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The freedom from automated calls at random hours of the evening may seem like the true American dream these days as more and more companies rely on these calls to reach out and communicate with customers.  Unfortunately, now that the Federal Communications Commission (“FCC”) voted to expand the Telephone Consumer Protection Act (“TCPA”) to include stringent yet vague restrictions on telemarketing robocalls, it may not be a dream for everyone. 

In June of this year, in a 3-2 vote, the FCC voted on adding the rule to the TCPA that entails barring companies from using “autodialers” to dial consumers, disallowing more than one phone call to numbers that have been reassigned to different customers, and mandating a stop to calls under a customer’s wishes.  These restriction may seem reasonable but dissenting Commissioner, Ajit Pai, recognized that the rule’s broad language will create issues because it does not distinguish between legitimate businesses trying to reach their customers and unwanted telemarketers.  Some attorneys have further commented on the rule stating that its use of “autodialer” opens up a can of worms of interpretations and can really be viewed as any device with even the potential to randomly sequence numbers, including a smartphone.  Companies using even slightly modernized tactics to reach out to their customer base are now at risk of facing litigation—and it won’t stop there.  Businesses that legitimately need to reach out to their customers will be caught between a rock and a hard place as they face a one-call restriction now and may also open themselves up to litigation if a customer decides to take that route.

The FCC Chairman, Tom Wheeler, attempted to quash concerns by stating that “Legitimate businesses seeking to provide legitimate information will not have difficulties.”  This statement unfortunately won’t stop plaintiff’s attorneys from greasing their wheels to go after companies who even make “good faith efforts” to abide by the new rule.  Attorneys who defend businesses have recognized that the rule is ridden with issues that could potentially harm companies that simply do not have the mechanisms to fully control and restrict repeated calls or the technology that makes those calls.  But, long story short, just because this rule has been put in motion, does not mean it will stand as is. Litigation and court action will likely be a natural consequence and that may result in changes for the future.  For now, businesses that utilize automated phone calls should be wary of the technology used and attempt to at least keep track of numbers and phone calls made.  When in doubt, talk to an attorney to make sure you are taking the appropriate precautions.

A recent District of Nevada ruling could cause issues for consumers in data breach class action cases moving forward.  On June 1, 2015, the court ruled that a consumer class action against Zappos.com Inc. could not proceed because the class did not state “instances of actual identity theft or fraud.”  The suit was brought as a result of a 2012 data breach where Zappos’ customers’ personal information was stolen, including names, passwords, addresses, and phone numbers.  Even though the information was stolen, the court dismissed the case because the class could not prove that they had been materially harmed and had no other standing under Article III.

If a data breach has occurred, but the victims cannot claim any harm besides the fear that a hacker has their information, courts have been willing to grant defendants’ motions to dismiss.  The ruling by the District of Nevada court is the most recent decision in a trend to block consumer class actions relating to data breaches.  Many of these recent rulings have been influenced by the Supreme Court’s 2013 decision in Clapper v. Amnesty International USA.  In Clapper, the Supreme Court held that claims of future injury could only satisfy the Article III standing requirement if the injury was “certainly impending” or if there was a “substantial risk” that the harm was going to occur.  Unfortunately for the consumer class in the Zappos’ case this means that unless their stolen information has been used to harm them, the data breach alone is not enough standing to bring a suit.

However, some district courts have been able to find sufficient standing for data breach victims in spite of the Clapper decision.  In Moyer v. Michaels Stores, a district court in the Northern District of Illinois ruled that data breach victims had standing to sue.  The court relied on Pisciotta v. Old National Bancorp, a Seventh Circuit pre-Clapper decision, which held that the injury requirement could be satisfied by an increased risk of identity theft, even if there was no financial loss.  Moyer further distinguished itself from Clapper by explaining that Clapper dealt with national security issues, and not general consumer data breaches.  Other district courts have distinguished their cases from Clapper by holding that Clapper dealt with harm that was too speculative to quantify, while consumer data breach cases deal with the concrete possibility of identity theft.

