure and investigative cooperation requirements imposed upon third party service providers.

A Landmark Mobile Privacy Decision

The Supreme Court’s 2018 decision in Carpenter v. United States establishes broad digital privacy rights that are sure to extend beyond law enforcement investigations and locational information. The decision significantly expands the Court’s dominant theme of this decade that “digital is different” when it comes to modern privacy law.

The decision itself holds that the Fourth Amendment requires the government to secure a search warrant to obtain a person’s historical cell site location information from a cellular service provider. That undersells its import though. Carpenter remakes the foundational legal principles governing privacy in data shared between device users and their service providers.

It’s how the Court got to that holding that is so groundbreaking. First, the Court declared that “[i]ndividuals have a reasonable expectation of privacy in the whole of their physical movements.” The Court characterized the cell site location information at issue as “detailed, encyclopedic, and effortlessly compiled” – allowing the government (and the service providers) to conduct “near perfect surveillance” on users. Second, this “reasonable expectation of privacy” is not defeated simply because each device constantly shares its location with cellular service providers. Data that must be shared for the proper functioning of technology services does not lose its privacy protection simply because it is possessed by and compiled in the business records of third parties. The spark of this reasoning is sure to spread quickly across the digital legal landscape in 2019 and beyond.

California Continues Pushing the U.S. Forward

California has repeatedly been at the epicenter of privacy and data security legislation in the United States, perhaps most notably by being the first state to enact a breach notification statute. This past year, California once again broke new legislative ground by enacting the California Consumer Privacy Act of 2018 (“CCPA”) and legislation directed at securing IoT devices.

If you are reading this blog post, there is very little chance that you are unfamiliar with the CCPA, such that there is no point in summarizing its provisions. In fact, if we could jump forward five years, the CCPA’s significance will likely not merely be what businesses will need to undertake in 2019 to drive compliance, but rather it will be as a harbinger for the enactment of other privacy-related legislation in this country. One can readily envision that the CCPA will lead either to the enactment of federal privacy legislation or to more state laws directed at privacy. It is not hyperbole to say that how this unfolds in 2019 will set the course for privacy legislation in this country for years to come.

Similarly, California’s enactment of first-in-the-nation legislation directed at IoT device security is significant not just for what the legislation says, but also for what it signals will happen in the coming years. If you have tracked the IoT marketplace, you have heard the projections about the rapid expansion in the number of IoT devices in the next five years. But, at the same time, manufacturers have little incentive to build information security and privacy into those devices. Most commentators seem to agree that this will have to change but it is anyone’s guess as to how. Will industry self-regulate? Will the European Union lead the charge? Will plaintiffs’ lawyers find success in bringing class actions against IoT device manufacturers? Will the federal government pass legislation?

The California legislation offers one potential answer, which is that states will begin to legislate in this field. Indeed, California’s legislation – which originated as a botnet prevention measure – focuses only on a small aspect of IoT device security, namely, passwords. There is fertile ground for states to take up other issues such as requiring manufacturers to provide devices that do not have existing security flaws and requiring manufacturers to provide security patches.

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.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP 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 www.jdsupra.com) (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 privacy@jdsupra.com.

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 privacy@jdsupra.com 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 privacy@jdsupra.com 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 privacy@jdsupra.com. 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 privacy@jdsupra.com.

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: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (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 legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. 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 http://www.aboutcookies.org 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: privacy@jdsupra.com.

- 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.