Although Clapper set the tone for consumer data breach claims, district courts have been divided because of different interpretations in the ruling.  The Supreme Court recently granted certiorari in another Article III standing case, Spokeo Inc. v. Robins Inc., which deals with a private right of action grounded in a violation of a federal statute.  Although it does not directly deal with consumer data breaches, the decision may lead the Supreme Court to expand the standing requirements generally.  Given society’s increasing use of technology and inclination to store personal information electronically, consumer data breach claims will only increase in the future.  The courts’ standing requirements must adapt to meet the changing needs of individuals and businesses alike.

With 2013 being dubbed as the “Year of the Mega Breach” it comes as no surprise that the Federal Trade Commission (“FTC”), on June 30, 2015 published “Start with Security: A Guide for Businesses” to educate and inform businesses on protecting their data.  The FTC is tasked with protecting consumers from “unfair” and “deceptive” business practices and with data breaches on the rise, it has come to take that job much more seriously.  The lessons in the guide are meant to aid businesses in their practices of protecting data and the FTC cites to real examples of its data breach settlement cases to help companies understand each lesson and the real world consequences that some companies have faced.  Here are the lesson headlines:

  1. 1. Start with security;
  2. 2. Control access to data sensibly;
  3. 3. Require secure passwords and authentication;
  4. 4. Store sensitive personal information securely and protect it during transmission;
  5. 5. Segment networks and monitor anyone trying to get in and out of them;
  6. 6. Secure remote network access;
  7. 7. Apply sound security practices when developing new products that collect personal information;
  8. 8. Ensure that service providers implement reasonable security measures;
  9. 9. Implement procedures to help ensure that security practices are current and address vulnerabilities; and
  10. 10. Secure paper, physical media and devices that contain personal information.

  Katherine McCarron, the Bureau of Consumer Protection attorney, explained that the Bureau “look[s] at a company’s security procedures and determine[s] whether they are reasonable and appropriate in light of all the circumstances” when evaluating an organization’s conduct.  It is likely that this guide will become the FTC’s road map for handling future enforcement actions and will help businesses to remain on the safe side of the data breach fence.

Whether you run a mom and pop shop or a multi-million dollar company, this guide is a must-read for any business that processes personal information.

Start reading here.

https://www.ftc.gov/tips-advice/business-center/guidance/start-security-guide-business

Copyright: argus456 / 123RF Stock Photo
Copyright: argus456 / 123RF Stock Photo

Fox Rothschild partner Scott L. Vernick was quoted in The New York Times article, “Hacking Victims Deserve Empathy, Not Ridicule.” Full text can be found in the September 2, 2015, issue, but a synopsis is below.

While some data breach victims may face only minor frustrations – changing a password or getting a new credit card – it is a different story for the more than 30 million Ashley Madison users who had their accounts for the infidelity website compromised.

Many of the victims of this latest massive data breach have been plunged into despair, fearing they could lose jobs and families, and expecting to be humiliated among friends and colleagues.

“It’s easy to be snarky about Ashley Madison, but just because it’s unpopular or even immoral, it doesn’t mean this sort of activity shouldn’t be protected,” said Scott L. Vernick, a noted privacy attorney. “This gets at fundamental issues like freedom of speech and freedom of association – today it’s Ashley Madison, tomorrow it could be some other group that deserves protection.”

With hackers on the loose, and wire transfers as a place for them to gain unauthorized access to bank accounts, it is no wonder that when it comes to potentially intercepted wires, customers and banks are playing hot potato with who to blame. Typically, banks bear the risk of loss for unauthorized wire transfers. The Electronic Fund Transfer Act (“EFTA”) for consumer accounts and Article 4A of the Uniform Commercial Code (“UCC”) for business accounts, are two entities that govern these transfers. Both have opposing interests considering that the EFTA attempts to shield customers from paying unauthorized charges whereas the UCC has a framework in place that protects the banks and shifts the risk of loss to the customer if the bank can show that (1) a commercially reasonable security procedure was in place and, (2) the bank accepted the payment order in good faith and in compliance with the security procedure and any other written agreement or customer instruction.

Due to the flexibility of the UCC and the fact that “commercial reasonability” is a question of law, some factors that pertain to it have been interpreted differently by the judicial system. These interpretations have established divergent norms. Some factors that courts look to in their decision making are the customer’s instructions to the bank, the bank’s understanding of the customer’s situation, alternative security procedures offered to the customer, and security procedures in general that are typical of the industry.

With these criterions, courts have been able to judge bank security procedures and assess whether their efforts were adequate. For example, the Eighth Circuit found that where a customer refuses commercially reasonable security procedures such as “dual control,” which requires two independent authorized users to approve the wire transfer, the customer, in effect, assumed the risk of failure. The bank’s procedure was considered adequate because they had the security measures in place in order to protect against cyberattacks. Conversely, in a case heard in the First Circuit, Comerica was found to have failed to satisfy its burden because it did not discover that unusual activity was happening with multiple accounts when a bank dealing fairly with a customer “would have detected and/or stopped the fraudulent wire activity earlier.” The court notes some of the factors that led to this decision such as: the volume and frequency of the wire transfers when there had previously been very low activity, the fact that the destinations of the funds were in Russia, and that Comerica had knowledge of current and prior phishing attempts.

Even the most sophisticated security systems—typically found in banks—are vulnerable to hacking. With the divergence of opinions within the law about who should bear the risk when something goes wrong, customers and banks alike should make sure to take the proper precautions while making transactions of any sort.

After a Cyberattack

This blog post is the sixth and final entry of a six-part series discussing the best practices relating to cyber security.  The previous post discussed the individuals and organizations that should be notified once a cyberattack occurs.  This post will focus on what a business should not do after a cyberattack.  Key points include (1) not using the network, (2) not sharing information with unconfirmed parties, and (3) not attempting to retaliate against a different network.

Do Not Search Through the Network

Once a cyberattack has been identified, most individuals may feel compelled to immediately examine their network and search through all of their system’s files.  This sudden reaction can cause further damage and may result in a total system failure.  Some hackers rely on the natural inclination to examine a network in order to cause more destruction.  They may install dormant malware that is triggered after an authorized user accesses the network to survey the damage.  If the hackers are monitoring the network after the attack, they may also be able to steal additional information such as passwords and usernames if individuals attempt to log on.

The better option is to immediately suspend all use of the network and commence the action plan.  By limiting network activity, a business may be able to contain the attack and safeguard unaffected systems.  Furthermore, suspending the network will help preserve evidence of the attack for law enforcement officials.  As a last resort, a business should be prepared to shut its entire system down in order to contain the attack if it is still active.

Do Not Release Information to Unconfirmed Parties

After a cyberattack, a business should be very careful to only communicate information to credible sources.  Some hackers will pose as law enforcement officials and send inquiring messages to the business after the attack.  These messages are sent in an attempt to gain information from the business.  The hackers may use this information to launch a second cyberattack on the already damaged network.  All communication should be via the telephone or in person if possible.  It is important that a business designate one individual to communicate on behalf of the business.  This individual should not share information with anyone until he or she has confirmed the identity of the other party.

Do Not Attempt to Retaliate Against Other Networks

If a business is able to determine the source of the cyberattack, it may be tempted to retaliate with cyber warfare against the source.  Not only is this tactic illegal under U.S. and foreign cybersecurity laws, but it may also cause further damage to a business’ system or provoke a second attack.  Additionally, many cyberattacks originate from innocent networks that have previously been hacked.  Retaliation against these networks would only hurt a previous victim and would not impact the hackers.  Remaining calm and following the action plan is always the best course of action after a business has been impacted by a cyberattack.

Notification

This blog post is the fifth entry of a six series discussing the best practices relating to cyber security.  The previous post discussed the important steps that a business should take to preserve evidence and information once a cyberattack has been identified.  This post will discuss the individuals and organizations that should be notified once a cyberattack occurs.  The four most important groups to contact are (1) individuals within the business, (2) law enforcement officials, (3) The Department of Homeland Security, and (4) other possible victims.

Individuals within the Business

A business’ Response Plan should list the specific employees to be contacted once a business has been attacked.  These employees normally include the senior executives, information technology officers, public affairs officials, and a business’ legal counsel.  Multiple methods of communication for each employee, including cell phone numbers, home phone numbers, and personal email addresses, should be listed in the Response Plan.  These critically important individuals should be contacted at the first sign of a cyber incident.

Law Enforcement Officials

Law enforcement officials should be contacted once a business suspects that its cyber incident is a result of criminal activity.  A business should not hesitate to contact law enforcement even if it fears that its business operations will be disrupted.  Both the FBI and the U.S. Secret Service prioritize their ability to work around a business’ normal operations when conducting an investigation.  These government organizations will work with a business to ensure that sensitive information is not released and that the business’ reputation is not unnecessarily tarnished.  Both groups will help the company release a press statement and decide what information is necessary to disclose to shareholders.  In addition, law enforcement officials are able to receive support from international counterparts in order to track stolen data around the globe.

The Department of Homeland Security

The National Cybersecurity & Communications Integration Center (NCCIC) is a branch of the Department of Homeland Security that provides continuous updates on cyber incidents, cybersecurity information, and recovery efforts.  By alerting the NCCIC to a cyber incident, a business is able to share and receive information that may be beneficial in its recovery efforts.  A business should keep in regular contact with the NCCIC, even if it is not experiencing a cyber incident, in order to stay alert to the latest trends in cyberattacks.

Other Potential Victims

After a business discovers a cyberattack it should alert other businesses in its network because they are potential victims.  Cyberattacks often use network communications between businesses to spread malware and disrupt work flow.  Notifying other businesses may allow them to take preventative measures and insulate themselves from possible attacks.  If a business does not feel comfortable contacting other potential victims it should communicate through law enforcement officials.  Victims may also be able to share information to assist each other in managing the cyber incident and discovering the source of the cyberattack.

The next blog post will discuss what a business should not do after a cyberattack and how a business should begin to recover.

Preservation of Evidence

This blog post is the fourth entry of a six-part series discussing the best practices relating to cyber security.  The previous post discussed the initial steps that a business should take once a cyberattack has been identified.  This post will discuss further steps that a business should take after an attack.

Preservation is critical when responding to a cyberattack, the more evidence that a business is able to preserve, the greater the chance that the business will be able to determine how its system was hacked.  “Forensic imaging” is a useful way to preserve a system because it is an exact copy of a computer’s hard disk.  A forensic image will capture all of the deleted files, the system’s files, and any other information that may be necessary for a detailed analysis of the attack.

After the necessary information and evidence of an attack has been preserved, the business should begin to transfer its information onto a clean system.  It is important to ensure that the new data is completely free of any impacted documents when transferring information.  The business should write-protect the transferred data to ensure that it is unable to be altered by other corrupted documents.  In order to maintain authenticity of the documents, access to the documents should be restricted and a chain of custody should be used.

All personnel involved with the response to the attack should keep detailed records of their actions.  This will not only help when modifying the Response Plan in the future, but may also be useful for law enforcement during its investigation.  Preferably, one employee should be in charge of coordinating and maintaining each individual’s information.  This ensures organization and continuity between employees’ responsibilities.  Important information to record includes (1) a description of all incident-related events, (2) details of all communications regarding the incident, (3) a description of each employee’s duties in response to the attack, (4) a listing of how each network system was impacted by the cyberattack, and (5) the version of software on the network.

If an attack is continuous, like a worm circulating through the network, a business should attempt to record the attack’s actions.  A business may be able to use network monitoring devices, like a “sniffer,” to intercept and note communications between the cyberattack and the business’ servers.  This type of monitoring is usually lawful if it is done to protect the business’ property or if network users have previously given consent.  However, a business should consult its legal counsel if it plans to engage in this type of monitoring because it may implicate the Wiretap Act or impact the business’ employment agreements.  A business should also ensure that is has enabled the ability to log on an impacted server if it has not previously done so.  Finally, increasing the default size of the log files can help to prevent data loss and defeat the cyberattack.

The following blog post will discuss which individuals and organizations a business should contact after a cyberattack.

Executing an Response Plan

This blog post is the third installment of a six-part series discussing the best practices relating to cyber security.  The first two blog posts discussed the best practices for preparing a business in case of a cyberattack.  This post will discuss the initial steps that a business should take after a cyberattack occurs.

Once an employee discovers a cyber incident, the business should immediately assess the nature and range of the situation.  It is important to determine whether the disruption is a purposeful cyberattack or a system accident.  This determination will assist a business in executing the appropriate Response Plan.  If the incident is a malicious cyberattack, the business may need to disengage its entire system and shut down its technological operations.  If the incident is a product of faulty software, the business may be able to take less extreme measures.

Gathering the correct information as quickly as possible will not only help defend the system from additional attacks, but also provide law enforcement with information to begin its investigation.  The system administrator should survey the network to determine which computer systems were impacted, where the incident originated, and what malware may have been installed on the network.  Additional information concerning which users were logged onto the network and which programs were running on the network is also useful in determining the source of the attack.

During the initial assessment it is important to determine if data was exported from the system.  The data trail may illustrate the possible motive behind the attack and where it could strike next.  If a business can identify other networks that are impacted by the attack it should alert those networks’ administrators.  This may help to weaken the attack and increase the chance of retrieving stolen data.

After the initial assessment is complete, the business may need to employ preventative measures in order to stop the loss of data.  Common approaches to prevent additional attacks include (1) redirecting network traffic, (2) segregating all or part of a network, or (3) filtering all messages and communications on the network.  If a specific user or network terminal is identified as being the root of the attack, it should be blocked and disabled immediately.  In more extreme cases, an entire network may need to be shut down if an attack persists.  A business should store backup copies of critical data if its Response Plan calls for the network to be shut down.  This allows the business to continue some operations from a remote network while its main network is disabled.

It is important that all steps taken to gather information and diminish damages are recorded accurately.  This information will be useful in law enforcement’s efforts to bring criminal charges and for a business’ insurance claims.

The following blog post will discuss the next steps for a business to take once these initial steps are complete.

On July 20, 2015, in Remijas v. Neiman Marcus Group, LLC, No. 14-3122 (7th Cir. 2015), the Seventh Circuit held that the United States District Court for the Northern District of Illinois wrongfully dismissed a class action suit brought against Neiman Marcus after hackers stole their customers’ data and debit card information.  The District Court originally dismissed the plaintiffs’ claims because they had not alleged sufficient injury to establish standing.  The District Court based its ruling on a United States Supreme Court decision, Clapper v. Amnesty Int’l USA, 133 S.Ct. 1138 (2013), which held that to establish Article III standing, an injury must be “concrete, particularized, and actual or imminent.”

However, the Seventh Circuit clarified that Clapper “does not, as the district court thought, foreclose any use whatsoever of future injuries to support Article III standing.”  Rather, “injuries associated with resolving fraudulent charges and protecting oneself against future identity theft” are sufficient to confer standing.

In Remijas, the Seventh Circuit explained that there is a reasonable likelihood that the hackers will use the plaintiffs’ information to commit identity theft or credit card fraud.  “Why else would hackers break into a store’s database and steal consumers’ private information?” – the Seventh Circuit asked.  The Seventh Circuit held that the plaintiffs should not have to wait until the hackers commit these crimes to file suit.

The Seventh Circuit also considered that some of the plaintiffs have already paid for credit monitoring services to protect their data, which it held is a concrete injury.  Neiman Marcus also offered one year of credit monitoring services to its customers affected by the breach, which the Seventh Circuit considered an acknowledgment by the company that there was a likelihood that their customers’ information would be used for fraudulent purposes.

Ultimately, this decision may serve to soften the blow dealt by Clapper to data breach plaintiffs.  Specifically, based on this ruling, plaintiffs who have not incurred any fraudulent charges, but have purchased credit monitoring services, or have spent time and money protecting themselves against potential fraud may argue that they have standing.